How to avoid risks when working with partners from BRICS countries: key features and recommendations for businesses

Russian companies are increasingly developing business ties with BRICS countries. While expanding cooperation opens up new markets and opportunities, it also creates significant risks ranging from legal differences and weak judicial practice to sanctions, restrictions and cultural barriers in negotiations. To minimise potential problems, it is necessary to conduct a comprehensive preliminary analysis and take into account the specifics of each jurisdiction.

1. Legal differences and regional characteristics

BRICS countries vary significantly in terms of the level of development of their legal systems, corporate and tax legislation, political stability and infrastructure. There is no unified approach to doing business — each country requires a bespoke approach and an in-depth study of its specific characteristics.

• Before engaging lawyers, experts recommend conducting an analysis of the market environment and cultural characteristics to assess the project’s viability. Only then should the legal structure be finalised and consultants selected.
• When entering new markets, companies often try to transfer familiar models and business approaches without taking local specifics into account. This approach can lead to mistakes. For instance, legal constructs that are accepted in Russia may not be applicable in India or China. Even basic transaction elements, such as asset valuation or contract format, need to be adapted to local practice.
• In addition, law enforcement in a number of countries lags behind legislative changes. In some cases, accessing legal information can be difficult, so relying solely on open sources is risky. Contrary to popular belief, some countries do have corporate taxes, VAT and excise duties, and misconceptions about the tax status of certain jurisdictions are also common.
• The legal environment can be further complicated by the presence of multiple legal systems within a single country. For instance, in certain regions, English law may coexist with local and religious law, necessitating caution when designing corporate structures and finalising transactions.
• Cultural differences and business practices

Business culture in the BRICS countries differs significantly from the familiar Western model:

• In China, for instance, partners can typically revise the agreed terms at the final stage of a transaction.
• In India, it is common practice to delay the fulfilment of obligations, and this may not be perceived as a violation. Negotiations on the conclusion of a contract can last for years, but once an agreement is reached, business relationships are often stable and long-term.
• Brazil, South Africa and a number of other countries also have a less formalised and more relaxed business environment. Here, the influence of local communities, trade unions and even tribal leaders on business conduct must be considered. Such features can significantly affect the speed of decision-making and project implementation.

• Financial and sanctions risks

Despite their friendly relations with Russia, the BRICS countries are feeling the impact of Western sanctions:

• Many banks in these countries are exercising caution due to fears of secondary sanctions, which complicates the process of settling payments and opening accounts for Russian companies. The situation is particularly challenging in Hong Kong and China, where companies controlled by Russian beneficiaries may face delays or even be unable to open accounts.
• Access to the legal services of international law firms is also difficult, and forming a team of consultants requires the selection of specialists in each country individually. Internal restrictions related to Russian legislation regulating interaction with foreign counterparties, including friendly ones, must also be taken into account.
• Some regions are subject to high corruption risks, particularly in Asia. In such cases, lawyers strongly recommend including anti-corruption provisions in contracts that allow for unilateral termination if violations are detected.

• Litigation and arbitration:

Another important element when entering the BRICS market is developing dispute resolution mechanisms. The absence of a clear arbitration clause or the submission of disputes to local jurisdiction can lead to protracted and ineffective litigation. It is also necessary to consider the enforceability of arbitration awards in other countries, particularly if the parties to the transaction are based in different jurisdictions.

Lawyers recommend choosing neutral venues with a pro-arbitration regime, no sanctions restrictions and an international reputation. Examples include Hong Kong and some free economic zones in the Middle East.

• How to reduce risks

Before concluding transactions, it is important to study local legislation and carefully check potential partners, such as verifying that they are operating, have assets, and are not bankrupt. With limited access to registries and public information, it is extremely difficult to do this independently.

• A comprehensive legal check of the counterparty — due diligence — allows you to minimise risks and avoid serious financial losses. However, many companies, especially start-ups, neglect this procedure, which can lead to losses, failed contracts and litigation.
• To interact effectively with foreign partners, it is recommended that you work with Russian lawyers who have proven local contacts. This enables you to consider the local mentality, working practices and legal system without losing control of the project.
• It is also necessary to plan the legal and tax structure of the transaction in advance, arrange guarantees for the fulfilment of obligations and implement risk hedging mechanisms. Ultimately, the success of the project depends on the professionalism of the team and how well it is prepared.

So, what is the bottom line?

While working with partners from BRICS countries opens up great opportunities for Russian businesses, it also requires increased attention to detail. Failure to understand the legal and cultural nuances can lead to serious problems. Therefore, legal research and an in-depth understanding of the local specifics are prerequisites for successful international cooperation.