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The IBA’s response to the situation in Ukraine
Aerial view on oil refinery plant. Tyumen, Russia.
As successive packages of international sanctions imposed against Russia since 24 February weigh heavily on the global economy, there’s been growing unease in the West that the country is not bearing the brunt of the restrictions.
These concerns may now be assuaged, however, as the EU's long-awaited embargo on Russian crude oil imports was imposed on 5 December.
Sergei Guriev, former chief economist at the European Bank for Reconstruction and Development and current Provost at Sciences Po in Paris, says the embargo will have a devastating impact on Russia’s economy. ‘Exports from Russia to the EU represent half of the exports of Russian oil and gas, so this is a major, major hit for the Russian budget,’ he says.
In fact, Guriev says there are already strong indications that international sanctions are taking their toll on Russia. ‘A lot of people think that a stronger rouble suggests the sanctions have failed – this is incorrect,’ says Guriev. ‘A stronger rouble is not a sign of a strong Russian economy, but a side effect of a decline in imports, which actually hits the Russian economy. In that sense, sanctions have played out pretty significantly in hurting the Russian economy quite badly.’
EU and G7 countries have also reached a consensus on setting a price cap on Russian oil at $60 per barrel, following intense negotiations. This much-debated move came into effect on 5 December and is designed to strike a careful balance between defunding Putin’s war machine and limiting the war’s impact on global energy prices, whilst allowing countries time to find alternative suppliers and avoid creating a global fuel shortage. From 5 February, EU countries will also stop importing all refined oil products from Russia.
Professor Thomas Biersteker
Geneva Graduate Institute
As oil and gas revenues play such a significant role in supporting Russia’s economy and its military campaign in Ukraine, Thomas Biersteker, a professor at the Geneva Graduate Institute, say the full weight of Western sanctions on Russia will be felt now these changes have taken effect. ‘The caps will be difficult to implement, but their introduction is a creative idea,’ he says. ‘I think that many analysts and pundits are too quick to conclude the sanctions on Russia are not working or not having an effect. The most powerful sectoral restrictions have yet to be implemented and are only slated to come into effect next year.’
Despite concerns the West has underestimated the Kremlin’s ability to withstand sanctions, Guriev says the impact on key technologies and sectors is already apparent. ‘Putin cannot get advanced semi-conductors, aeroplane engines or high-grade steel, so he cannot build more weapons,’ he says. ‘We see that Putin had to start unpacking Soviet era tanks, which are, of course, not as effective and can break down at any moment. We also see that Putin goes to Iran to buy drones, which shows that he cannot replenish his own equipment himself and he cannot import drones because of technological sanctions. There are also reports from American intelligence, which suggest that he even asks North Korea to send him rockets. So technological sanctions also work [and are] saving lives in Ukraine.’
Biersteker says voluntary measures taken by many companies to exit the Russian market have been striking. However, he maintains that sanctions themselves are the most effective way of displaying a united front in the wake of Russian aggression. ‘Sanctions are more significant than diplomatic protestations because they signal that the senders are willing to bear costs,’ he says. ‘The question is how much of the costs are going to be borne by each side and the resolve to continue them.’
The real test will now come as temperatures start to plummet and nations, particularly in Europe, are forced to end their reliance on Russian energy supplies, says Biersteker. ‘Russia is calculating that the increased costs of energy will in fact undercut the European resolve in particular,’ he says. ‘The US and Canada and other sanctioning parties are far enough removed that they're not as affected as Europe. I think that's the focus on the Russian side: to try to create division and try to break up the solidarity with Ukraine that currently exists within the EU, in particular, and of course with the UK as well.’
The myriad sanctions packages against Russia also continues to pose considerable challenges for the legal profession. ‘There is a lot of uncertainty in relation to sanctions, in particular regarding Ukraine,’ says Simone Nadelhofer, partner at LALIVE in Zurich and the IBA Business Crime Committee’s Corporate Counsel Forum Liaison Officer. ‘This is why there has been and still is an increased demand for sanctions-related advice. Clients are just not able to answer these questions without guidance or assurance from lawyers.’
As consumer boycotts and the trend for sanctions over-compliance continues, Nadelhofer says clients’ need for legal advice is stronger than ever. ‘We have also seen that financial institutions have blocked business relationships with any links to Russia – even though maybe the sanctions would not have obliged them to block these accounts – probably out of fear of sanctions breaches,’ she says.
Global Insight spoke to lawyers in several jurisdictions who reported instances of government agencies being ‘hugely overwhelmed’ by licence applications relating to sanctions and taking months to respond.
Nadelhofer says in Switzerland, which is home to numerous trust companies that have Russian settlors or beneficiaries, the demand for sanctions advice has skyrocketed. ‘The rules regarding trusts are quite tricky and not always clear,’ she says. ‘We have been advising a number of trust companies in this respect and have requested licences from SECO, our government agency responsible for sanctions, on behalf of our clients. However, SECO is overwhelmed by the number of enquiries and patience is required.’
Image credit: Aikon/AdobeStock.com
The IBA Annual Conference 2022 – the legal world’s leading international conference – held at the start of November in Miami, Florida, US, saw more than 5,000 participants come together to enjoy a wide variety of working sessions, social functions and networking opportunities. For many, it was the first time they had seen IBA colleagues in some years.
IBA President Sternford Moyo began the proceedings at the Opening Ceremony with an impassioned speech thanking the delegates for their support. He emphasised the importance of fighting for the independence of the legal profession and the judiciary and went on to extol the potential of Africa, calling it ‘a continent of the future’ – and the need to balance the interests of investors with those of local communities.
Lionel Barber, former Editor of the Financial Times, gave the keynote speech, offering his vision of what the future holds for liberal democracies and how they must adapt to face future challenges. Also at the Opening Ceremony, a video message from Ukrainian President Volodymyr Zelensky spoke of the devastation caused by the war in Ukraine but also of the role lawyers can play in ensuring accountability and justice.
During the week, among the 200+ working sessions covering all areas of legal practice were Showcase sessions addressing issues including cybersecurity, sustainability, artificial intelligence and the rule of law. In addition, the regular ‘Conversation with…’ sessions and interviews were held with key speakers – some of which are presented in this edition of Global Insight.
Complementing these was an array of social functions bookended by the spectacular opening party at Ice Palace Studios and the wonderful closing party at Nikki Beach.
Elsewhere during the Conference, various individuals and organisations received accolades for their professional contributions, with awards presented for outstanding young lawyer, pro bono practitioner and human rights lawyer (Yorm Ama Abledu, Elba Gutiérrez and Jiang Tianyong respectively). Debevoise & Plimpton were recognised with an IBA Group Member Pro Bono Award, and the Ukrainian Bar Association and Ukraine National Bar Association accepted an award for extraordinary leadership and dedication in protecting human rights and the rule of law. Additionally, Benjamin Ferencz, the last surviving Nuremberg prosecutor, was awarded a lifetime achievement award by the IBA Rule of Law Forum and LexisNexis.
Catch up on films, photos and in-depth news here.
On 4 November 2022, the IBA LegalBrief Africa turned 20 years old. The publication provides a succinct weekly email round-up of legal news from across Africa.
The publication came about during the 2002 IBA Annual Conference in Durban, South Africa, the first time the flagship event had been held on the African continent. This was at a time when the IBA’s African focus was being significantly expanded, largely due to the IBA’s Human Rights Institute, whose Honorary Life President at that time was Nelson Mandela, and a newly developed and inspiring partnership with the Open Society Initiative for Southern Africa.
IBA Executive Director Dr Mark Ellis and IBA Deputy Executive Director Tim Hughes wanted a tangible legacy to follow the Conference, so a publication was discussed at a meeting during the Conference with William Saunderson-Meyer, Founding Editor of Legalbrief. After brainstorming, the idea emerged to have a weekly round-up of legal news from across Africa and IBA Legalbrief Africa was created. It was agreed to launch a publication quickly, and to test reaction among delegates at the IBA Annual Conference. It was to be free to all subscribers and remains so today.
Sign up for a free subscription to IBA LegalBrief Africa here
The Investment Arbitration Subcommittee of the IBA Arbitration Committee has published a new report titled Arbitrating Small Value Claims in Investment Arbitration. The report examines the mechanisms and strategies available to parties to regulate the time, effort and financial resources required to arbitrate small value investment claims in a way that are proportional to the sums at stake. The report looks at procedural tools – available for all claims but especially pertinent and potentially critical for small value claims – which can be used to facilitate a cost-effective resolution of arbitration claims.
Work on the report initially started under the leadership of the former Co-Chairs of the Investment Arbitration Subcommittee, Noiana Marigo and Patrick Pearsall. It was then handed over to current Co-Chairs, Maxi Scherer and Caline Mouawad, who finalised the report with the input of a working group, the Subcommittee membership and officers from the IBA Arbitration Committee.
The IBA Legal Policy & Research Unit (LPRU), in collaboration with the LexisNexis Rule of Law Foundation, has published a new report as part of the 50:50 by 2030: A longitudinal study into gender disparity in law series, this time focusing on the legal profession in Spain. Surveys were conducted of law firms, in-house legal teams, public sector institutions and the judiciary.
The research found that 54 per cent of all lawyers were women, but out of all lawyers in senior roles, only 31 per cent were women. Within the judiciary, women made up 56 per cent of all judges, but only hold 37 per cent of senior positions. The research also found that within law firms, 46 per cent of lawyers were women, but only 28 per cent had senior positions, and only 24 per cent of lawyers within law firm boards were women.
The landmark nine-year global research project commenced with a pilot study in 2021, leading to the publication of the first report in March 2022, based on the jurisdiction of England and Wales. A second report was published in August 2022, with results from research carried out in Uganda, and work is underway for reports detailing results from Nigeria and the Netherlands.
In November, the IBA co-published a new book, Competition Law Treatment of Joint Ventures: A Jurisdictional Guide, in partnership with Concurrences. The book was authored by the Mergers Working Group (MWG) of the IBA Antitrust Section and was launched during a session hosted by the Section at the IBA Annual Conference in Miami.
The book represents the first multi-jurisdictional survey dedicated exclusively to the competition law treatment of joint ventures across 22 jurisdictions. The survey considers critical issues and questions that businesses and their advisers face when dealing with joint venture transactions in light of merger control and substantive antitrust laws, in order to provide an up-to-date and comprehensive overview of the state of the law. A practical analysis of key issues is also provided, by virtue of a hypothetical joint venture transaction developed by the MWG that appears throughout each chapter, as well as a high-level overview of key results compiled by the editors.
There’s a ten per cent discount off the cover price of the book for IBA members until 2 April 2023. Customers should use the code IBA10 at the checkout to receive the discount.
Purchase in hardcover from the Concurrences website here.
The IBA recently received the sad news that Jacob Saah, Chair of the IBA African Regional Forum (ARF) from 2009–2010, and Member of the Legal Practice Division (LPD) Council from 2011–2014, had passed away.
Jacob was a much-valued IBA member and officer. He assisted in broadening the reach of the ARF throughout the region and elevated its place within the IBA.
Babatunde Ajibade, current Co-Chair of the ARF, expressed his sorrow at the news: ‘Mr Saah was a perfect gentleman, with a quiet disposition and a wonderful mien. Our thoughts are with his family at this time, and we join them in praying for the peaceful repose of his soul.’
Ronnie Hayward, Divisions Director at the IBA, praised his achievements as Forum Chair, saying: ‘During his term as Chair he initiated activity and created a Forum that was inclusive and transparent in terms of building a clearer succession path for the leadership coming up through the Forum.’
Michael Greene, Honorary Life Member of the IBA Council and Association, worked with Jacob throughout his term as an officer of the Forum and then on the Council of the LPD. ‘Jacob was one of the first to welcome me to the Forum over fifteen years ago. As a member of the IBA family, Jacob was always cheerful, welcoming and respectful of the opinions of others. As a professional, he was a pleasure to work with, and performed his leadership role in the African Regional Forum with an understated but very effective determination. I am hugely saddened to hear of his passing and extend condolences to his family, friends and colleagues on their loss.’
Away from the IBA, Jacob was a highly respected business lawyer in Accra where he gathered much recognition in restructuring and insolvency law in the country. He was the founding Executive Secretary and, until recently, a Governing Council Member of the Ghana Association of Restructuring and Insolvency Advisors, in which position he played a major role in the drafting of the recent Corporate Insolvency Act 2020.
The high-profile collapse of FTX – the world’s second largest cryptocurrency exchange – has demonstrated the need for better corporate governance standards in the nascent crypto industry, alongside increased oversight from regulators.
In early November documents leaked online showed that Alameda Research – a cryptocurrency trading company run by Sam Bankman-Fried, FTX’s CEO – was reliant on FTX’s own crypto coin, FTT, rather than a fiat currency or another cryptocurrency. After subsequent reports were published online, the major crypto exchange Binance announced on 6 November that it was selling its holdings in FTX-linked coins ‘due to recent revelations’, causing the value to plummet as customers rushed to take their cash out.
On 8 November FTX suspended withdrawals as Bankman-Fried attempted to raise emergency funding to plug an $8bn shortfall in finances. On 11 November Bankman-Fried resigned as the company filed for Chapter 11 bankruptcy. Following his departure, FTX’s new Chief Executive John Ray III, an insolvency expert, said he had ‘never seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information’ in filings before the Bankruptcy Court for the District of Delaware. The Bankruptcy Court also heard that the company – valued at $32bn back in January – lacked basic money controls.
Many customers used their FTX digital wallets like bank accounts, expecting their funds to be safe. More than one million investors are thought to have had cryptocurrency stored on the FTX exchange and are owed money, which they may not get back. Hackers are also thought to have stolen some of the funds.
Senior Vice-Chair, IBA Capital Markets Forum
Bankman-Fried tweeted in mid-November that his ‘one goal’ now is to ‘do right by customers […] And after that, investors’, including by meeting with regulators. His tweets reference FTX’s earlier success and later issues, with Bankman-Fried stating that ‘We got overconfident and careless […] And problems were brewing. Larger than I realized.’ In an interview at the end of November, he denied deliberately misleading investors and committing fraud, and argued that he lacked a full sense of what was happening within the various branches of FTX and its offshoots.
The lack of effective corporate governance has also shone a light on the capabilities of auditors to spot problems in the crypto sector. Experts say auditors are struggling to apply accounting rules to digital assets because those rules are still only half formed. High-risk audits also require more time and resources, but some crypto companies may view the audit as a ‘tick-box’ exercise and wish to pay the lowest fee for such processes.
Financial regulators worldwide have hinted that their regulatory stance is set to toughen, but to what extent and how effective regulation will be remains uncertain. As governments and central banks engage more with cryptocurrencies and release their own ‘stablecoins’ – digital currencies pegged to a ‘stable’ reserve asset such as the US dollar – it’s hoped that regulation and risk awareness within the sector will also improve.
In the wake of FTX’s collapse, Sir Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England, said while digital currencies are still too small to pose a threat, better regulations are needed to protect the financial system as cryptocurrencies continue to gain ground. He added that recent volatility in the value of cryptocurrencies is an issue: the value of Bitcoin, the world’s largest digital currency, has dived by almost 70 per cent in the last year.
Speaking at the UK’s Warwick Business School in late November, Sir Cunliffe told his audience that ‘we should not wait until [the crypto world] is large and connected to develop the regulatory frameworks necessary to prevent a crypto shock that could have a much greater destabilising impact. The experience in other areas of digitalisation has demonstrated the difficulty of retrofitting regulation on new technologies and new business models after they have reached systemic scale.’
Alexei Bonamin, Senior Vice-Chair of the IBA Capital Markets Forum and a partner at Brazilian law firm TozziniFreire Advogados, says ‘the credibility and trustworthiness of crypto is being gradually eroded’ by events such as the FTX collapse. He adds that in-house lawyers, specifically, should be aware that crypto companies and crypto intermediaries in general don’t have specific compliance requirements or regulation on key areas such as know-your-customer and anti-money laundering controls, cyber security or credit and liquidity risks. As such, ‘risks arising from the lack of such controls cannot be disregarded and must be taken into account. As mitigating measures, in-house lawyers should rely on tightly-written agreements with crypto intermediaries, as well as on audits of the internal controls of such companies.’
Pedro Eroles, also a partner at TozziniFreire Advogados, calls for greater regulatory oversight of the crypto sector as investors appear either unconcerned about risks that have an impact on traditional financial services companies, such as liquidity, solvency and capital market risks, or assume that the crypto companies have the same compliance requirements as banks and insurers. Tighter regulation, he says, ‘would better coordinate the soundness and good functioning of the crypto markets.’
For Anurag Bana, a senior project lawyer in the IBA’s Legal Policy & Research Unit, the ‘global ramifications’ of FTX’s collapse will raise questions about the governance of crypto companies and their future oversight by regulators. He says financial regulators will need to get more actively involved in supervision. ‘In future, financial regulators will need to re-examine how crypto companies operate; how they attract customers; and how they should be more closely monitored, held to account and sanctioned,’ he says. ‘Regulators need to step up and be prepared to step in when they see signs that crypto companies are going to fail.’
Bana adds that regulators may also need to consider the appeal of crypto companies and the impact on customers if they’re based in countries where such companies don’t have authorisation to operate. ‘An unauthorised company does not mean that it is doing anything illegal, nor does it mean that it cannot operate or try to attract customers from countries where it is not granted authorisation. Perhaps these are issues that financial regulators need to think about in future, because it suggests a limit of their regulatory oversight and powers,’ he says.
Image credit: Rafael Henrique/AdobeStock.com