Kazakhstan Has Become a Leader in Legislation Reforms in the CIS Region
Curtis Masters, the Director of the Kazakhstan office of Baker & McKenzie, answers the questions of Kazakhstan Business Magazine.
First of all, can you tell about activity of Baker & McKenzie in Kazakhstan? What are the main clients and areas of your practice here?
Baker & McKenzie is the world's pre-eminent global law firm. With over 4,000 professionals, we are also the world's largest law firm, with offices in 75 cities in 47 countries. In addition to Kazakhstan, our CIS offices are in Moscow, St. Petersburg, Baku and Kyiv. Our Kazakhstan office officially opened in 1995, although we were active in Kazakhstan prior to independence. Our Kazakhstan office serves as our regional hub for the Central Asian countries and our Kazakhstan-based legal team regularly handles projects in Uzbekistan, Kyrgyzstan, Turkmenistan and Tajikistan.
We have a very broad-based practice, with teams specializing in financial/securities matters, private equity, labor, corporate/M&A, tax/customs, natural resources and litigation. Our clients come from 6 different continents. During the past 4 years we've had an increase in clients from China and the Gulf states. At least half of the international companies represented on President Nazarbayev's Foreign Investors Council are Baker & McKenzie clients.
We also act for many large Kazakhstani companies in their foreign transactions, including several large state-controlled companies such as JSC Kazakhtelecom and JSC Kaztransgas, as well as JSC Samruk-Kazyna. Given our global reach, with offices in all of the world's leading financial centers, Baker & McKenzie is uniquely qualified to assist Kazakhstani companies on their foreign legal needs.
As the only law firm selected to be a member of President Nazarbayev's Foreign Investors Council, we've been very active in advising the Government on issues relating to Kazakhstan's investment climate and on changes to Kazakhstan's legislation.
How does Baker & McKenzie assess Kazakhstan’s progress in business regulations reforms?
On matters important to investors, Kazakhstan's legislation is well written and, in most areas, it meets international standards. Kazakhstan's strong commercial legislation is one reason why Kazakhstan has been designated by key foreign partners and international organizations as having a market economy.
In many key areas, Kazakhstan's legislation is more developed than that of any other CIS country. During the first 10 years following independence, changes to Kazakhstan's legislation tended to follow changes in other countries having similar legislation, particularly Russia. But during the past few years, Kazakhstan has become a leader in bringing its legislation up to international standards.
Of course, what is important is how the legislation is implemented. Like many countries, Kazakhstan sometimes experiences challenges in implementing well drafted legislation. But I think the Government recognizes this problem and is making steady progress in resolving it.
How do you view Kazakhstan’s investment climate, in general?
Kazakhstan's economy is heavily dependent on foreign investment. So I was glad to read an article in the international press a few days ago stating that Kazakhstan had a increase in foreign direct investment in 2013. That shows Kazakhstan's fundamentals are strong: it has a vibrant economy, a young and educated work force, political stability, moderate levels of unemployment and virtually no public debt.
However, 2014 and 2015 are likely to be difficult years for Kazakhstan. Challenges include the February currency devaluation and the resulting risk of inflation, the situation at the Kashagan field, the consolidation of the banking sector, the situation in Ukraine and the absence of WTO membership. Each of these challenges is serious. But their effect should not be exaggerated. These problems are all temporary and are far less serious than those faced by many countries considered to be more developed, including some countries in the Eurozone.
The Government has been trying, with some success, to diversify its economy and become less dependent on the natural resources sector. Kazakhstan has a comparative advantage in many areas, such as agricultural exports and in being a logistics hub between Asia and Europe; the investment potential in these and other areas could be enormous.
Unfortunately, Kazakhstan is not well known to the international investment community except for investors in the natural resources sector. To take advantage of its investment potential, Kazakhstan has to become better known on the world stage. I was fascinated by President Nazarbayev's speech in February in which he raised the possibility of changing the country's name, to a new name that would not include "stan," in order to differentiate Kazakhstan from the other 6 nearby countries ending in "stan." Of course it wouldn't be appropriate for a foreigner to comment on what a country should be named and only the Kazakh people can decide what to call their country. But the President was absolutely correct that Kazakhstan is much different from its neighbors and its image suffers as a result of the perception that it is just another of the Central Asian republics of the former Soviet Union. That's not the case at all. Kazakhstan should be perceived as one of the vibrant and dynamic countries such as Malaysia, Indonesia and the UAE. In some respects, Kazakhstan should even be compared to Singapore and Turkey.
One of the most important factors in any country's investment climate is its legal regime. In this regard, how do you assess Kazakhstan’s efforts to reform its legal system?
As I've mentioned, Kazakhstan has good legislation which, in many respects, meets international standards. But the quality and maturity of a country's legal system is a reflection of how the legislation is implemented by the law enforcement bodies, by the state administrative bodies and the judiciary.
In my 18 years in Kazakhstan, I've seen many reforms in Kazakhstan's legal system. It is definitely much better now than it was when I arrived. But Kazakhstan has moved beyond the point where its legal system should be compared to what it was like in the mid-1990s. Its legal system should be compared to that of other countries at the same level of economic and social development. Kazakhstan is definitely making significant progress in reforming its legal system, but more remains to be done. I guess lawyers always think there's room for improvement in every legal system! [laughter]
In your opinion what measures to improve quality of the courts and Judges are most crucial?
That's a pretty broad question. As Kazakhstan continues to move up the ladder of economic and social development, those measures will become tougher. But I'll mention a few simple things which could be done right now and which would improve the perception of the judicial system in the eyes of investors.
With respect to Kazakhstan's system of legal education, it would help to make the law curriculum a graduate curriculum, so that only students who have already graduated from a university in another field may go on to study law.
I'd also like to see Nazarbayev University add a law curriculum, preferable in conjunction with a leading Western law school. The country's most prestigious university already partners with leading foreign universities in areas such as medicine, business, engineering and science, but not yet for legal studies.
I'd also recommend that all graduates of a law curriculum be required to take a standardized test in order to become qualified as a Kazakhstan lawyer. Currently, an exam is required only to become an "advocate," which is a very specialized type of lawyer who represents alleged criminals. Belarus requires passing such an exam for all lawyers who wish to advise any type of client, and I understand the passing rate for the Belarus exam is about 60%. Kazakhstan could easily implement such an exam system for new lawyers (regardless of citizenship).
Most independent observers, including myself, agree that, under the direction of the Chairman of the Supreme Court, Mr. K. Mami, Kazakhstan has made great strides in reducing the level of corruption among judges. This is especially true at the higher levels of the court system, as demonstrated by the dismissal of 6 Supreme Court judges in 2011 and the subsequent imprisonment of 2 of them. But, whether it is correct or not, there remains a perception that there remains a problem at the lower court levels. This perception could be addressed by requiring fuller public disclosure of the income of all relatives of a judge (not just the judge's spouse) and by making imprisonment mandatory (not optional) for any judge found guilty of corruption.
It also would be helpful to rotate judges from one part of the country to another part, after a maximum period of time.
Further, I think it would help if Kazakhstan created specialized boards of judges, so that cases involving complex or difficult issues can be heard by judges with special training and who have heard such cases before. Russia has a well developed system of specialized boards which I understand is considered very successful. Kazakhstan could easily implement Russia's specialized board system for judges.
As for actual court proceedings, I believe the law should permit commercial disputes between Kazakhstan private and state-owned companies to be heard by the well respected private arbitration bodies that exist in Kazakhstan. It should not be mandatory for such disputes to be heard in state courts if the parties agree to arbitration.
Finally, I think it's important for Kazakhstan to make certain that the state duties payable to the court for hearing commercial cases be set at international levels. In 2007 the Legal Working Group of the President's Foreign Investors Council conducted a study of 11 countries and found that Kazakhstan's rates were not in accordance with international practice. Partially as a result of that study, Kazakhstan eliminated state duties for appellate hearings. That was a major reform and a difficult reform. But, many lawyers and academic scholars think that the remaining 3% state duty payable for most commercial disputes at the lower court level also should be reduced.
You've worked and lived in Kazakhstan for many years. What features of our country do new foreign investors, which are coming here, need to consider?
Kazakhstan has great opportunities for new investors, particularly those in the agriculture, infrastructure, telecommunications, logistics and transportation sectors. While the country's natural resource will always be its single largest industry sector, Kazakhstan is a much more diversified country with many lucrative investment potentials outside the natural resources sector.
I can only advise new investors on Kazakhstan's legal regime. Like the country as a whole, Kazakhstan's legal regime is much more developed and advanced than many foreigners would suspect. As in most countries at the same level of development, improvements are still possible. But I'm optimistic that they will occur sooner rather than later.
I would encourage potential investors to speak with existing investors about their experiences in Kazakhstan. Existing investors are the best ambassadors for attracting new investors. Nearly all foreign investors whom I come into contact with have been very happy with their decision to come to Kazakhstan.
Curtis Masters is the Director of the Kazakhstan office of the global law firm Baker & McKenzie. He is a member of the Operating Committee of the Foreign Investors Council Chaired by the President of the Republic of Kazakhstan and is a Board member and the Secretary of the Kazakhstan Foreign Investors Council Association. Previously he was the Co-Chairman of the Legal Working Group of the Foreign Investors Council. He also served as a Board member of the American Chamber of Commerce in Kazakhstan. Mr. Masters is a native of Chicago and is a graduate of Harvard University Law School.