HomeBusinessPressure on 'magic circle' law firms after UK auditors quit Russia

Pressure on ‘magic circle’ law firms after UK auditors quit Russia

Britain’s biggest accountants have all pulled out of Russia after being blasted for tacitly supporting Vladimir Putin’s regime.

KPMG and PwC announced they would cut ties with their Russian arms on Sunday, while EY and Deloitte followed suit yesterday.

Critics have now turned their scrutiny to the so-called Magic Circle law firms, which have represented swathes of Russian businesses in recent years.

Feeling the chill: London firms are increasingly shunning Moscow with big name auditors the latest to pull out

One of those leading firms, Freshfields Bruckhaus Deringer, even recently decided to work for sanctions-hit VTB Bank as it tried to sue one of Africa’s poorest nations, the Mail on Sunday revealed. 

Freshfields said on Monday that it had terminated its relationship with VTB, but declined to take any more drastic steps.

A spokesman said: ‘This is a very fast moving situation. We continue to assess the impact on our Moscow office as a matter of priority and will provide further updates as and when appropriate.

‘As you would expect, one of our top priorities throughout this crisis has been the safety and wellbeing of our colleagues in Moscow.’ 

Altogether, Britain’s five Magic Circle firms employ more than 150 lawyers in Moscow. Linklaters, which opened its office in the country in 1992, is so far the only one to have fully distanced itself.

It plans to wind down its operations and close the Moscow office, and added that it will not act for any individuals or entities connected to the Russian state.

It had previously advised gas supplier Gazprom on the Nord Stream 1 and 2 pipeline projects, and worked for oil giant Rosneft

London-based Norton Rose Fulbright, which is not part of the top five elite law firms but is still seen as one of the country’s most prestigious legal groups, also agreed to close its Moscow office.

But others have been slower off the mark. Clifford Chance said in a LinkedIn post that it would ‘not accept new mandates from any Russian state entity, Russian state-owned enterprises or individuals identified as having close connections to President Putin’.

The firm added that it would also ‘review’ existing Russia-related work.

In a similar post, Allen & Overy said it was ‘reviewing our Russia-related portfolio, and as a result we will refuse new instructions and stop all Russia-linked work that goes against our values’.

Slaughter and May does not have an office in Russia, has no active clients in the country and said it had done ‘very little work’ there. 

Senior partner Steve Cooke added: ‘We are appalled by the attack on Ukraine by Russia and the human suffering that is occurring as a result.’

The disquiet in the boardrooms of Britain’s City firms comes after Prime Minister Boris Johnson gave lawyers an ominous warning last week.

‘The legal profession, everybody involved in assisting those who wish to hide money in London and assisting corrupt oligarchs, have been set on notice that their actions are under scrutiny,’ he told Parliament.

‘If they break the law, if they undermine the interests of this country and advance the interests of Putin’s war machine, they will pay a price.’

MPs and campaigners had also slammed Britain’s lucrative professional services industry for continuing to work for Russian businesses – many of which are state-backed.

Former Tory Party leader Sir Iain Duncan Smith said: ‘A lot of other companies already have cut ties, and the rest should follow suit. It’s time to shut down and time to leave.’

State-backed: The Kremlin building seen from Moscow's Red Square. MPs and campaigners had slammed Britain’s professional services industry for continuing to work for Russian firms

State-backed: The Kremlin building seen from Moscow’s Red Square. MPs and campaigners had slammed Britain’s professional services industry for continuing to work for Russian firms

Bill Browder, a financier and campaigner who was instrumental in creating the Magnitsky Act to punish Russian human rights violators, added that Western firms pulling out of Russia would create a ‘terrible’ environment for businesses in the country – piling further pressure on Putin to end his murderous rampage.

The Big Four auditors – EY, KPMG, PwC and Deloitte – will not shutter their Russian offices, but instead will push them out of their wider global networks.

This means the Russian branches, which together employ around 13,000 staff, will have to operate on their own – backed by their partners.

They will not pay any of their profits to the wider groups, and will not receive any support in matters such as IT or finding new work. They will also have to find new names.

As it cut ties on Sunday, a KPMG spokesman said: ‘KPMG has over 4,500 people in Russia and Belarus, and ending our working relationship with them, many of whom have been a part of KPMG for many decades, is incredibly difficult.

‘This decision is not about them – it is a consequence of the actions of the Russian government.’

Jon Holt, chief executive of KPMG UK, added that the British branch of the audit giant had also terminated a ‘small number’ of contracts relating to individuals and entities connected to the Russian state.

EY branded the invasion of Ukraine ‘shocking and abhorrent’, while Deloitte added: ‘We know our colleagues in Russia and Belarus have no voice in the actions of their government. We will support all impacted colleagues during this transition.’

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