Restrictions placed on foreign law firms setting up in certain jurisdictions, particularly in Southeast Asia, are slowly melting away. Governments are conceding to the inevitability of a globalized economy, and clients are becoming increasingly ingenious at working around the law to procure the expertise they desire. NAZNEEN HALIM considers the prospects of a liberalized legal system.
Local lawyers claim to welcome the competition. Foreign lawyers are eager to set up in high growth developing nations. However, while roadblocks are still very much in place when it comes to the presence of foreign law firms in jurisdictions such as Indonesia, Malaysia, Saudi Arabia and Brazil; countries such as India remain blatantly defiant to the idea.
High up on the Association of Southeast Asian Nations (ASEAN) 2015 Agenda is the liberalization of financial and economic sectors, including the legal services industry. Countries such as the Philippines, Singapore (which already allows the presence of foreign law firms via joint law ventures), Thailand, Vietnam and Malaysia have committed to writing their intentions to allow the presence of foreign entities. Malaysia, despite being still relatively closed off to the presence of foreign law firms in their entirety, has begun to open up the market in doses, and intends to allow foreign standalone firms by 2015, with the condition that they have operated as a joint law venture with a local law firm for a minimum of five years.
At present, the Malaysian Bar Council has approved the set up of foreign law firms for specific areas of practice including Islamic finance, international debt and equity capital markets, asset securitization, derivatives and structured products, corporate banking and corporate transactions and arbitration and mediation. However, these foreign law firms are not permitted to carry out real property transactions and litigation and representation. This gradual opening up has received lackluster response from international law firms, especially in the field of Islamic finance. The gains from opening up a law firm solely to carry out Islamic finance transactions, they claim, are too small in comparison to the cost of establishing a practice. “A lot of foreign law firms are reluctant to do this because it is not cost effective. There is just not enough profit in Islamic finance and it is not attractive enough,” a Dubai-based lawyer revealed.
As a Malaysian lawyer based in Indonesia, Hanim Hamzah, partner at Roosdiono and Partners (an affiliate of Malaysian law firm Zaid Ibrahim & Co) believes that liberalization is inevitable; especially in countries such as Indonesia, where foreign investors are eager to park their money and market potential is massive. “Indonesia is a closed market like Malaysia, where only local law firms can be established. However, because Indonesia is such a big market, foreign firms find ways to work with the local lawyers that they are comfortable with.
“Baker & McKenzie, one of the largest and oldest law firms in Indonesia, works in close association with Hadiputranto, Hadinoto & Partners. And you can see this happening across the board with other international players such as Allen & Overy, so there is definitely a lot of interest looking at Indonesia,” she said.
Hamzah added: “One of Indonesia’s agendas for ASEAN 2015 is to liberalize the market and allow foreign lawyers to practice in their market. From the feedback gathered from Indonesian law firms, it is evident that they are open to the idea, and aware that there are already agreements happening behind the scenes. So ‘why not make it legal?’ they say.
“In Singapore, foreign law firms can already have joint law ventures with local firms, and there are thresholds put in place to meet certain profits. This will attract foreign law firms, and is good for business.”
Don’t fear the reaper
Singapore, which has embraced foreign law firms in doses, already has a flourishing market with six licensed international players: Clifford Chance, Allen & Overy, White & Case, Herbert Smith, Norton Rose and Latham & Watkins; as well as 966 foreign lawyers registered with the attorney-general’s chambers. Relaxed but still well-regulated, the Singaporean treatment of foreign law firms has encouraged growth in the financial sector, created better opportunities for local lawyers, and increased the quality of legal services through competition.
“The idea behind bringing in foreign law firms is to enable the transfer of technology and expertise which local lawyers don’t possess, and create better infrastructure in terms of IT, research and databases. It is possible to create exceptions to the rule, in the case of some local bar associations which do not allow foreign firms to practice in areas such as litigation and family law, but allow representation for capital markets, banking and corporate practice groups,” Hamzah said.
Hamzah believes that liberalization is crucial for reeling in foreign investments, particularly in countries such as Indonesia: “When foreigners come in, they will expect the law firms to deliver. Not allowing this will stifle foreign investment, and it is imperative for the legal system to develop in tandem with a country’s development. Even if the market doesn’t officially open up to foreign law firms, it is happening anyway. The legal industry is a tough market with a shortage of talent, and the handful of good lawyers are already being snapped up by foreign firms.”
Industry players staunchly believe that it is possible to liberalize the legal industry without eroding the foothold that local law firms already have. Hamzah is certain that local lawyers will still maintain a key role in the industry despite the presence of foreign entities: “I believe that if you are a good lawyer from a good firm, and your clients appreciate you, you will have a very important role to play because you are local and are familiar with local issues. You can work together with the international firms to gain access to their clients and expertise.”
Steps such as learning the local language, familiarizing with local law and customs, setting a standard exam, among others, could potentially be introduced in order to avoid culture shock among local and international players. Rather than closing up entirely to an increasingly globalized market, governments should realize the benefits of opening up to foreign jurisdictions and not inadvertently sideline smaller local players. “If the model remains closed, only certain people with connections will benefit,” Hamzah concluded.