Helping Shape Iraq's New Laws Law Firms See Opportunities in Iraq Anthony Lin
The Central Intelligence Agency recently estimated the gross national product of Iraq at somewhere in the neighborhood of $59 billion. It is a fair bet that the ultimate cost of the country's postwar reconstruction will far exceed that figure.
So while many issues relating to how Iraq's reconstruction will proceed and who will pay remain unsettled and highly controversial, lawyers have already begun considering how they and their clients can get a piece of the action.
White & Case has already launched a strategic initiative focusing on Iraqi reconstruction. A project of the New York-based firm's Middle East practice group, the initiative is seeking to mobilize and coordinate lawyers within the firm who have expertise relevant to the situation in postwar Iraq.
"We're finding people who share an enthusiasm for helping out with Iraqi reconstruction," said Alexander Kritzalis, the New York-based head of White & Case's Middle East group.
The firm will draw on the group's roughly 35 core lawyers, including 15 Arabic speakers, said Kritzalis, as well as other lawyers throughout the firm. Possible matters range from major project finance to disputes over contracts signed by officials in the Saddam Hussein regime.
"We're beginning to make contact with the appropriate exile groups," said Kritzalis, referring to overseas Iraqi investors. "Some have very significant plans."
White & Case, which has two offices in Saudi Arabia, will likely try to establish relationships with Iraqi lawyers at a time when the U.S. occupation is giving way to a stable local authority, he said.
"The last thing the Iraqi people are going to want to see are Western carpetbaggers," he said.
For some lawyers, though, the period of U.S. authority may present the greatest opportunity.
Though many commentators have alleged that the postwar environment will largely benefit a small circle of powerful oil and engineering companies, William Weisberg, a partner in the Washington, D.C., office of KMZ Rosenman, said the most striking aspect of Iraqi reconstruction will be the number and variety of companies that ultimately participate.
"We're not just going in to repair a runway or build a military base," he said. "This is much bigger than that."
The U.S. government has taken an expansive view of Iraqi reconstruction, Weisberg said, and federal contracts to provide goods and services in Iraq are likely to go to many companies besides infrastructure giants like Bechtel, Halliburton and the other "usual suspects."
Companies in the education and health care fields are among those who will likely find opportunities in postwar Iraq, he said, but such companies frequently have relatively little experience with bidding on government contracts.
"A lot of companies do some government sales, but never enough to have developed the infrastructure to deal with it," said Weisberg.
Copious red tape and relatively low profit margins have deterred many companies from seeking government contracts, said Weisberg. Now, with the prospect of billions of dollars in reconstruction money, a number of companies have been contacting government contract lawyers about the ins and outs of the procurement process.
Among the issues such companies will confront are the government's strict standards of conduct, which prevent contract hopefuls from gathering information about competitors' bids and incentives, a common tactic in the world of corporate marketing and sales.
Bidders are also required to comply with strict rules on cost-accounting, which differ from standards in the corporate world. Violating the rules of the procurement process can result in felony prosecution.
Companies with long experience with this process have a far greater advantage than the supposedly connected retired generals or politicians who sit on their boards, said Weisberg.
INTELLECTUAL PROPERTY
Protecting their intellectual property is almost certain to be a major concern of Western corporations considering going into Iraq, said Michael A. Epstein, the head of the intellectual property department at New York's Weil, Gotshal & Manges.
"This will be a big concern for the pharmaceutical industry, the software industry and others that would have a role in reconstruction," he said.
The swift collapse of authoritarian rule in Eastern Europe and the Soviet Union led to widespread intellectual property infringement, he noted, and companies are going to demand that any emerging Iraqi government demonstrate respect for intellectual property.
In the meantime, Epstein said, companies may seek guarantees from the U.S. government, or some assurance of compensation for intellectual property violations. Weisberg noted, however, that companies also need to protect their intellectual property from the government.
"The default government contract grants the government a broad license," he said. "You can get more protection, but you have to ask for it."
PROJECT FINANCE
In the view of Nicholas Buckworth, a London-based project finance partner with Shearman & Sterling, the early rebuilding contracts handed out by the Pentagon and the State Department's U.S. Agency for International Development offer little excitement for major transactional law firms. The real action will lie a year or more in the future, he said, when basic infrastructure has been repaired and stable indigenous bureaucratic authority has emerged.
It is only then that Buckworth envisions American and European companies will line up for the opportunity to develop Iraq's domestic refining and petrochemical industries, as opposed to mere crude oil production.
"That is really the way they can develop employment and opportunity on a broad basis," he said.
That is also the way firms like Shearman will be able to play a key role in pulling together the finance needed for massive infrastructure projects.
Buckworth expects that Shearman's previous experience with large projects in the region will help the firm capture business in Iraq. The firm, which has an office in Abu Dhabi, United Arab Emirates, put together the financing for a $1.6 billion power and water desalination facility there in 2001, in which a significant portion of the backing was provided by regional banks compliant with Islamic law.
Buckworth said regional banks are likely to play a role in Iraq, partly for political reasons but also because such banks, owing to their greater local knowledge and contacts, will most likely have a greater appetite for risk than international banks.
The restrictions Islamic law places on compliant regional banks include a prohibition on the collection of interest as well as a bar on loans made for purposes not considered beneficial to Islamic society, like distilleries or pork processing plants. Law firms operating in the area have incorporated a number of specialized finance structures to accommodate these requirements.
David Furman, a real estate partner with the New York office of Gibson, Dunn & Crutcher, has also dealt with his share of Islamic financings. Investors from the wealthy Persian Gulf states, he noted, are among those foreign investors most heavily invested in U.S. real estate.
A substantial enlargement of this group of investors will be another boon to American lawyers, he said. Iraq, he added, has historically possessed a large class of merchants, traders and businesspeople. One of his major clients, the investment group Investcorp, is headed by an Iraqi exile, Furman pointed out.
This merchant class is likely to regroup swiftly, he said, and he expects many will join the apparent clamor by Middle East investors to sink their petrodollars into American office buildings and shopping centers. Gibson Dunn and other American law firms are already plugged into the Middle Eastern investment groups that gather prospective investors into syndicates, said Furman.
"As wealth spreads among the Iraqi people, it'll create much more opportunity for my clients," he said.