Reflections on the restriction of foreign law firms’ activities in Kazakhstan

November 18, 2014

The Majilis Parliament of the Republic of Kazakhstan has recently discussed an issue of restricting the activities of foreign law firms in Kazakhstan at the round table meeting dedicated to the issues of the legal services regulation. The material can be accessed through the following link.

The Deputy Minister of Justice of the Republic of Kazakhstan Mr Bakhytzhan Abdiraiym described the presence of foreign companies on the legal services market as a separate issue posing a threat to the national security, and unambiguously proposed a restriction of their activities. It was not mentioned in what way the activities of foreign law firms are detrimental to the national security. Thus, in favor of the restrictions, the deputy minister put forward an argument that Kazakh lawyers are professional enough and there are many of them who had been educated and trained at the leading law firms across the world.

Anuar Tugel, Chairman of the National Union of Advocates, has supported this statement by explaining his position that domestic law firms are being pushed out of the state procurement market and that English law is widely promoted.

It is certainly possible to restrict the activities of foreign law firms; however the question is how, to what extend and what will be the outcome of this.  Technically, foreign law firms working on the Kazakhstan market are Kazakh companies registered under Kazakhstan law (but exploiting the brand of an international law firm), who pay their taxes. The majority of lawyers employed by those firms are Kazakhstan citizens and are qualified Kazakhstan lawyers. These lawyers, by the way, comment on Kazakh law. Only because of being Kazakhstani legal entities and Kazakhstani providers of services such companies are entitled to participate in various tenders.

There is another category of foreign law firms that are present on the legal services market but not registered in Kazakhstan. Those firms, however, in most cases work in partnership with Kazakhstan domestic law firms. In either case, foreign law firms working in Kazakhstan bring their expertise, know-how and experience of working at the international level. Some of them provide Kazakhstan lawyers with certain skills, train graduates and junior lawyers in their offices worldwide, pay stipend and scholarships for continuing their education in the leading UK and US law schools, and as a whole, contribute to the development of the domestic legal market and improvement of the Kazakhstan legal system by taking part in various government committees, expert groups, etc.
The presence of foreign law firms also contributes to the development of competition, which in turn ensures the growth of the economy and the quality of professional services as an industry. Apart from that, there are less than 20 registered foreign law firms operating in Kazakhstan.

Mr. Abdiraiym noted that currently there are many professionals in Kazakhstan who were trained in foreign companies worldwide. This might be the case, however the world does not stand still and it is constantly evolving. The world economy changes rapidly. New technologies, industries and business practices emerge every day which require new knowledge, skills and experience. Speaking of experience, the local personnel with foreign education do not yet have enough experience relevant to their profession, not to mention international experience.

Furthermore, foreign law firms provide their legal services primarily to corporate clients on corporate and financial law, i.e. in the industries with a cross-border element and in the fields where Kazakh law firms do not yet have sufficiently broad experience. They target predominantly big businesses, i.e. foreign investors or national holdings. Legal services provided to Kazakhstan’s small and medium enterprises and to private clients on civil, administrative and criminal matters still remain a privilege of the Kazakhstan domestic law firms.

Regarding “a promotion” of English law, it is worth mentioning that England is the champion and the global leader in legal services. English law is one of the most sophisticated and well-developed systems of law in the world. Apart from that, English law is constantly evolving and always at the forefront of the development of international trade, business and commerce; it is adaptable to changes in economy and life science, not to mention for English law being an increasingly preferred choice of law to govern international commercial dealings. Many of the English law concepts used in corporate and financial transactions have not yet been reflected in the Kazakh law and legislation; therefore, they cannot be fully used to protect the interests of the contracting parties. In addition, it is highly unlikely that foreign investors would agree to apply Kazakh law to their transactions and resolve their disputes in Kazakh courts and arbitrations. Certainly, this trend is happening not because of the presence of foreign law firms who promote English law in Kazakhstan as noted by Mr. Tugel, but because of the lack of confidence in Kazakh law and its judicial system due to constant changes to laws of the country and the high level of corruption among judges.

One does not need to be an economic analyst to understand that any restriction to the activities of foreign companies could harm the economy of Kazakhstan as a whole and adversely affect the image of the country, constantly improving its investment climate and creating new opportunities for foreign investors.

The notion of “the dominance of foreign law firms” is not new, it has been frequently voiced in the media and discussed at various meetings, round tables and seminars with the participation of local and foreign law firms. However, the discussion is always structured around defining the problem, but not solving it. Licensing, passing qualifying exams and/or a mandatory membership in a specific legal association has repeatedly been suggested, as it is done for example in the UK or the US.

These ideas are generally good and right, however their implementation will require time, financing and a series of comprehensive measures, including among other things the development of new and the amendment of the existing legislation, as well as establishing a relevant regulation authority (perhaps based on the  existing professional associations), designed to carry out licensing, controlling, supervisory and disciplinary functions. Apart from that, in order to achieve those goals, it is vital not only to secure the government support and allocation of budget funds, but also to ensure that this is something that the lawyers from both domestic and foreign law firms really want.

The main question is, however, what those measures are needed for – to improve the quality of legal services and to impose liability for negligence or misconduct, or to eliminate competition in the face of foreign companies; and whether such actions are sufficiently transparent and efficient.

Certainly, it is crucial to support our local talents, to help them grow and develop, and also to protect the interests of domestic law firms, but this must be done in a civilized and a reasonable manner. Implementation of the above measures can improve the standards of legal services in general, but it cannot reduce the number of foreign law firms in Kazakhstan. What can prevent foreign law firms from employing local qualified lawyers who are members of the local professional associations?

It appears that instead of introducing restrictions on foreign law firms, one should focus on improving the competitiveness of the local Kazakh law firms. Here are some suggestions:

  1. In order to improve the quality of the legal services and to ensure that the Kazakhstan legal services embrace the international standards, it is necessary to provide high quality legal education and constant training to legal practitioners. This in turn will increase the level of trust by public, business and foreign investors to Kazakh lawyers.
  2.  It is vital to provide quality training for judges, arbitrators, mediators, etc. in order for them to have the understanding of judgecraft, equity, their role and what effect their decision will generally have in terms of delivering justice. This might encourage foreign investors to bring their disputes to Kazakh courts and arbitrations.
  3. It is necessary to establish a legal framework for regulation of the legal profession; and this must be done by legal practitioners themselves without interference by the state. This may include introducing practicing certificates or licences for legal practitioners, passing qualifying exams in order to maintain competition and quality of services. Everything however must be transparent.
  4. It might be sensible to establish a regulatory and a disciplinary body for the legal professionals on the basis of the existing National Union of Advocates and KazBar with a compulsory membership in order to ensure quality of services and to make the practitioners accountable for their misconduct. This, of course, must be transparent.
  5. It is necessary to invest in skills training and upgrading those skills, to support lawyers in effort to continue their education. Perhaps, the employers should take initiative and provide their support.

Improvement in the fields outlined above will translate into business opportunities and growth for the Kazakhstan economy both domestically and internationally; for the legal services is a vital part of this. These actions, however, require time and investment. Someone may say that it would be quicker and cheaper to restrict the activities of foreign law firms rather than implement the above mentioned steps. However, it is worth noting that something of a good quality and value needs patience, efforts and a hard work to be achieved. In the meantime, the market clearly rules where stronger, more skilful, more talented and experienced competitors win.

Kulzhan Mehrabi