Evan Vitale Consulting: Russian politicians take aim at global consultants

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A group of Russian lawmakers has proposed banning the “Big Four” global accounting firms and two of the world’s largest consulting groups from the country, in a sign of growing pressure on Moscow’s economic policy makers to hit back against increased western sanctions.

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“The main targets of the restrictions are Deloitte, KPMG, Ernst & Young, PricewaterhouseCoopers, Boston Consulting Group and McKinsey,” said the proposal, seen by the Financial Times.

The lawmakers suggest labelling countries that have adopted sanctions against Russia “aggressor states”. It adds that foreign legal entities and individuals registered in aggressor states as well as their Russian affiliates should be prohibited from conducting audits and providing legal and other advisory services.

In an interview, Yevgeny Fyodorov, a deputy for the pro-Kremlin party United Russia and one of the bill’s two main authors, claimed US consulting and audit firms were working under the orders of their government and could cause “real damage” to the Russian state by purposefully giving out bad advice.

“These [US] companies have an obligation to follow their government. They have the motivation, and are under orders, to create the optimum conditions for the deterioration of life in Russia and of the Russian economy,” he said.

It is unclear whether the bill or protectionist measures along similar lines will gain support in the government or even among other members of the Duma, Russia’s lower house of parliament. But the Duma has a record of passing anti-western legislation in times of heightened tension with the US. In late 2012, a new Russian law banned US citizens from adopting Russian children in retaliation for the Magnitsky Act, US sanctions legislation against Russian officials accused of human rights violations.

Some senior executives have voiced fears that if driven to the extreme, Moscow could decide to nationalise assets of western oil companies or banks in Russia. Earlier this year, a member of the Federation Council, the upper house of parliament, said the chamber was working on a bill that would allow such confiscations in the event of western sanctions.

A Russian cabinet official familiar with economic policy called the proposed bill against foreign accountants, consultants and lawyers populist and added it was unlikely to pass. Sources at two foreign consulting groups also rejected the proposal as “nonsense”.

However, several executives at foreign law firms and consulting groups said the sector had fallen victim to political football before. “This is a demonstrative move to show patriotism and I would not be surprised if it went through, given the sentiment we have here right now,” said an American lawyer who advises Russian corporate clients on cross-border deals.

Mr Fyodorov said the proposed measures “are not reciprocal sanctions, they’re defensive ones”.

This month, Russian media reports suggested that McKinsey should be blamed for a fatal accident on the Moscow metro as McKinsey had previously been employed as a consultant by the municipal company. In 1995, Russia attempted to limit foreign law firms’ practices in the country by introducing a licence system but that was later abandoned.

Executives in the industry say Russia today has one of the most liberal regulatory regimes for foreign professional services providers.

Legal and accounting professionals said a sudden ban on foreign providers of such services would seriously impede corporate Russia from functioning because a large number of the country’s companies use offshore holding structures governed by English law.

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