Law firms cannot keep riding the two horses of easy money and the rule of law
The war in Ukraine has cost many lives. It has also exposed some double standards. The recent Oxera Report has shown the economic value of the English legal platform which underpins City markets. This platform rests on the rule of law.
But the City has unwisely developed a parallel reputation as a haven for funds of dubious provenance. The City cannot credibly ride these two reputational horses in the future. It must choose between rule of law and easy money.
City law firms have been very successful global businesses for many years. Recent criticism of law firms as “enablers” has identified them unfavourably with their Russian clients. The response to this has often been to point to the professional duties of lawyers and to argue that this places them in a different category from other businesses. This response is wrong and unattractively pious.
Law firms have always made tactical choices as to which clients they represent in commercial matters. Those choices will have reflected the commercial interests of the firm.
There are clearly different factors at play where access to justice is at stake. Those factors are not relevant to the current debate. Law firms, like other businesses, will need to adjust their approach to cater for a world in which the threat of economic sanctions will become a fact of life.
Recent events show that sanctions can be an effective deterrent weapon which sits alongside military deterrence. But deterrence involves engagement; it does not work against a pariah state. Whilst the current short term policy of disengagement from Russia is inescapable, future deployment of sanctions will require engagement with target states. If businesses are to assess the investment risk of such engagement, they will need to understand in advance how those risks may play out.
The legal profession has an important role in designing a future where the City prioritises rule of law over easy money and where sanctions can become a powerful economic deterrent. This may involve offering people, knowhow and expertise to the enforcement agencies. If the state is inept in enforcing the unexplained wealth regime, it is in the City’s interest that resources are offered by the private sector to enable the state to perform properly. Achieving equality of arms by making both sides inept is not a solution for a market place founded on the rule of law.
A more challenging task is to create a future sanctions regime which is clear and which can be factored into future investment risk decisions by international companies, financial institutions and professional service firms. Government will need the expertise of the City to devise such a regime and it is in the City’s interest to provide it.
Some thought should be given to the shortage of organisations which can bridge the differing perspectives of government, business, the law and civil society. At present, we see little other than blame transference and criticism. We will soon need constructive thinking which is not adversarial. Politicians will need to understand that, whilst political capital can be redeployed overnight, business capital cannot. Businesses will equally need to accept that their actions may have consequences which go far beyond the P&L account. Law firms should be an influential part of this debate.
Professor Robert Barrington called recently for a multi stakeholder commission for the legal profession to consider how best to address issues like “enabling” and client choice. The legal profession might be wise to ask him to draft some terms of reference. It is telling that there are relatively few fora where such a commission might be housed and which can comfortably cross the boundaries between business, civil society, law and politics. We will need more dialogue across those boundaries but that dialogue should not be conducted by megaphone.
Civil society will want this dialogue because it is the right thing to do. Government and business will want it because of the economic prosperity that will result from it. The legal profession should embrace both those motivations.