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3 February 2021

Between a rock and a hard place: practicing law in Crimea

Source: CEE Legal Matters Magazine

Since the Russian Federation’s annexation of Crimea in 2014, the peninsula in the Black Sea has been a minefield of conflicting international claims and interests, putting lawyers trying to work there, boxed in by the threat of sanctions from the West and counterveiling pressure from Moscow, in an untenable position.

CEE Legal Matters spoke to several Russian and Ukrainian lawyers – some of whom would only speak if guaranteed anonymity –  to learn about the unique challenges of practicing in this historically sensitive part of the world.

The Russian perspective

“For all practical purposes, Crimea is Russia,” says Pavel Kislov (not his real name), the Managing Partner of an international law firm in Russia. “I mean, it’s reported on even in the weather forecast, and everybody treats it like they would any other area.” Of course, he concedes, “there are fine political nuances at play due to the fact that not all countries recognize it as an integral part of Russia.” He sighs. “It is a very peculiar place,” he says, “with the sanctions forming a wall towards doing any business there.”

And the unique Russian response to the sanctions, ironically, makes it more difficult to work there than might be suspected. Kislov claims that, as a Russian attorney and national, he is “unable to advise on sanctions directly, because Russian law does not recognize them.” Legal opinions can be expressed and advice can be given in a way that the existence of sanctions is implied, he says, “but nothing can be said about them directly in an official capacity.”

Accordingly, Kislov says that most international firms – including his own – that engage in work outside of Russia or need to travel abroad “tend to avoid having any dealings in Crimea in any way.” According to him, “even if we stretch it – working in Crimea is a gray area at best and law firms, generally, tend to avoid it if they can.”

Still, some business is being done in Crimea that requires legal advice.

“Before the change six years ago,” says Andrei Gusev, Managing Partner of Borenius’s St. Petersburg office, “Crimea was full of infrastructure that was downright ancient, with a lot of it dating back to Soviet times.” Russia is now investing heavily in addressing that crumbling problem. As a result, he says, “while there are also instances of PPP work and real estate investment, everybody is really only talking about infrastructure development.”

And that investment, he says, is starting to be felt on the ground. “Tertiary sectors, like logistics, are developing. Slowly maybe, but they are developing as a result.”

The related legal work is usually awarded via tender, Gusev says, with the majority of the resulting work being done by “major Moscow-based law firms.” According to him, competition for these mandates – which he describes as generally narrow in scope but vast in potential – is fierce among Russian law firms.

Gusev suggests that it’s not just the potential profits – and the fear by the international firms of running afoul of Western sanctions – that provides the larger Moscow-based firms an open field to work on Crimean matters. According to him, “these firms have the necessary manpower to attempt to navigate the uneasy waters of not only winning these complex tender procedures but also providing sufficient staff to Crimean mandates. They have so many lawyers at their disposal that they can, simply put, swarm the process.” He says that this has been particularly true during the COVID-19 crisis, as the well-known Russian firms – generally far larger than the Moscow offices of the international firms – were simply in a better position to make the necessary adjustments to working under pandemic conditions.

Well, perhaps. Despite Gusev’s claims, in fact both Egorov, Puginsky, Afanasiev & Partners and the Moscow office of Bryan Cave Leighton Paisner insisted, when contacted, that they did not operate in Crimea. Of course, it can be difficult to know for sure, as they – like most other Russian law firms contacted for this article – otherwise declined to comment.

And they’re not alone in their reticence. All the Crimea-based lawyers we spoke to declined to participate as well, with one noting, “if I were to provide my opinion on any of these matters, I would risk going to jail.”

The Ukrainian perspective

Ukrainians, unsurprisingly, are more willing to go on the record.

Sayenko Kharenko continues to handle matters related to the contested peninsula with a dedicated Crimean Desk, staffed by former Crimean residents. According to the firm, this allows its team to offer practical solutions while remaining in compliance with the current sanctions regime, which make it illegal for any firm from Ukraine to operate there.

Sayenko Kharenko Partner Sergiy Smirnov has personal connections to the region. “I moved to the Crimea with my family in 1991,” he says, “and I lived there and worked at Business Pravo Audit, a Crimean law firm, until 2009, when I moved to Kyiv with a group of colleagues who later decided to merge the firm with Sayenko Kharenko.” Although his relatives remain in Crimea, he says, “from the moment the occupation started in 2014, I’ve never been back.”

Although he acknowledges that many of his friends and collegaues in Ukraine may bristle at the report, Smirnov claims that, at least in the early days after the annexation, most Crimeans were enthusiastic about the change. “What we’ve heard from people that were there after the incursion was a very positive outlook on the future,” he says. “It was initially believed that Russia would bring a lot of riches and goods from its position as a large, wealthy, and strong country.” He says, “but this changed after only several months.”

Many Ukrainian companies own assets in the Crimea – which is not itself prohibited by the Ukrainian state – but operating with those assets may get companies into trouble. As a result, and in light of various compliance risks, many companies have had no choice but to abandon their assets, as they can neither operate nor sell them. Others look for solutions. As a result, Smirnov says, “after 2014, a lot of Ukrainian companies found themselves facing big problems, because the solutions they chose created even bigger trouble with the law enforcement bodies.”

Adding to the complexity, Smirnov says, is Ukraine’s Law on Ensuring Rights and Freedoms of Citizens and Legal Regime in the Temporarily Occupied Territory of Ukraine – the so-called “Occupied Territories Law” – which states that “any local authorities created in violation of Ukrainian law are illegal.” In addition, he says, “any actions of such authorities and their officials are also illegal, [and] any act, any decision, any document issued by such authorities and/or officials is void and does not create any legal consequences. Any documents executed with such authorities will not be deemed valid in Ukraine.”

Another law – the Law on the Creation of the Free Economic Zone Crimea and on Specific Aspects of Economic Activity in the Temporarily Occupied Territory of Ukraine – establishes that a “transfer of title to the property located in the temporarily occupied territory shall be registered in any other region of Ukraine in accordance with the rules established by Ukrainian laws,” Smirnov explains. “Any agreements made otherwise than in accordance with the statutory procedure are invalid are null and void.”

As a result, he says, “real estate, registered companies, corporate rights – these are just some of the things that businesses in the Crimea are forced to make tough decisions about.” Smirnov sighs. Many of his clients, then, are trapped between a rock and a hard place, not wanting to simply write off otherwise-valuable assets, but also wanting to avoid liability or, even worse, potential criminal charges.

While Sayenko Kharenko does not itself do any business in the region, Smirnov says that the firm “often advises on sanctions that may apply to those who do business in the Crimea.” According to him, “we are happy to help any clients who suffered damages as a result of the occupation of the Crimea, including under bilateral investment treaties, and we can also recommend local law firms that can help on those matters that require physical presence in the Crimea.”

As a result, Smirnov says, at Sayenko Kharenko, “we do a lot of exactly this type of work, with a lot of clients wanting to know if they have to register their assets in Russian or Ukrainian registries, if they require special permits, how sanctions fit in, and so on.” This isn’t always easy. He says that, after the change, Russian law was superimposed on the peninsula, making providing advice about circumstances there like having to traverse “a room full of tripwires while wearing a blindfold.”

In fact, Smirnov says, the intricate web of interweaving interests and (seemingly) overlapping legal frameworks present in the Crimea make many clients fearful of even going to Crimea lest they take a wrong step. “They just don’t want to go there out of fear of doing something that might be interpreted politically or as an offense – such as signing some documents or being harangued into issuing statements regarding the status of the region.”

This atmosphere has forced the lawyers of Sayenko Kharenko, Smirnov says, to “get creative in workaround methods.” According to him, “we often speak with lawyers from law firms in Russia, and they are, most of the time, in the same situation as we are when it comes to these types of obstacles, and getting their perspective on things really helps a lot.”

Smirnov points out that the lawyers on the ground in Crimea before the Russian incursion were hamstrung as well. According to him, despite their apparent geographic advantage, because almost all of them were qualified to practice in Ukraine, they were suddenly forced to take the Russian bar exam, and, “in some cases, even take some classes again in case they wanted to keep practicing in the region.” These obligations put them in an unfavorable position, he says, and “provided a direct advantage to Russian lawyers, who were able to swoop in and scoop up a lot of work.” Echoing Andrei Gusev at Borenius, Smirnov says that major Russian law firms “advise on Russian law as applied in the Crimea and resort to local lawyers for registrations and other routine work that has to be done on the ground.”

While Gusev, from St. Petersburg, reports that infrastructure and development make up the majority of legal work being done in Crimea, Smirnov, from Kyiv, says that it is Criminal law that takes point. The change of the applicable legal framework in the Crimea meant that, “with Russian law now being supreme, there were some instances in which dealings that some companies had in the Crimea became illegal.” This problem appears frequently in the context of land plots, he says, as in some cases Russian law requires the owners to have “certain specific documentation that they just could not have had at the time – this led to seizures of land and objects all over the Crimea.” In these cases, Smirnov says that “it is a 50/50 chance how a procedure will end – most of the time, it’s a toss-up. These kinds of horror stories are not at all rare.” He says that, with all the legal uncertainties, “it is quite difficult to predict how official bodies will view each and decide in each individual case.”

And things can sometimes be far blunter. “With all of the assets left in this no-mans-land situation, there are a significant number of cases that involved forged documents of ownership and illegal selling of assets,” Smirnov says. “Quite recently, we had a situation in which certain individuals unconnected to our client attempted to sell some of our client’s property and assets in the Crimea.” He says that, in that particular case, it was “alleged that ownership over some real estate objects had changed hands following the submission of certain documents to the state bodies in Crimea. The only problem was – the documents contained forged signatures of the company’s CEO!” Smirnov says that “several criminal investigations were initiated in Ukraine, following this discovery,” and that the case is still ongoing.

The ubiquitious tripwires of Western sanctions makes dealing with these cases particularly difficult for most Ukrainian law firms. “The risks are just too high,” sighs Smirnov, “and charges could be as serious as terrorism financing.” This leaves businesses stranded and unable to obtain direct representation from Ukrainian law firms – and deprives Ukrainian lawyers of insight into how things are on the ground. “I cannot comment on what doing business looks like in Crimea, because we honestly don’t know, not really,” Smirnov says. “It is all behind an opaque wall.”

Smirnov sympathizes with his Russian counterparts, facing similar challenges. “Speaking with colleagues in Russia leaves me with the impression that they’re in a similar pickle to us,” he says. “Especially when it comes to strong, established international firms – they do not wish to take their chances and attempt to thread the eye of the needle.”

Thus, now over five years since the Russian accession of the peninsula, the practice of law in Crimea remains sensitive, difficult, and confidential – and it appears the situation is unlikely to get better anytime soon. Russia’s stance on Crimea hasn’t changed since 2014, Ukraine remains insistent that the accession was illegal, and it appears that the United States and European Union are likely to stand their ground as well. With a global pandemic continuing to rage – and the resulting economic crisis that may descend on many countries – the outlook, in this troubled part of the world, remains murky, at best.

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