Sanctioned VTB Keeps Its Magic Circle Lawyers and Heads to Court

(Bloomberg) -- While London's law firms have struggled to explain publicly whether they can continue to represent certain Russian clients, one of the U.K.'s largest legal outfits had an immediate decision to make.

Freshfields Bruckhaus Deringer LLP has applied to work for heavily sanctioned bank VTB Bank PJSC in litigation stemming from the fallout of the “tuna bond” scandal in Mozambique. At the beginning of a two day London hearing, attorney David Railton said the U.K. on March 1 granted a “general license” allowing VTB to pay “reasonable” legal fees and expenses to Freshfields, despite the sanctions.

“There is no prohibition on us appearing at and participating in this hearing,” Railton told the judge Wednesday. “As a matter of professional obligation, we consider we should do so.”

City law firms, facing increasing pressure from lawmakers who've criticized them for enabling Russian oligarchs to operate across broad swathes of the U.K., are grappling with the question of representing them while facing sanctions for Russia's invasion of Ukraine. One lawyer's association emphasized that everyone should be entitled to legal advice “whoever they may be.”

“Without an appropriate license it would not be possible for VTB to pay its lawyers,” Railton said. “It's ability to fund this litigation would in theory be cut off.”

Freshfields declined to immediately respond to a request for comment.

Freshfields had already applied for a specific license from the U.K.'s Office of Financial Sanctions Implementation, before the agency published the broader notice Tuesday night, saying VTB may make payments to its lawyers. But Mozambique's attorney Jonathan Adkin warned the exemptions would not allow the bank to make other funds available, including if it was forced to pay the government's adverse costs.

The litigation stems from a controversial fundraising led by Credit Suisse Group AG and VTB that saw hundreds of millions looted from the southern African nation.

“It has the potential to have a massive impact on the future of this case,” Adkin said Wednesday.

Still, none of Freshfields' American lawyers can currently work with VTB. Separate U.S. sanctions on the bank put restrictions on any U.S. persons including its lawyers, Railton said.