During my first telephone interview with Thomas Donovan, of Iraqi Law Alliance (ILA), our phone conversation cut out half way through. Used to speaking long-distance to the developing world, I simply assumed it was technical problems. I was a little shocked to receive an e-mail a few minutes later saying, “Cannot speak on the phone now – our satellite dish has just been blown off the roof.” My mind immediately conjured up an image of Donovan emailing me while bullets and rockets pinged off the ILA building in downtown Erbil. Was the country really still in flames?
Once Donovan and I rescheduled our interview, he laughed at my assumption, and said, “Things here are pretty quiet. Our dish blew off the roof in a storm.” Still, my first reaction demonstrated the instinctive response of people in the West to any mention of Iraq. This image simply isn’t true anymore. While there are still security risks (see boxout), Iraq isn’t any more dangerous than the average developing nation.
The anti-war NGO Iraq Body Count, which carries out research to estimate the total number of civilian deaths in Iraq, claims that the average number of civilian deaths due to combat in Iraq has dropped to five per day, down from 500 per day in 2006. Iraq has dropped out of the US State Department’s list of the ten most dangerous places on earth.
With this 100-fold drop in violence, international business interests are beginning to flood in – everyone from the usual suspects, oil companies and merchant banks, through to more esoteric operations such as international hotel chains and theme parks. However, no major international law firms have yet opened an Iraqi office, although several plan to. Part of the reason I was speaking to the leading Western lawyers operating in Iraq was to find out the challenges international firms have faced in the past and may face in the future.
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In May 2003, when the Iraq war was declared over, major firms were queuing up for the business that would inevitably come from the reconstruction of Iraq. Many US firms with large Middle East practices, such as White & Case, Patton Boggs and Bryan Cave, ultimately hoped to usher multinational and Middle Eastern clients into Iraq.
Britain’s Clyde & Co were the first firm to actually set up – they were operating in Iraq within a month of the cessation of hostilities. The firm had established an agreement with Numan Shakir Numan, one of the largest Iraqi firms to survive the Ba’athist regime. Clyde & Co’s hoped to repeat the success that had come to them as the first firm to risk setting up an office in Belgrade in the wake of the Yugoslav conflict. Clyde & Co intended to operate a fully owned office in Baghdad – and were going to transfer up to one-sixth of their Middle Eastern staff into it, as well as provide leadership by transferring London-based partners from the firm’s Middle East advisory board.
By mid-2003, three Clyde & Co lawyers were in place, working at Numan Shakir’s offices. Clyde & Co partner Paul Turner, in an interview with The Lawyer, said, “We can do a lot by being there in the early stages. In Iraq there are tremendous opportunities, but it’s complicated.” It was more complicated than anyone expected.
By September 2003, Clyde & Co had shelved their expansion plans. The security situation had deteriorated, with constant violence in every major city and town. Turner, who had been slated to be the leader of Clyde’s Iraq team, admitted that it was “too dangerous to be working there.”
In addition to the risks of insurgency, British firms were stymied by the US provisional government’s refusal to put legal work in the hands of non-US lawyers, no matter how big they were. For example, Freshfields were unceremoniously removed from a contract sorting out the messy residue of the Oil for Food programme, at the insistence of the head of the Coalition Provisional Authority (CPA), Paul Bremer.
Also, the business for commercial lawyers in Iraq simply did not exist. Even those US firms blessed by the CPA, such as Patton Boggs, Pillsbury Winthrop, Vinson & Elkins and Piper Rudnick (now DLA Piper), who did set up Iraq reconstruction practices, did not find the much-touted reconstruction to be the expected goldmine. The US government construction contracts proved elusive; with an unaccountable proconsular government in the form of the CPA, very few legal cases arose. There was no appellate court system, even if the client did disagree with a CPA ruling.
There were other concerns for big outside investors playing the long game. In the political turmoil of 2003-2005, they feared being stung by a sudden shift in policy.While the US CPA’s laws were favourable to foreign investors, allowing them, for example, to own 100% of a company in Iraq (decidedly unusual in the protectionist Middle East), investors were worried that an incoming, potentially radical Iraqi government could modify or repeal these laws, or introduce an element of Shari’a law to complicate or invalidate finance arrangements.
Outside clients were eagerly awaiting the day when they could make direct investments in Iraq – building power plants or drilling for oil. But no one was willing “to bring billions of dollars ashore” until a proper sovereign government was in place, said Vinson & Elkins’ James Loftis, co-chair of the Houston-based firm’s Iraq group.
Some persistent firms, for example, Pakistan’s Al-Tamimi, maintained Iraq operations, but most firms ran these at arm’s length from Qatar or Dubai. Even Al-Tamimi closed the doors of their Baghdad office in 2006, due to the worsening security situation. The Al-Tamimi lawyers remained on the ground, working for the firm, but were “mostly working from home”, according to a statement by the Al-Tamimi press department.
However, some bold Western lawyers did decide to stay on, and open their own practices. Their persistence was rewarded: Iraq Law Alliance, for instance, a three-person firm staffed by Western lawyers, has become one of the biggest players operating in Iraq.
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At the height of the insurgency in 2005, ILA was founded by three lawyers who all had Iraq experience with other firms. Thomas Donovan, one of the founding partners, once worked in the Middle Eastern arm of a Texan law firm. With all the usual international commercial law firms staying out of Iraq, ILA has thrived and prospered. “We have seven out of ten of the world’s largest oil companies on our books”, says Donovan – indeed, how many other three-man firms can claim that sort of client base? “All our lawyers are registered with either the American Bar Association, or the English Law Society,” says Donovan. “Most international attorneys can’t practise here, because you have to be registered with the Iraqi Bar Association to get a licence.”
This registration, a tortuous process, is one of ILA’s big advantages over international firms: all three of its Western-educated lawyers are also registered with the Iraqi Bar, enabling them to actually take cases to the courts. The vast bulk of ILA’s work is involved with company registration (a complex process in any Middle East jurisdiction) and negotiation over oil licences, where their understanding of the intricacies of the Iraqi system has enabled them to build an unblemished reputation.
They have been able to avoid, for instance, the sort of problems which Baker Botts encountered while acting for Hunt Oil in 2007, when they attempted to negotiate directly with the Kurdish regional government for oil exploration rights, bypassing both the central Iraqi government and the CPA. Both the Iraqis and the Americans were furious. The Iraqi government blacklisted Hunt Oil, effectively barring them from bidding for any further Iraqi oil rights – a decision that cost the oil company millions.
Between 2006 and 2009, ILA was, in their own words, “the only legitimate firm operating on the ground in Iraq.” Their four years of experience with the Iraqi legal system, not to mention the goodwill they have accumulated with the Iraqi Bar and judiciary, have left them experts in their own niche field. “You have to be really careful,” says ILA’s Tom Donovan. “There are all sorts of buccaneering types operating out here. Some so-called firms are just a couple of disbarred attorneys and a telephone.”
The deceit is not just limited to these disbarred attorneys either. “Some big firms claim to have an Iraq office, but usually that is just one partner in Dubai who will call us or Iraqi locals to do the work, then take the credit.”
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You would think this sort of sham wouldn’t be the sort of thing to catch out major international players, but a source at JPMorgan Casenove told Client Report that the merchant bank had been badly burned by a major law firm relying on Iraqi ‘legal consultants’.
JPMorgan had planned to speculate on Iraqi oil licences by buying them up using Caribbean-registered shelf companies, then selling them on to real oil companies at a profit. “It was something that had worked successfully in Libya – we were assured that the legal framework there was similar to Iraq’s.” Sadly, it turned out that the Iraqi ‘legal consultants’ who all concerned were relying on had misled the lawyers acting for JPMorgan, who thus had unwittingly misinformed the bank.
In fact, while the Iraqi and Libyan systems are similar, the Iraqi legal system is a complex and difficult beast, even by the standards of Middle Eastern jurisdictions. The civil code is, according to Donovan, a mix of “pre-Saddam French-influenced Turkish law, coupled with the remnants of the Ba’athist Saddam era legal system.” Layered on top of this are the orders of the Coalition Provisional Authority (CPA), as well as law passed by the current Iraqi government. The CPA rules only allow 14 well-known oil and gas giants to bid for the highly valuable licences.
Thus, JPMorgan were left with worthless shelf companies and money squandered. “We’re talking about a loss in the hundreds of thousands, but it was still humiliating,” says our JPMorgan source. Indeed, this example highlights not only the complexity of the Iraqi system, but also of the need for qualified and trained lawyers on the ground.
However, now that the security situation is stabilising, ILA are increasingly facing competition in that field, as investors return to Iraq and lawyers follow them.
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Al-Tamimi recently reopened their Baghdad office with much fanfare, feeling that it is safe enough to allow their lawyers (who were working from home) to return to their desks. Equally, other large firms have been making noises about returning. Denton Wilde Sapte’s chief executive, Howard Morris, has stated that the legal market in Iraq is ripe for a firm like Dentons, with an energy and infrastructure focus. Morris intends to launch a branded office in Iraq if studies currently ongoing show that such an office would be “commercially viable.”
A source close to Clyde & Co has told Client Report that the firm still has ambitions in the region, with a plan to put 30 lawyers on the ground in Baghdad in the “foreseeable future.” Paul Turner, the Clyde & Co partner slated to head the Iraq team back in 2003, would undoubtedly be at the heart of any such operation, having spent the last five years dealing with Iraqi issues from Jordan and Turkey.
Equally, large US firms with Middle East operations, like Bryan Cave and White & Case, who have mostly operated on secondment to the US government, are increasingly thinking in terms of switching to representing private and business clients in Iraq, and opening Baghdad offices. Alex Kritzalis, the head of White & Case’s Middle East practice group, said that “from banking to telecommunications to project finance work and so on, the need for lawyers is going to be huge.”
When asked whether they were concerned about the increasing levels of competition, ILA lawyers seemed relaxed. “We have six years of experience and goodwill built up with clients and the Iraqi judiciary – that doesn’t go away overnight,” said Thomas Donovan. But, Donovan is pessimistic about the continued chance for stability in Iraq. While he appreciates that renewed turmoil may be good for his firm in the long run, he feels that “the sectarian violence, the age-old hatreds you have here, are bound to flare up again. This peace you have at the moment – it’s a peace of exhaustion.”
Perhaps Donovan is right. As we went to press, a huge car bomb ripped through a Baghdad market, killing 80 people. But for the moment, the legal market in Iraq is rapidly becoming less terrifying and more lucrative – ILA proves that the business is there, if you are willing to run the risks.
Security and Iraq
According to the US State Department, Iraq remains “dangerous and unpredictable, despite the recent improvements in security.” Attacks against military and civilian targets throughout Iraq still occur, including in Baghdad’s International Zone (the heavily guarded, 11.7-square-kilometre ‘Green’ Zone in central Baghdad). There have been a handful of attacks on civilian contractors this year, mostly roadside bombs but civilians have also been targeted by mortars, rockets and suicide bombings. There is still a risk of kidnapping but the most recent confirmed kidnapping of an American citizen occurred during July 2008 in Nassariya.
A contractor interviewed by Client Report, who regularly travelled all over Iraq, said, “All I saw in two years were bullet marks on armoured vehicles. I’ve heard several explosions, including one from a suicide attack, but nothing closer than a few kilometres from me – if you’re used to working in the third world, it’s all pretty much de rigueur.”
Most of those interviewed by Client Report for this story told us they were more worried about crime than insurgency. The British embassy tells us that petty theft is “common” in Iraq, including thefts of money, jewellery, or valuable items left in hotel rooms and pick-pocketing in busy places such as markets. Carjacking by armed thieves is “very common, even during daylight hours, and particularly on the highways from Jordan and Kuwait to Baghdad.”
Still, this is nothing unfamiliar to those working anywhere in the developing world. Needless to say, working in Iraq may not be for everyone, but the rewards are rapidly beginning to outweigh the risks.