On the Path of Big Transformations — Strategies, Plans and Struggles
With the evolving role of the legal profession and expanding internationalization of legal services, the function of regional professional forums in supporting multicultural discussion is gaining more importance. The IBA ECA (Europe – Caucasus – Asia) Forumhosted by Georgian firms took place on 31 October — 2 November 2019 in Tbilisi.
IBA president Horacio Bernardes Neto unveiled the forum with the suggestion to promote the venue and the ECA region within the IBA by holding a separate specific session in Miami during the IBA annual venue 2020.
Reconsidering new realities
It is impossible to “copy paste” someone else’s experience in terms of reform. However, Georgia’s achievements are analyzed by different countries of this wide region.
Session chair Alexander Bolkvadze, BLC Law Office (Tbilisi) noted that the region’s states facilitated their contacts even more due to revival of the so-called ‘Silk Road’, which intends to interlink trade roots, migration and dissemination of cultures. “Caucasus states intended to be the energy corridor to Europe but still struggle to establish peace in the region and halt political conflicts. The Central Asian region consisting of so-called “stan-countries” continues to move towards establishing the rule of law”, he said.
Revealing the mood of the international business community, Benjamin Paine, Paine Stevens (Tbilisi) stressed that the key thing investors look for is stability. When considering countries with a good set of international treaties the question is: do they actually work in practice? The big concern at the moment is talks around retroactive legislation which in many countries is unconstitutional. The international community definitely appraised the solutions in Georgia in reducing the number of licenses required, simplified tax system and e-governance. These are most commonly corrupted areas where an investor usually wants to avoid bureaucracy.
After the Velvet Revolution in Armenia of 2018 the new political team gained complete power, including Parliament (in December 2018). David Sargsyan, Ameria Law Firm (Yerevan) explained that the trust of investors definitely increased, which is proven by the fact that the Eurobonds offerings historically had the lowest levels of interest. “The real changes in the administration of competition currently enable many monopolists to be broken up. The collection of taxes to the state budget is over-fulfilled, and the Central Bank’s reserves are at a record high”, he said.
From the investors perspective there is introduction of the concept of a shareholder agreement, which is quite new to Armenian reality. Recent public concern is focused on areas of judicial reform, which is expected to last around 2-3 years, and prosecution of the country’s former president.
As Ilgar Mehti, Ekvita (Baku) said, Azerbaijan is looking at the reforms in Georgia and trying to replicate them to so as to improve its positions in the ‘Doing Business’ ranking. The government has begun to introduce industrial parks and free economic zones, established the centralized SME Development Agency, pursued tax reform envisaging income tax exemptions, and adopted a law on mediation. Compared to other countries in the region the positive side is that the number of state-investor disputes in international arbitrations is low. It is testimony of the fact that the government is demonstrating its adherence to commitments that it undertook.
The business atmosphere changed dramatically in Uzbekistan when Shavkat Mirziyoyev became the country’s new president in 2018. Nodir Yuldashev, GRATA law firm (Tashkent) outlined that the new course is moving away from granting special benefits and privileges to certain companies and centering the policy approach on making all equal.
The country’s main problem for almost 15 years was conversion of the currency and repatriation of funds. This undermined the confidence of foreign investors. According to Mr. Yuldashev, the situation changed and international businesses not only repatriated their profits but also reinvested heavily in the country, and Georgian and Kazakh banks entered the Uzbekistan market quite recently.
“The core problem of Kyrgyzstan is that the judiciary system is not independent”, Alexander Ahn, Kalikova & Associates (Bishkek) said. As a result, foreign investors try to avoid state courts and use an arbitration clause throughout all their business activities in the country. The new government attempts to fight the historically high level of corruption by introducing digital services in widespread areas.
Navigating investment risks
Uncertainty and risks in the former CIS region come from the sanctions perspective and growing challenges for compliance behavior, supranational regulations and their applications against national laws.
Commenting on recent developments in Russia, Maria Ostashenko, ALRUD (Moscow) said that the reforms of bankruptcy legislation enabled such institutes as subsidiary liability of controlling persons and personal bankruptcy for individuals, and converted into a growing number of subsequent cases. Sanctions remain the hot spot on the country’s legal and economic agenda. The most well-known cases include the case of Siemens, when the company supplied turbines to a subsidiary of Rostec, the national corporation listed in the sanctions lists of Russian firms. The agreement contained a “sanctions clause” which stated clearly that items will not be delivered to Crimea. But eventually the product was resold to Crimea, and Siemens tried to invalidate this transaction. According to the speaker, the courts came to the conclusion that there was a controversy between the public policy and EU sanctions as sanctions compliance by a Russian entity itself constitutes a violation of Russia’s public policy.
Oleksandr Nikolaichyk, Sayenko Kharenko, confirmed that the banking sector suffered the most in the last five years. “The National Bank of Ukraine applied significant scrutiny on all shareholder structures, setting a condition of total disclosure, including all affiliated persons. As a result, out of 180 banks only 75 remain as of today”, he said.
As a matter of implementation of public interest in Ukraine, all the licensees which were controlled by ultimate beneficial owners from the Russia were annulled. Mr.Nikolaichyk has drawn attention to the case of the Moscow Stock Exchange, which owned the two biggest exchanges in Ukraine. “The solution was to combine the M&A deal with out of court challenging to the Securities Commission. By the time the disposal was completed the new owners were already not under threat from that rule. That allowed that annulment prescription to be dismissed and for the Moscow Exchange to exit Ukraine. Of course, at below market value, but at least to exit”, he said.
Marina Golovnitskaya, Sorainen (Minsk) raised the issue of existing collisions between national and Eurasian laws in Belarus: “Sometimes it’s not clear whether supranational rules should prevail or not. Sometimes it’s clear which rule to apply but enforcement practice is different from country to country, from state agency to state agency. It possesses challenges for business”.
Sanctions are a mix of politics and law, which enable lawyers to make lots of money. According to Gabriel Lansky, Lansky Ganzger & Partner (Vienna), many consequences of EU sanctions go after EU member states regulations. For instance, if a transaction where one of the parties involved are under sanctions, whether such a transaction is valid or not, would follow the individual laws of the member states. “It is not a consequence of the EU rule in spite of the fact that EU sanctions have validity for all member states”, he said.
In some European states like Germany and Austria the liability of directors is such that there is personal civil, criminal liability for those who ignore personal obligations to protect their legal entities. In such countries it is very important for directors and other officers to check out transaction partners and to figure out the danger of a business partner being subject to sanctions.
The forum’s program covered updates on M&A, tax and dispute resolution in the ECA region, and topics of general interest – diversity and inclusivity in legal profession, HR practices, client service and professional burnout.