Agriculture, Direct Speech, Funds, Latvia, Legislation, Markets and Companies, Ukraine, USA

International Internet Magazine. Baltic States news & analytics Tuesday, 22.09.2020, 05:00

Even the FBI and the U.S. Attorney General have shown interest in the violation of Latvian entrepreneurs’ rights in Ukraine

BC, Riga, 07.09.2020.Print version
Latvian businesses are not only determinedly increasing their exports, but also expanding their operations to various countries, also beyond the European Union. Jānis Lagzdiņš, Managing Partner at PwC Legal Latvija, explains what to prepare for and what problems may be encountered.

Based on your experience — is the number of entrepreneurs who seek your help due to having run into problems abroad increasing or decreasing?


If we compare the situation to ten years ago, then the number of cases where professional legal advice is required is decreasing. The explanation could be that our entrepreneurs have become smarter and do not begin operations abroad based on emotion alone — to just invest free assets. Nowadays, the majority of entrepreneurs prepare ahead of time, study the potential market, the competition and possible partners, they plan out their business activities in greater detail. Likewise, much more focus is placed on various legal aspects. For example, if the plan is to create a joint venture, then prior to starting cooperation, the relevant conditions are set out as to how the company will operate, how decisions will be taken, who will manage the company, what will be the rights and obligations of each partner, and how disputes will be settled, if such should arise, various exit mechanisms are installed that can be activated by either party in case of significant disputes so as not to stall or impact the operation of the company.


What are the most common issues for which entrepreneurs seek legal assistance?


Each situation is unique and everyone has their own problems. If we all knew everything going in, then we would not encounter any problems. Things that seem insignificant are often overlooked and can later cause major conflicts. It is difficult to accept that many countries have a different mentality. For example, in Latvia when an entrepreneur takes out a loan, they plan to repay it. However, there are countries were the practice is: if all goes well, we will repay it, if not, then not. There are also countries where defaulting on loans is almost a mark of honour. So, you have to understand that your partners may be very different from you. We also know about the relatively unfortunate experience of “Valmieras stikla šķiedra” AS, a very good and successful company, with their factory in the USA, where their subsidiary “P- Valmiera Glass USA Corp.” had to suspend their second phase operations. The company had analysed and anticipated seemingly everything, the management, as well as the shareholders and the banks providing loans all believed in the company’s success. But in the end, one of the reasons for failure turned out to be such a trivially simple matter as labour and its specifics in the particular state which had a major impact on what “P-D Valmiera Glass USA Corp.” is currently experiencing.



Latvian media are also reporting on the conflict between Latvian company “LU Invest” and its partners in Ukraine. You have provided legal advice to our entrepreneurs in this case as well. What was missed there?


This case goes to show that problems can arise even if everything is carefully planned out and prepared. From a legal point of view, all agreements and the statutes of the joint venture were elaborated carefully. An agreement was reached on the management of the joint venture etc. It seemed like a perfect union — one of the shareholders has the needed expertise in agriculture, while the other has the necessary funding and a desire to invest it in Eastern Europe. But in this case, the partner — seemingly a respectable US foundation “NCH Capital” — was misjudged. Going back in the investigation, other similar cases have also been identified, from which it could be concluded that this is not the first such unseemly case for “NCH Capital” in Ukraine.


Each country has its own unique court system as well. For example, the Ukrainian court system is known to be corrupted. Do you take that into consideration? And what can be done in such cases?


Yes, our interaction and experience with the Ukrainian court system has been more than interesting, to say the least, and the progress in the “LU Invest” and “NCH Capital” case is cause for some concern and suspicions.


Primarily we deal with issues at a national level according to the specifics of each country and through our network of offices, but if that is not possible, then we make use of all tools at the disposal of our clients.  Thus, in this case, Latvia has signed an agreement with the state of Ukraine on protecting investments and based on this agreement we are drafting a claim against Ukraine for its failure to fulfil its obligation to protect the rights of the investor.


We are also using other international instruments to resolve the conflict. For example, we are collaborating with the U.S. Securities and Exchange Commission, as well as the U.S. Attorney General and even the Federal Bureau of Investigation.


In any case, we are expecting international litigation and have involved not only our colleagues in Ukraine, but also the PwC London office, which will help us represent the Latvian company in international arbitration.


So the case will go to court in Great Britain?


 Most likely it will be the United States of America, but other venues are possible. We are still actively working on this and I do not want to disclose all the details at this time. But I do think that as soon as the case reaches international arbitration, it will become very public.



Yet Latvia has previously not had the best experience with international arbitration...


I would hesitate to comment on cases where we have not been involved in the litigation. Yes, these are usually serious cases, when only hiring foreign attorneys is often not enough. The right representation is needed, a large team working in several countries simultaneously that can find a common solution. I believe that the team is the key to successfully litigating a case. And I mean “team” in a broader sense. It is more than just experienced specialists in their area from each country who are stuck together and work as a team. That, of course, is also good. Better than nothing, as they say. But by a team, I mean a truly unified, integrated team working together from project to project, case to case. That is what gives the team real power. And a unified international team is what is most powerful in these cases of international arbitration.


What about Latvia and the Court of Justice of the European Union?


I think Latvia has a significantly better track record with the Court of Justice of the European Union (CJEU). The CJEU hears cases pertaining to EU law.

Have you represented any clients at the CJEU?


Yes, I have indeed had the honour to represent a client at the CJEU on a very interesting case. The Court was requested to issue a preliminary ruling regarding the special VAT regime for goods containing precious metals or precious stones.


It was a very interesting process with Egils Levits, the current President of Latvia, as the chair of the judicial panel.


What company was this?


I would rather not say.


Alright. But collaboration with the U.S. Securities and Exchange Commission seems to be something new for Latvia.

Yes, Latvia does not have a lot of experience in this regard as we rarely come across regulated U.S. businesses. But “NCH Capital” is supervised by the Commission. Our initial experience with working with the Commission is very positive, we went to the US and together with our American colleagues and people from the Latvian Embassy we gave a presentation to the Commission about the Latvian company’s partnership with “NCH Capital” and the violations identified so far. We were pleasantly surprised about the interest that the Commission representatives took in the matter in substance, how in-depth they went. It seemed that they were surprised about what had happened and that something like that was at all possible. Of course, the Commission does not inform us about their investigation and what they are doing. But unofficially we know that the investigation is ongoing and certain action is being taken. From the point of view of the regulated companies, it is clear that none of them want to end up in the spotlight of the U.S. Securities and Exchange Commission.


As regards the power and influence of the U.S. Securities and Exchange Commission, there is a recent case I can mention as an example: just last year US retail giant “Walmart” agreed to pay a fine of more than 144 000 000 USD for violations of the Foreign Corrupt Practices Act in Brazil. They agreed to pay such a big fine as a settlement to avoid further investigation. This is the level of fines we are talking about. That is real power.


We are collaborating with the U.S. Attorney General’s office and the Federal Bureau of Investigation (FBI) who have also taken in interest in the case. Due to the restrictions introduced as a result of the Covid-19 pandemic, a meeting in the USA was not possible, however, we have already set a date for a remote video interview. This will definitely also be an interesting experience and something completely new and different. But I believe that in collaboration with our American colleagues we will be able to provide all the information and facts that the investigators need.


And then entrepreneurs have no other choice than to turn to you — the attorneys. How do you choose a partner, why do they choose you?


The choice probably fell in our favour because we are a major international law office. We have offices throughout the world and we can help entrepreneurs there. Our experience and competence allows us to not only suggest a strategy for protecting our client’s interests, to protect our client’s interests in court, but also to identify the best forum for protecting the client’s interests and to have the client’s arguments heard and examined at the highest level in almost any country in the world.


Furthermore, we are not only lawyers, we also have very experienced business consultants, tax consultants on our team. This helps us gain an insight into the client’s business, so that we can understand the essence of the case, the specifics of the business from the very outset and suggest the best solutions.


We can offer complex solutions, for example, in the areas of taxes, cybersecurity and finances all under one roof. For example, we had a case once where our client had tasked us with performing due diligence on a company they wanted to acquire. In collaboration with our colleagues from the tax and financial consulting teams we were able to conclude that there is a high probability that the company was paying their employees under the table. In the end, based on these findings the client decided to not acquire this company, even though everything had initially seemed perfect and the due diligence was requested almost just as a formality.


I think that another strong point of ours is that we have sufficient experience, but we are young enough to be venturous, brave enough to take calculated risks and focus on attaining the results our clients need. Ardour and a spark in the eye is what modern consultants need. Not only lawyers and attorneys, but consultants, too. You have to able and most importantly — willing — to take an in-depth interest in the client’s issue in substance, to the bone, so to speak, going into the finest detail.


What would you suggest that entrepreneurs keep in mind when preparing to do business abroad?


The more preparatory work you put in initially and the more detailed the elaboration of the conditions of cooperation, the less chance of litigation. But if an entrepreneur does find themselves in an argument, dispute or litigation — choose and create a team carefully and make sure that the whole team, not just part of it, is going in-depth in the problem and issue in substance.

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