Category: Russia

Andrew Lomas, a barrister and member of London’s One Essex Court chambers, has joined the International Arbitration and Litigation Practice of Egorov Puginsky Afanasiev & Partners as Co-Head of International Arbitration and Litigation.

According to EPAM, Lomas, who will be based in Moscow, “brings extensive international arbitration expertise – he has represented and advised clients in a wide range of arbitral claims under a diverse array of rules, including those of the London International Arbitration Court, London Association of Maritime Arbitrators, International Chamber of Commerce, Hong Kong International Arbitration Center, International Commercial Arbitration Court, as well as according to the rules of the ICAC at the RF CCI. He is on the recommended list of arbitrators of the Russian Arbitration Center.”

In addition, EPAM reports, Lomas “is also an experienced litigator – he regularly appears in the English High Court and the patent offices of Great Britain and the EU (UKIPO, EUIPO), and has significant appellate experience.”

Andrew completed his GDL and BPTC at City University London, and he has a doctorate from Oxford University and a bachelor’s degree from Durham University. He joined One Essex Partners in 2014.

“Our law firm is unique in Moscow in having a top-notch English law team combined with excellent Russian law support and access to the corporate decision makers,” said Dimitry Afanasiev, Chairman of Egorov Puginsky Afanasiev and Partners. “We are pleased to add Andrew Lomas to our team of first-class English lawyers who drive our International Disputes team.”

“Having a barrister of Andrew’s standing based in Moscow and able to represent clients of our law firm in English disputes is a real value added as we increasingly take on bigger and more complex disputes,” added Partner Robin Wittering. “I very much look forward to working with Andrew in Moscow and London and, also, to cooperating further with One Essex Court.”

“It is a great honor for me to join a prominent player that truly competes with international firms,” said Lomas. “I am confident that my experience of international arbitration and litigation will further deepen the existing practice.”

Although not specifically related to Russia, the agreement by the Office of Foreign Assets Control (OFAC) between it and the Apollo Aviation Group (Apollo) on the monetary compensation for the settlement of violations by Apollo of the Sudanese Sanctions Regulations that was announced on November, 7 2019, affects the aircraft leasing sector worldwide.

Based on the announcement, Apollo has agreed to settle its potential civil liability for 12 apparent violations of the Sudanese Sanctions Regulations. The alleged violations arose from Apollo’s lease of aircraft engines between 2013-2015 to an entity incorporated in the United Arab Emirates which were then sub-leased to a Ukrainian airline which subsequently installed the engines on an aircraft wet leased to Sudan Airways for use in Sudan.

Although Sudanese Sanctions Regulations are no longer in effect, they were in effect during the period referred to above, and Sudan Airways was identified on OFAC’s List of Specially Designated Nationals and Blocked Persons, and therefore the “exportation, reexportation, directly or indirectly, of goods, technology or services from the United States or by U.S. persons” to the entity was prohibited.

When considering the case, OFAC determined the following “aggravating factors”: (1) the violations resulted in harm to U.S. sanctions program objectives; (2) Apollo is a large and sophisticated entity”; and (3) Apollo failed to monitor or otherwise verify the actual usage and operation of the engines during the terms of the leases.

Although the lease agreements included provisions prohibiting the lessee from “maintaining, operating, flying or transferring the engines to any countries that are subject to U.S. and United Nations sanctions,” OFAC believes that Apollo did not ensure that the engines were used in compliance with OFAC’s regulations during the term of the lease. In other words, Apollo did not implement internal ongoing, up-to-date, and efficient sanctions-compliance-and-monitoring policies to reveal the violations in advance.

This case confirms the general understanding of the market that lessors can be held accountable for sanctions violations caused by their lessees and/or sublessees, even if the lessors are not in control of the aircraft or engines when the violation is committed. Another important outcome of the case for the lessors is that sanctions compliance monitoring is an ongoing process which shall be implemented during the term of the lease and not only prior to or at the time of execution of the lease agreements, and mere inclusion of the relevant sanctions compliance provisions in the lease agreements is not sufficient.

In the announcement, OFAC provided a number of examples of potential mitigation measures and of measures which could potentially satisfy compliance obligations of lessors against possible OFAC investigation, namely: (1) obtaining U.S. law export compliance certificates from lessees and/or sub-lessees; (2) periodic monitoring or other verification of the lessees’ and/or sub-lessees’ compliance with the provisions of the lease agreements, including those requiring compliance with sanctions legislation; (3) enhancement of “Know-Your-Customer” procedures in accordance with global best practice; and (4) U.S. export control training sessions for employees.

OFAC further set out the following mitigating circumstances which it considered in the instant case: (1) no Apollo personnel had actual knowledge of the violation or actions which led to the violations; (2) Apollo had not been penalized by OFAC in the five preceding years; (3) Apollo implemented a number of remedial measures in response to the violations, including implementation of additional compliance systems and hiring additional compliance personnel; (4) Apollo provided information to OFAC in a “clear, concise and well-organized manner”; and (5) Apollo voluntarily disclosed the violations to OFAC.

We believe that, in addition to the above mitigation measures, lessors may also further reduce risks by: (a) implementing and complying with specific due diligence procedures required to assess risks associated with the lessees and sub-lessees, (b) periodically monitoring the usage and operation of the leased assets to ensure that the lessees and/or sub-lessees actually comply with the requirements of the leases, including sanctions related provisions, and (c) familiarizing the lessees and/or sub-lessees with the internal sanctions compliance policies of the lessors and their affiliated entities.

Unfortunately, there is no clear and exhaustive list of mitigating-and-sanctions-compliance measures which will ensure full compliance with sanctions when leasing aircraft assets. However, we believe that in assessing clients, lessors should consider which measures are most appropriate and adequate in each particular situation in order to mitigate possible sanctions-related risks.

By Victoria Bortkevicha, Partner, and Vadim Turtsev, Senior Associate, Clifford Chance Moscow

This Article was originally published in Issue 6.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Scott Senecal is an American lawyer with Cleary Gottlieb Steen & Hamilton in Moscow. His practice focuses on financial and corporate law, and he has extensive experience in mergers and acquisitions, capital market transactions, and syndicated loans.

CEELM: Run us through your background, and how you ended up in your current role with Cleary Gottlieb in Russia. 

Scott: Born in Delaware, educated in New York (Columbia ’84, NYU Law ‘87), clerked for the federal district court in my native state, started with Cleary in 1988 with the aspiration to work abroad, which resulted in time in London (1990-92, ‘95), Kuwait (1993), and Hong Kong (1994), before landing in Moscow “for a year or two” in 1996, never leaving since. It’s been amazing to live in Russia for these years and witness its (non-linear) progress, and work with what now seems several generations of young Russian lawyers.

CEELM: Was it always your goal to work abroad? 

Scott: You bet.         

CEELM: Tell us briefly about your practice, and how you built it up over the years. 

Scott: One of the pleasures of working in a small office (and a nondepartmentalized firm) is that you move with the market. I’ve been through the market cycles and transitioned from doing mostly capital markets/finance work to mostly M&A work (but much enjoyed working on Armenia’s sovereign Eurobond this year). The best way to build up a practice is making clients happy so that they come back to you for the next deal and suggest you to others.     

CEELM: How would clients describe your style?    

Scott: Surveys say: hands-on and goal-oriented.

CEELM: There are obviously many differences between the American and Russian judicial systems and legal markets. What idiosyncrasies or differences stand out the most?   

Scott: Foremost, Anglo-Saxon courts draw on centuries of jurisprudence in resolving commercial/corporate disputes, while spinning out sophisticated business and economic analy-sis, as exemplified by the Court of Chancery of … Delaware!  The Russian judiciary would benefit from a Chancellor Allen (RIP) or two.

CEELM: How about the cultures? What differences strike you as most resonant and significant?   

Scott: Drafts across a room, ice in a beverage: Russians consider these things potentially lethal; Americans refreshingly cool and soothing.    

CEELM: What particular value do you think a senior expatriate lawyer in your role adds – both to a firm and to its clients? 

Scott: For the office, to demonstrate by example Cleary’s core values of commitment to ex-cellence, devotion to its clients, dedication to diversity, and collegiality. For the clients, by drawing upon a couple decades of deal-making, aligning client priorities to deal negotiations and results, giving practical risk assessments including when to draw a red line, inventing practical solutions, bridging cultural gulfs. 

CEELM: Do you have any plans to move back to the United States? 

Scott: Not at the moment, but I dearly love visiting my brother in the old family home in the First State.            

CEELM: Outside of Russia, which CEE country do you enjoy visiting the most, and why?   

Scott: The Austro-Hungarian Empire, including its epicenter, Vienna. Of course, the empire has gone out of business, but one can only be wistful for a time when a veneer of German bureaucracy administered many fractious peoples.                

CEELM: What’s your favorite place to take visitors in Moscow?   

Scott: An afternoon walk around Novodevichy Monastery and its pond, then a Georgian re-past, and on to the Conservatory for a concert, a Rachmaninov and Stravinsky pairing, ideally in the late spring when, as the concert continues, the sunlight deserts the hall with lingering regret.

This Article was originally published in Issue 6.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

CEELM: Can you walk us through your career leading you up to your current role?

Anastasiya: I started my career after graduating from Moscow State University in 1998. My first employer was PepsiCo. After spending four years there, I spent five years as Regional Legal Counsel CIS & Baltics for a Swedish cosmetics company, Oriflame, and then four and a half years as Head of Legal at Efes, an international brewing company. From 2010 to 2014, I was the Head of the Legal Department at the Organizing Committee of the Olympic and Paralympic Games in Sochi 2014. I joined Unilever at the beginning of 2015. My current role is General Counsel with responsibility for Russia, Ukraine and Belarus.

CEELM: What are the most significant changes you’ve seen in Russia’s legal market over your career?

Anastasiya: From the perspective of the legal services market, the market has undergone several phases of transformation: in the early 2000s, the lion’s share of the legal services market, in monetary terms, was held by foreign law firms. Since the mid-2000s, Russian law firms have been actively developing, and in terms of the quality of their services they have almost equaled the foreign ones. After the crises of 2008 and 2014, the volume of investments in the Russian economy declined, which narrowed the legal services market. I know several foreign M&A boutiques that had to leave the market. Pressure on corporate budgets reduced the number of client requests to consultants, and clients became much more attentive to fees. Fee caps are often used. This has become another factor of pressure on the legal business. Currently, the sphere of alternative service providers and legal operations is being actively developed.

Corporate legal departments have also undergone a major transformation. In the late 90’s and early 2000’s, corporations experienced a serious talent shortage, including legal talent. The lack of qualified corporate lawyers in the market has led corporations to rely more on law firms, attracting corporate lawyers for administrative work. Corporate counsels performed many non-core functions, which, over time, led to an increase in the size of the legal departments.

Over time, corporate legal departments began to gain professional experience and business understanding, which led to the growth of internal expertise. The need to maintain control over costs also contributed to the growth of internal expertise in corporate legal departments. The role of legal department heads has also grown, and nowadays it is not uncommon for in-house counsels to be members of management teams. The level of business expectations towards corporate legal departments keeps growing. Nowadays, a serious trend is the increase of efficiency and automation of routine legal processes. 

CEELM: Tell us about the legal department of Unilever. How big is your team, and how is it structured?

Anastasiya: There are 15 employees in the legal department. We also actively use secondees and alternative service providers to perform tasks in low risk areas.

The legal department consists of: 1) business partners, 2) the Operations Center, 3) the Business Integrity Officer (compliance); and 4) the Brand Protection Manager.

The business partners work in their respective areas of expertise, be it sales, marketing, production and logistics, or finance and HR. They are involved in solving complex non-standard tasks and projects and working on the development and execution of strategies in their areas. A lot of work is done in the area of business education.

The Operations Center is responsible for the support of standard processes (there are about ten such processes) and works via a one-stop shop system. The services of the Operational Center are strongly digitized.

We are committed to enhancing our business partnership with parallel consolidation and automation of standard operations.

CEELM: What is your typical day at work like?

Anastasiya: I have a lot of meetings, both internal (with my team) and with the business. Mailing and working with important documents also takes up about 30-40 percent of my time.  I regularly speak at various forums and go on business trips. I am a member of the Local Management Board, which also takes up part of my time.

CEELM: Was it always your plan to go (and stay) in-house?

Anastasiya: There was a period when I was seriously considering an offer from a major consulting company. That was before I got the offer to work on the Organizing Committee of the Olympic and Paralympic Games. Currently, the dynamics of the FMCG business and the role of legal departments have changed significantly. I am really interested in my work. In addition, Unilever has a number of programs, such as Sustainability, which are very close to my heart. This is why I am planning to stay in-house long term.

CEELM: What was your biggest single success in terms of particular projects or challenges? What one thing are you proudest of?

Anastasiya: The most difficult project I have ever had in my life was participating in the organization of the Olympic and Paralympic Games in Sochi 2014. The Organizing Committee was responsible for the organization of all events related to ticket sales, preparation of the Olympic venues for the Games, the Olympic Torch relay, the catering, accommodation, volunteer and marketing programs, and many others. It was a very complex and multi-component project with stakeholders – the International Olympic and Paralympic Committees & the Government of the Russian Federation. In the course of the project, a huge number of non-standard issues arose that I had never encountered before. It was not always possible to engage external consultants since they also lacked expertise, and due to budgetary restrictions. This project required a lot of hard work and I am glad that the organization of the Games was at a high level. That was also my contribution. I anticipate a new stage of my professional life ahead of me, which I think will be no less difficult than participating in the organization and staging of the Olympic and Paralympic Games.

CEELM: How would you describe your management style?

Anastasiya: I believe that a visionary view is an integral part of career growth. I hope I possess it. It is important to have a broad horizon and an understanding of the external environment to develop the function.

I think it is right to empower qualified employees to perform their jobs, in such cases we try to set briefs as clearly as possible and to agree on the timing of implementation with the milestones, if required.

I am also paranoid about responsibility and accountability. I try not to set too tight deadlines, understanding that then the risk with quality increases greatly. However, I clearly control deadlines.

Organization of processes is also my passion. I feel calm when workflow is simple and transparent.

CEELM: What one person would you identify as being most important in mentoring you in your career – and what in particular did you learn from that position?

Anastasiya: I only had one official mentor in my life – Sarah Woodhouse, who at present is the General Counsel Europe & Foods Refreshments Unilever. I am in her debt, since she has helped me adapt to Unilever. But there were a lot of people in my life who had a strong influence on my maturation, including my parents, my current manager Gokhan Sarac, the head of the Sochi 2014 Organizing Committee Dmitry Chernyshenko and his deputy Tatyana Dobrokhvalova, Tugrul Agirbas, whom I worked with in the brewing business, and Dmitry Chudakov, my manager at PepsiCo. All these people, and many others, have had a strong influence on me. It is my nature to learn from others.

CEELM: On the lighter side, what is your favorite book or movie about lawyers or lawyering?

Anastasiya: The Firm with Tom Cruise, The Devil’s Advocate with my favorite actor, Al Pacino, or The Lincoln Lawyer. Among books, John Grisham, in my point of view, is the best author writing about the profession, as The Runaway Jury and The Innocent Man are real masterpieces. His books have been filmed a lot of times. The Lincoln Lawyer by Connelly.

This Article was originally published in Issue 6.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Sanctions imposed by the U.S.A, the EU, and other jurisdictions in relation to certain Russian individuals and legal entities have had a substantial impact on international arbitration involving Russian parties. There exist serious concerns as to the ability of sanctioned Russian parties and their contractual counterparts to realize their right to defend themselves in the course of arbitration proceedings. These concerns have led to changes in market practice regarding the choice of the arbitration forum and to some legislative proposals in Russia that, if implemented, would have a dramatic impact on international arbitration involving Russian parties.

Sanctions

Although the format of this article does not allow for a comprehensive review of applicable sanctions, let us set a very broad framework of the key sanctions regimes impacting Russian parties – namely, the U.S. and the EU sanctions.

There are several U.S. sanctions programs targeting Russian entities, including:

• The Specially Designated Nationals and Blocked Persons (SDN) program, which blocks assets of SDNs within the remit of the U.S. and prohibits any U.S. citizens or resident and any legal entity or organizations registered in the U.S. (i.e., a “U.S. person”) from dealing with an SDN, unless authorized by the Office of Foreign Assets Control of the US Treasury Department (OFAC)
• The Sectoral Sanctions Identifications program, which targets selected industries and applies to certain financing and equity transactions
• The Crimea-related sanctions program, which prohibits, with a few exceptions, any dealing involving Crimean assets or counterparties (i.e., individuals residing in Crimea and legal entities either registered in the Crimea or carrying out activities there)
• The U.S. Countering America’s Adversaries Through Sanctions Act of 2017, which targets, inter alia, non-U.S. third parties entering into “significant” transactions with Russian sanctioned entities.

Any U.S. person, whether individual or corporate, is bound by the U.S. sanctions regardless of their location. Importantly, a non-U.S. person may become subject to the secondary sanctions if such person is involved in, or facilitates, a “significant” transaction with a sanctioned Russian entity or its affiliate. There is no clear criteria to define a “significant” transaction and any such determination would be made by OFAC in its discretion.

The EU sanctions (or “restrictive measures”) can be divided into smart sanctions, which prohibit all transactions with specific entities (“targets” or “EU blocked persons”), and sectoral sanctions, which target sectors of the economy and industries. EU sanctions apply (i) to any national of a EU member state irrespective of his/her location, or to legal entities and organizations registered or carrying out activity in the EU; (ii) any person within the territory of the EU; and (iii) with respect to any business conducted, even in part, in the EU.

The EU sanctions prohibit:

• Engaging in nearly all types of commerce with “EU blocked persons” (designated by Regulations 208 and 269) and
• Engaging in the specifically prohibited transactions with “sanctioned entities” (designated by the so-called “sectoral” sanctions set out in Regulation 833)

EU sanctions also prohibit participation in activities the object or effect of which is to “circumvent” the applicable prohibitions set by the EU sanctions.

Impact on Arbitration

While many scholars would argue that the nature of arbitration is a quasi-judiciary function and hence beyond the scope of sanctions targeting commercial activities, there are practical problems that arise in arbitration involving sanctioned entities.

The practical problems may arise at various stages, including, for example, the appointment of arbitrators, instructing legal counsel, involving experts, participation of sanctioned persons as witnesses, payment of arbitration fees, expenses, and costs, and paying legal counsel.

Unless expressly authorized by OFAC, a U.S. person (whether a U.S. national or resident or a U.S. law firm) would be extremely uneasy accepting an appointment to act as an arbitrator, counsel, or expert in an arbitration involving an entity under blocking sanctions. Even a non-U.S. person needs to consider the risk of secondary sanctions if he or she gets involved in such an arbitration as it can be argued that an arbitral award may facilitate a “significant” transaction with a sanctioned entity that is prohibited by the U.S. sanctions.

A significant practical impediment is that banks are likely to block/freeze any payments where either the payee or the payer is a sanctioned entity. This would lead to the possibility that any payment in U.S. dollars or euros under an arbitral award could be blocked. That risk would also apply to the payment of arbitration fees and costs and paying legal counsel and other parties in the arbitration proceedings.

Individuals under blocking sanctions may be prevented from participating in an arbitration in person (e.g., as a witness) as their visa applications are likely to be denied. Even though it might be possible for them to participate via a video link, this raises the question of equality of the parties in the proceedings, which in itself may lead to a risk that the arbitral award could be invalidated.

Such risks have led Russian entities, especially those under state control, to start opting for arbitration venues in Asia – Singapore and Hong Kong in particular – as opposed to more traditional forums in Europe. However, many concerns remain, as sanctions apply to U.S. and EU persons irrespective of their location, so there would still be a risk of secondary U.S. sanctions, and the problem with bank transfers would remain as well.

The most recent development is the Russian Parliament’s July 24, 2019 adoption in the first reading of a draft law which, among other things, entitles a sanctioned Russian party to amend an arbitration agreement/clause unilaterally to switch to arbitration or litigation in Russia under Russian law. If proceedings outside Russia would nevertheless continue, the draft law allows a Russian party to seek damages from its opponent in a Russian court equal to the amount of claims brought in a non-Russian court or arbitration, and also claim a court penalty on its counterpart in the amount of the claim and associated costs.

This means that even if a non-Russian tribunal chooses to disregard the application of Russian law on the subject, the risk in relation to any Russian assets of a non-sanctioned party pursuing a claim against a sanctioned party outside Russia would be significant, and the likelihood of enforcement of a foreign arbitral award in Russia in these circumstances would be close to zero.

To become law, a draft law needs to pass three readings in the State Duma (the lower chamber of the Russian Parliament), be approved by the Council of the Federation (the upper chamber), and then be signed by the President.

Clearly, if the draft law is adopted in its current form, it will limit the ability of most parties, both Russian and non-Russian, to rely on international arbitration as a way to resolve commercial disputes. While at present this appears unlikely to happen, that may well change if new sanctions of significance are imposed on influential Russian entities, which may prompt possible protective and counter measures by the Russian government.

By Konstantin Kroll, Partner, Dentons

This Article was originally published in Issue 6.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Debevoise & Plimpton has advised Norilsk Nickel on the upsizing and extension of its December 2017 syndicated facility agreement.

According to Debevoise, “the amendments increased commitments from USD 2.5 billion to USD 4.15 billion, reduced interest rate and significantly increased maturity. This transaction signifies a record low interest rate for Russian corporates in the international syndicated loan market as well as the size and tenor of the loan. The syndicate [consists of] 25 American, European, and Asian banks.”

Norilsk Nickel is a diversified mining and metallurgical company, the world’s largest producer of refined nickel and palladium, and a producer of platinum, cobalt, copper, and rhodium. The company also produces gold, silver, iridium, selenium, rutheniumm, and tellurium.

Debevoise’s Moscow-based team included Partner Alan Kartashkin and Counsel Dmitry Karamyslov, while its team in London included Partner Alan Davies and Associates Olga Panfilova and Charles Low.

Debevoise advised Norilsk on its USD 750 million Eurobond offering in November 2019 (as previously reported by CEE Legal Matters on November 14, 2019), as well as on a number of similar finance and capital market matters in the past, including USD 1 billion Eurobond offerings in 2015 (as previously reported by CEE Legal Matters on October 16, 2015) and 2017 (as previously reported by CEE Legal Matters on April 18, 2017).

Egorov, Puginsky, Afanasiev and Partners has advised the Uralsoloto Group of Companies on its acquisition of securities of Petropavlovsk PLC.

According to EPAM, “the deal will contribute to the development of promising fields in the Far East and should bring gold production in Russia to a fundamentally new level of growth.”

EPAM’s team included Partners Arkady Krasnikhin, Anna Numerova, and Sergey Kalinin, Adviser Alexander Mandzhiev, and Junior Lawyer Alexandra Idrisova.

Egorov, Puginsky, Afanasiev and Partners did not reply to our inquiry on the matter.