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The legal environment in Belarus is described variously as "particular" and "bizarre" by clients, but generally it is the system rather than the lawyers they take issue with. Certainly, those considering entering the Belarus market should be reassured that there is plenty of good representation from both local independent and larger regional firms available....

The legal environment in Belarus is described variously as "particular" and "bizarre" by clients, but generally it is the system rather than the lawyers they take issue with. Certainly, those considering entering the Belarus market should be reassured that there is plenty of good representation from both local independent and larger regional firms available. The latter began making strides into the market in 2006 when Arzinger opened its Minsk office, but it is yet to be breached by a UK or US firm. Thanks to some astute mergers and hires Russian firm Egorov Puginsky Afanasiev & Partners and Baltic competitor Sorainen now represent some of the best options on the market. International clients without the budget for one of the larger firms, who are not fluent in Belarusian or Russian, may encounter difficulties at smaller local firms.

The legal profession is in a state of flux. Structured similarly to that of the UK, there are two types of lawyers, advocates and attorneys, which are equivalent to barristers and solicitors respectively. Until recently, the division of entitlements and requirements conferred on each role was clear. Having passed the bar and obtained a licence from the Ministry of Justice, advocates could represent clients in all courts and advise on any area of law. Typically, their primary focus was civil and criminal cases. Conversely, attorneys were only permitted to provide advice on business related matters and only authorised to represent clients in commercial court. Though attorneys were not required to be members of the bar, they needed a qualification certificate and a licence or to work for a firm with one. After several years of infighting, however, a new law governing legal practice in Belarus was passed in December 2011. Chief among the reforms is the repeal of attorney's rights to represent clients in court, but arbitration has not been affected.

Although the new provisions were implemented in April 2012, there is a transition period of 12 months before they come into effect. In this time, attorneys wishing to litigate or act in dispute resolutions have a decision to make: join the bar or cease these practices. Attorneys can become advocates after completing a practical training course of 3-12 months, depending on previous experience and passing a simplified bar exam covering criminal, family, and housing law. This riles lawyers for as one remarks: "No one can ensure that during this period we can continue to provide legal services to our clients." There is an exception. Those with at least five years practical experience can become an advocate at the state's behest.

A further disincentive for lawyers is that the bar, which is based on an "old soviet model," is ostensibly in the process of being reformed. "It is difficult for any commercial lawyer to go to the bar at the moment because we do not know how we are going to work there. The conditions of our work will change according to the bar," says one lawyer.

When considering the state's objectives behind implementing the reforms, commercial lawyers generally agree it is to encourage them to join the bar so the state has greater degree of "control over legal services and private businesses" and "to liquidate attorneys as a class". One lawyer explains: "the government or some people who lobbied for this reform want all lawyers to be united in one legal profession – advocates – which is much more strictly controlled by the state which in practice is not independent. The authorities can cancel a bar licence very easily for any act which they do not like."

International and domestic firm's each feel the other will be more adversely affected by the reforms. Lawyers from the former say it will not impact their businesses too heavily as litigation typically only represents approximately "10% of the turnover the company" whereas at local offices it is a "far higher" proportion of the work. Paradoxically, practitioners from domestic firms say it will not impact their business as, unlike their foreign rivals, they can make use of a provision in the law which allows for the establishment of a non-commercial "advocate bureau," which would function as the firm's litigation arm.

These various ambiguities in the law mean rumours that there will be further lobbying, pushing for the exclusion of the article from the new law which prohibits attorneys from practicing in commercial court, highly likely. Worryingly for attorneys, there are also rumours that the reform is just the first step and that there will be "an abolishment of legal licences," so "legal services can only be rendered by advocates".

CONTEXT AND TRENDS Economically and politically, Belarus has had a turbulent 18 months. During the run up to the country's last presidential election in December 2010, authoritarian incumbent Alexandr Lukashenko, who has been in power since 1994, drastically increased public sector pay with some reports estimating by as much as 50%....

Economically and politically, Belarus has had a turbulent 18 months. During the run up to the country's last presidential election in December 2010, authoritarian incumbent Alexandr Lukashenko, who has been in power since 1994, drastically increased public sector pay with some reports estimating by as much as 50%. Although successfully reinstated for a fourth term, his victory was vehemently contested by the opposition who accused him of vote rigging and with around 80% of the economy under state control at the time, his party's pledge caused massive macroeconomic instability. With the price of historically, heavily subsidised Russian oil and gas rising and the wage hikes in place, the drain on the economy began to take its toll. In early 2011, the country entered a balance of payments crisis due to its massive trade deficit, which stood at $902 million in January compared with $2.7 million for the same period a year earlier. This resulted in a vast decrease in gold and currency reserves; the virtual disappearance of foreign currency from banks as locals exchanged their depreciating Roubles for Dollars or Euros, and hyper-inflation, which reached a high of 108%. In May, the deepening crisis, which had reduced currency reserves to €3.8 billion and left Belarus with an account deficit of 16% GDP, prompted the Central Bank to lift exchange rate controls devaluing the Rouble by 36% against the Dollar. Additionally, Lukashenko accepted a €3 billion loan from the Eurasian Economic Community, a fund headed by Russia, on condition the state will sell of assets and initiate radical economic reforms over the next three years.

This was not the end of the turmoil, however, and the beleaguered country applied for a stabilisation loan of between €3 billion and €8 billion from the IMF (International Monetary Fund) only to be rebuffed on the grounds of its recent human rights violations, which include beating and imprisoning opposition members and protestors. The IMF was also reluctant to provide more funding after the state failed to adhere to the conditions of a €3.46 billion loan it received in 2009, notably restricting public sector salaries. With the situation worsening the Central Bank allowed a managed free float of the Rouble, unifying the official government rate with the free float rates, bringing it down by 52% against the Dollar in one day, but in the long term enabling the Rouble to appreciate. At the same time the government introduced sharp budget cuts reducing financing for investment programmes by 30%. The state's dependence on external financing aligned with the measures taken to stabilise the currency saw Standard & Poor relegate the Belarus to junk status in September 2011, downgrading its long-term bonds to B-. A few months earlier, Moody's took a similar step, reducing its rating to B2.

For law firms, this has meant a dearth in corporate work and increase in finance transactions as businesses attempted to ride out the crisis. "Because of the lack of equity finance, the lack of investment activities in the country, basically, the companies were looking to refinance existing debts and attract new loans," explains one managing partner. Banking and finance was ostensibly "quite attractive for the lawyers" as Belarusian companies, which are heavily dependent on external financing, were "very active soliciting finance from overseas – European and Russian – banks". With the plight of the economy so uncertain one trend in regard to "major financing transactions" has been that "they are almost always secured by the guarantee of the Belarusian government," because "it is the most reliable form of security there is at the moment".

Privatisation has been "one of the most debated" topics in Belarus for the last 10 years. Traditionally, the state's protocol was to prepare a list of "hundreds of companies" for sale through auction, but typically "nothing ever happened". In 2011, however, in desperate need of capital the state was forced to sell. "I think they did maybe 12 auctions and I think about 60 or 70 small enterprises were offered through these auctions. Out of them, maybe 10 were sold," explains one lawyer. Privatisation was given further impetus by Belarus' recent economic saga. A condition of its €3 billion loan from the Eurasian Economic Community, which will be released in tranches, is that it sells off €7.5 billion worth of state assets over three years. In 2011, Belarus met its annual €2.5 billion quota by selling its 50% stake in Belarus gas pipeline firm Beltranshaz, which is responsible for pumping 20% of all Russian gas sold to Europe, to state-owned gas monopoly Gazprom. The deal also included the promise that Belarus would be able to buy gas at 60% below the market rate in 2012. Much to the chagrin of Russia, which stands to benefit most from privatisation in Belarus by accruing a number of lucrative businesses, the government has not been forthcoming with further potential targets in 2012. In fact, the Government has changed tack in regard to how it plans to dispose of assets. "In the New Year president Lukashenko adopted a new approach. He said why do we have all these hundreds of companies on the list, why should we indicate some are for sale and some are not? Why are we treating employees of the same sector differently? They are all working of the government so we should not differentiate," says one partner. Notably, where the sale of one company was discussed, an astronomically high price was placed on it. The state's prize asset Belaruskali, one of the world's largest producers of potash fertilizer, was valued at €30 billion and only a minority stake was offered for sale. Going forward no one knows what to expect. "It could be both," says one practice head. "There could be no privatisation at all or the same wave could continue in the second half of the year and the first half of 2013. Most likely, it will continue in the same manner as before. Some privatisation depending on the needs of the economy to sustain external challenges and so on."

Recently, Belarus' further strengthened its ties with Russia. Along with Kazakhstan, the two countries agreed to establish a "common economic space," a single market for goods, investment and labour between the member states. Since January 2012 when the pact came into effect, lawyers note "a lot of Russian investors came to Belarus" looking to "significantly increase their activities". The most substantial commitment by Russia in its former satellite state came when it signed the deal to build the country's first nuclear power plant in July 2012. Moscow has agreed to finance the $10 billion construction of the 2.4 gigawatt nuclear reactor, which will be built in the former Soviet republic's western Grodno region by Russian state-owned company Atomstroyexport.

In terms of legislative developments there were a number of amendments to the tax code introduced in January 2012. Among the key changes were a reduction in the rate of corporate income tax from 24% to 18%; provisions permitting tax payers to carry forward loses from 2011 onwards for a period of 10 years; the introduction of thin capitalisation rules, which become effective in 2013 and transfer pricing rules.