oing Business in "Wild East".

• 1. DOING DEALS.
• 2. EXPLOITING RUSSIAN TECHNOLOGY.
• 3. PROSPECTS FOR THE FUTURE.
• 4. CONCLUSION.

In the minds of many foreign business people, Russia is the "Wild East", a land where legal restraints and protections are nonexistent. In fact, one American/Atlanta-based international business consultant recently went so far as to describe Russia as "virtually a lawless land".

This mindset leads some to avoid doing business in what they perceive as a thoroughly corrupt, anarchic market. Others are mesmerized by the windfall possibilities in a perceived "anything goes" environment.

Neither of these extreme perceptions is entirely warranted. Although its legal system leaves much to be desired, Russia is not "lawless". Russian law offers some measure of protection as well as certain dangers to Western companies. Anyone contemplating doing business there would be well advised to arm themselves with the former and guard against the latter.

1. DOING DEALS.

In many parts of the world, such as the Far East and most of the countries in Europe, parties prefer brief, sketchy contracts which outline their rights and duties in general terms. Russian attorneys and ''business men'', on the other hand, tend to share the penchant of lawyers for more detailed contracts. The Western party is well-advised to take advantage of this fact by employing written agreements which exhaustively cover all contingencies. Because Russian commercial law is still developing, parties in a deal cannot count on a statute being in place to "fill the gaps" in their contract. European and Asian business people should also be on guard for peculiar contract formalities inherited from Soviet law. For instance, "contracts in foreign trade" with certain Russian entities must be signed by two authorized persons. Otherwise they are null and void. This rule is a relic of the former Soviet Union's obsession with maintaining totalitarian control. The co-signer requirement served as a check against a single individual yielding too much authority. Western parties must also be careful to include an arbitration clause in their contracts. Russia is a signatory to international treaties providing for the enforcement of foregoing arbitral awards, including awards by most western arbitrators. In fact, a Russian civil court recently ordered enforcement of a $1.5 million award from a British arbitration tribunal against a Russian party. For parties preferring to arbitrate on "neutral" territory, the European and the American Arbitration Association and the Russian Chamber of Commerce and Industry jointly developed a model arbitration clause in 1992 providing for arbitration in Sweden.

A western company failing to employ an arbitration clause may wind up in a Russian court. The Russian court system has undergone tremendous reform in recent years. In November -92, for instance, two Gypsy brothers were acquitted of murder in Russia's first jury trial since 1917. Nevertheless, the prospect of litigating in a Russian court should not appeal to most Westerners. It is important, of course, to recognize the limitations of contractual guarantees. Even an air-tight contract providing for arbitration in Stockholm, Sweden may provide little protection against outright fraud by an insolvent Russian party. Thus, although a well-drafted contract is essential, the Western party must also get to know its prospective Russian partners or customers and thoroughly evaluate their authority, solvency and trustworthiness.
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2. EXPLOITING RUSSIAN TECHNOLOGY.

Russia's intellectual property laws illustrate some of the pitfalls and opportunities lurking in Russia. Many Western entrepreneurs have been intrigued by the possibilities afforded by Russian technology. Although Soviet economic policies proved to be a colossal failure, the Soviet economy succeeded in developing an educated work force with more Ph.D.'s per capita than all countries in Europe, particularly in certain specialized scientific and technical areas. Moreover, because of their relative isolation from the rest of world, Russian scientists and technicians developed unique responses to many technical problems. For instance, Russian computer technicians compensated for their lack of fast computers with software tricks. Similar conditions in another Eastern Block country, Hungary, spawned Graphisoft, whose "ArchiCAD" package has grabbed one-third of the global market for architectural programs on Macintosh computers. Russia has acted quickly to modernize its intellectual property laws, partly in an effort to attract and re-assure Westerners seeking to invest in Russian technology. In October 1992, Russia enacted four new laws covering patents, trademarks, integrated circuits, and computer databases. In July 1993, the Russian Supreme Soviet passed a new copyright law which, on paper at least, essentially brought Russia up to world standards. Significantly, these laws enable an employer to retain the rights to software, databases and patentable technology developed by its employees. Thus, some Western companies have contracted directly with Russian institutes for research. Among the perceived advantages in such an arrangement are the cost savings to the Western company, since most of the researchers are paid the equivalent of less than $350 a month. The intellectual property area also illustrates some of the legal pitfalls of doing business in Russia. One common pitfall to be avoided is the purchase or license of existing technology from a party that does not legally own it. Often, the only way to protect oneself is to obtain written releases from all co-researchers (and their current and former employers) who participated in developing the technology. Another trap for the unwary is a law giving the employee the right to apply for a patent if the employer fails to do so within four months of being notified of the invention.
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3. PROSPECTS FOR THE FUTURE.

The success of Vladimir Zhirinovsky and other hard-liners in the parliamentary elections, coupled with the departure of key reformers Boris Fyodorov and Yegor Gaidar from Yeltsin's cabinet, have alarmed many in the West. For instance, a January 1994 article in a local newspaper carried the banner: "Russian reform now a sinking ship". Although these developments are unquestionably disturbing, suchsentiments are unduly pessimistic. The pace of change will certainly be slow. As Russia's Prime Minister, Victor Chernomyrdin, stated in January -95: "The period of market romanticism is ended". Nevertheless, basic legal reforms already in place protecting private and foreign investments are unlikely to be reversed.

Under the tutelage of Russia's former liberal Privatization Minister, Anatoly Chubais, (now reinstated), over half of the 196,000 state-owned enterprises have been privatized. Approximately 40% of the work force is employed by private companies. Furthermore, there is consensus among most factions in Russia that some degree of legal reform is necessary to create an environment conducive to entrepreneurship. They disagree over how much, how fast, and how to do it, but are nevertheless able to find areas of common ground. For example, the hard-line parliament dissolved in September/October 1993 passed progressive copyright legislation just two months prior to its violent showdown with Yeltsin.

Hopefully, similar progress will be made in other areas notwithstanding the number of hard-liners in the new parliament. On March 6, 1994, Yeltsin submitted to the Duma (the lower house of the legislature) a list of 54 pieces of legislation which he intends to introduce. He indicated that his highest priority will be establishing a "normal, civilized judicial system". Thus far, the prospects for passage of several of these bills looks good.
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4. CONCLUSION.

There are many problems associated with doing business in Russia -- pervasive corruption, organized crime, primitive telecommunications, a deteriorating transportation infrastructure, the collapsing ruble, and a heavy handed government bureaucracy, to list but a few. The lack of a stable legal environment is not the least of those problems.

Nevertheless, characterizing Russia as a "lawless land" is too simplistic. Westerners can and should mitigate their legal risks through close attention to Russian laws.
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