Washington DC is the ‘centre of the universe’ for regulatory work, which multiplied in the wake of the financial crisis. Marialuisa Taddia reports.
Firms in Washington DC are in an enviable position. They are at the doorstep of Congress, the White House and the Supreme Court. They are also blocks away from the Department of Justice, the Securities and Exchange Commission and the Internal Revenue Service – some of the world’s most powerful government agencies headquartered in the capital, but whose reach extends far beyond the US.
This helps explain why the capital’s legal market has been largely immune from the global financial crisis. As Jeff Haidet, US co-CEO of global firm Dentons, says: ‘While transactional and capital markets [work] slowed down during the recession, the needs of clients around regulatory and compliance advice, and investigation defence continued. So people saw that having a practice in Washington DC created a very balanced offering for a law firm, and in some ways a hedge against a slowing economy.’
Barack Obama’s response to the financial crisis is also important. ‘The current administration has become increasingly active in its enforcement actions and regulation promulgation,’ Haidet says. ‘This has created a greater demand for regulatory advice.’
In 2015 the DoJ collected more than $23bn in civil and criminal cases as a result of its enforcement-led actions. It also negotiated civil settlements, including penalties of $625m from Germany’s Deutsche Bank (for its role in fraud and price-fixing conspiracies by rigging the Yen LIBOR with other banks), and $350m from dozens of Swiss banks for tax-related criminal offences.
Covington chairman Tim Hester says: ‘We have seen an increasing need from companies, both in the US and around the world, for firms that can help them navigate issues of government enforcement and regulation in Washington DC.’
Ben Stevenson, Law Society policy adviser for the Americas, points out: ‘It is the second-largest destination for solicitors across the Americas after New York.
Dan Binstock, partner at DC-based legal recruiters Garrison & Sisson, says: ‘Firms from all over the country are looking to enhance or establish a DC presence because regulatory issues are permeating most practice areas.
‘The firms come in all sizes, but most non-DC-based firms are within the largest 200. The common thread is [they] have clients who desire more regulatory depth in certain areas and realise DC is the centre of the universe for this support.’
The most in-demand areas are associated with federal government regulatory activity, Binstock notes, and include healthcare, food, drugs and medical devices (the US Food and Drug Administration is based in DC), government contracts and data privacy. ‘Aside from regulatory, the corporate transactional and real estate practices in DC have also been quite active,’ but these could quickly slow down if bank lending decreases, Binstock observes.
Covington is one of the largest firms in the capital with 460 lawyers, including 148 partners. ‘We are seeing a growth in demand for our services in Washington, and it is not merely from US [clients],’ Hester says. ‘Companies recognise that you can be based outside the US and run seriously foul of US law, which has a broad reach.’ He points to the 1977 Foreign Corrupt Practices Act (FCPA), which contains anti-bribery and accounting provisions and is enforced by the DoJ and SEC; US anti-money laundering requirements; and US trade control policy.
Covington regularly advises US and foreign clients on international trade controls. The firm’s white-collar defence division represented the UK’s GlaxoSmithKline throughout a DoJ investigation into the marketing and promotion of nine of its best-selling products, resulting in the largest healthcare fraud settlement in US history.
‘There is an increasing enforcement environment where violations of regulations can turn into major criminal investigations or major civil penalties against companies,’ Hester says. This has also produced new, increasingly powerful government agencies such as the Consumer Financial Protection Bureau (CFPB), created in 2011 to protect consumers in the financial sector in the wake of the financial crisis. ‘It is rare to see an entirely new agency in Washington. It has an aggressive [regulatory and enforcement] agenda, [and] not only against banks.’
To assist clients with CFPB investigations, examinations and enforcement actions, Covington launched a dedicated practice, co-chaired by Eric Mogilnicki, a leader within the private bar on CFPB issues since its inception.
Hester says: ‘What is distinctive about the firm and what has led to such a large office here has been this unusual set of strengths in dealing with government regulation, enforcement and policy matters. We have a large team that has come out of high positions in government.’ It includes former SEC officials and heads of the Justice Department’s criminal division; ex-US attorney-general Eric Holder; former homeland security secretary Michael Chertoff; and US ambassador to the EU Stuart Eizenstat.
After merging last year with McKenna Long & Aldridge, Washington DC is the largest of Dentons’ 21 US offices, with about 200 lawyers and other professionals. Legacy firm McKenna Long & Aldridge, itself the product of the merger of Atlanta-based Long Aldridge & Norman and DC’s McKenna & Cuneo, was founded in 1939 by Franklin D Roosevelt’s former attorney general Homer Stille Cummings. Sonnenschein Nath & Rosenthal, which combined with UK’S Denton Wilde Sapte in 2010 to form SNR Denton, set up in the capital in 1986. ‘We have very deep roots in Washington, DC,’ Haidet says.
Consequently, he adds, ‘our DC office has been extremely active’. It has added several new lateral hires over the past year, including to the ‘very rapidly growing’ healthcare practice which helps clients comply with the many regulations at federal and state level, and in investigations by state attorney generals and federal agencies, including the DoJ and Department of Health and Human Services.
Dentons also advises clients on all aspects of government contracts in such industries as aerospace, homeland security and IT, and represents global businesses in FCPA investigations. Taking advantage of the proximity to policymaking in DC the firm has built a ‘very significant’ US public policy practice, which includes former presidential candidate and speaker of the House of Representatives Newt Gingrich. It provides ‘strategic advice to clients about how they are going to react to government change or how they would like to inform government leaders of their perspective on policy positions,’ Haidet explains. In June the practice went ‘nationwide’ with the launch a public policy and advocacy network across the country’s 50 states.
In response to Obama’s efforts to clamp down on US tax ‘inversions’ (when a US company acquires a smaller foreign competitor and moves its tax address overseas to avoid US taxes) and other tax reform initiatives, Dentons beefed up its US tax controversy and criminal tax practice, which advises clients facing civil and criminal tax investigations. Among senior lateral hires are former IRS employees.
There is plenty of other work for firms stemming from Obama’s tougher stance on corporates. This includes more aggressive antitrust enforcement (a recent notable example is the DoJ’s stance on a merger between Comcast and Time Warner Cable; the deal was called off when officials indicated they would block it).
Latham & Watkins’ office in the capital is its second largest in the US after New York, with more than 300 lawyers including 91 partners. Washington DC managing partner Michael Egge, a global competition lawyer, singles out antitrust as a high-growth area. ‘We are one of the top M&A practices and we have an incredible deal flow into the merger control space,’ Egge says. Latham’s global M&A practice handled more than 430 announced deals in 2015, collectively valued at $710bn.
Recent work includes obtaining global antitrust clearance following a six-month DoJ investigation for the $1.6bn merger of online travel booking companies Expedia and Orbitz Worldwide.
Compared with the largest DC firms, the magic circle has a modest presence in Washington, but it is no less sanguine about prospects there. A greater emphasis on cross-border work sets it apart from larger competitors.
‘For Linklaters, DC presents tremendous opportunities for continued growth,’ says Adam Lurie, head of the firm’s DC litigation and government investigations practice.
‘Contentious regulatory is one of the practice areas most in demand by clients,’ says Scott Bowie, head of the firm’s global US practice. Linklaters is advising New York governor Andrew Cuomo as lead counsel in a civil rights and False Claims Act suit pending in the southern district of New York.
‘We also continue to see a demand for our antitrust and tax practices in DC,’ Bowie adds, pointing to a recent lateral hire – Doug Tween from Baker & McKenzie – who spent 15 years in the antitrust division at the DoJ. Tween is based in New York but spends considerable time in DC. Several other partners based in the capital and New York have held senior legal positions at the DoJ and other major regulatory agencies, Bowie notes. ‘Linklaters is most differentiated by our cross-border offering, and we view the New York and DC offices as one office,’ he says.
Clifford Chance has a staff of about 90 in DC, including 22 partners and counsel. Managing partner David DiBari says: ‘Our Washington office is home to a number of first-rate practices and is in a great position. We recently took more space in our building and expect our growth here to continue.’
From its DC office, which works closely with the New York and São Paulo offices, Clifford Chance serves clients in the US and across Latin America, focusing on white collar and regulatory defence, commercial litigation and arbitration, and project finance work – all ‘doing very well,’ DiBari says. The project finance lawyers in DC collaborate with colleagues in New York and São Paulo, regularly advising international development banks headquartered in the capital and investment banks in the bond market, which is an area of increased activity.
The litigation team is representing a number of international banks in investigations by various US authorities in Office of Foreign Assets Control sanctions compliance.
Washington DC is also on the Law Society’s radar, for another reason. As Chancery Lane’s Americas policy adviser Ben Stevenson explains: ‘Washington DC is interesting to us from a regulatory angle, as it is the only US jurisdiction which allows ABSs, or “non-lawyer ownership” as it is known there. The DC rules allow up to 25% non-lawyer ownership, and while there has been little take-up so far of this option, it puts DC in a vanguard position on the issue in the US, which is on the whole quite hostile to the idea of ABSs.
‘For both these reasons the Law Society remains active in DC, with regular contact with the DC bar and providing regular networking opportunities for our members with bases in DC government and legal stakeholders.’
The Leahy-Smith America Invents Act of 2011, which took effect in March 2013, has introduced new procedures to challenge the validity of a competitor’s patent after it has been granted, and created the Patent Trial and Appeal Board at the US Patent and Trademark Office. ‘We are starting to see more activity out of patent reform,’ says Egge. ‘In IP infringement cases we have had tremendous success with growth; not just in Washington DC, but it’s been largely led out of [the capital].’
In Samsung Electronics Co Ltd v Nvidia Corporation (Feb 2016), Latham successfully represented Nvidia in an eight-patent infringement suit brought by Samsung in the US District Court for the Eastern District of Virginia relating to smartphones and tablets that contain graphics processing units.
Latham’s DC-based Supreme Court and appellate practice, led by ex-solicitor general Gregory Garre, has also scored landmark victories for clients in the highest federal court. In Fisher v University of Texas in June the Supreme Court upheld the constitutionality of the consideration of race as one of many factors in undergraduate admissions at the University of Texas (Latham’s client).
Despite the emphasis on government-related work, some firms also have sizeable transactional operations in DC. Latham, for example, has a ‘Wall Street practice’ which focuses on M&A and other corporate transactions in private equity and private equity finance. It advised private equity giant Carlyle on its $7bn acquisition of data storage business Veritas. In August, Paul Dudek, chief of the SEC’s office of international corporate finance, joined Latham’s New York office as counsel in the corporate department and as a member of the capital markets practice. He is set to transfer to the capital.
Hogan Lovells is one of the top firms in DC with over 550 lawyers. The lion’s share of its government regulatory practice (with over 280 lawyers) is based in the capital, but Washington managing partner Eve Howard says that what distinguishes the firm is the high proportion of ‘New York-style M&A and capital markets’ work (about 40% of the office total). ‘The M&A practice in DC has been incredibly robust in the last 12 months,’ Howard says. The firm represented General Electric in corporate deals totalling $32bn in the period, and was the lead outside counsel in the $2bn-plus spin-off of Vanderbilt University’s medical centre business and related assets.
Hogan Lovells was formed in 2010 by the merger of DC-based Hogan & Hartson and London-headquartered Lovells. ‘Hogan & Hartson was a very strong corporate law firm and so over the past decade we have built up a national and global corporate practice that is based here,’ Howard says.
Other growth areas include privacy and cybersecurity. Hogan Lovells recently hired FTC commissioner Julie Brill to co-head the practice, and served as lead counsel for superstore Home Depot in its publicly reported data security breach.
To help clients with increased scrutiny by multiple federal agencies, DC firms are under increasing pressure to hire government talent.
‘One of the benefits of being in DC is being able to be “a revolving door” with key federal agencies,’ says Howard. ‘It gives us all great continuing insight into the regulatory landscape.’
‘A number of our partners in the Justice Department have returned to us over the past three years,’ Hester says, pointing to Eric Holder, who rejoined Covington after serving for six years as the 82nd attorney general of the US, and Covington’s vice-chair Lanny Breuer.
Kathryn Ruemmler rejoined Latham as global co-chair of the white collar defence and investigations practice after serving for nearly six years in the Obama administration, including as counsel to the president. Egge says: ‘You have some of the very best talent in the business coming to or practising out of DC. It’s great for clients, and it’s great for those of us who practise and love to compete.’
Competition is fierce, Hester says. ‘You see firms placing more emphasis on having stronger offices in DC. That clearly is a growing trend which I would link to the financial crisis.’ But Hester says that competition is tougher for outsiders: ‘Many foreign firms have recognised that it is difficult to establish critical mass and scale to provide the services that you need to be able to offer.’
Haidet concurs: ‘If you haven’t been here for many [years] it is difficult to get people to move from very good firms or to find a merger partner because there just aren’t that many left. Those who are left are pretty determined to remain independent. So it is a very tough task for someone to come to Washington and grow a substantial practice.’
The DC legal market may be mostly immune to the ebbs and flows of the economy, but it is vulnerable to political change.
‘The activity in Washington can greatly depend on the agenda and political make-up of Congress and the executive office of the president, so a lot of regulatory activities can be affected as a result of who’s in power,’ says Haidet, who talks of the ‘uncertainty’ created by November’s presidential election. ‘That will send some signals about what areas will be busy,’ he adds, pointing to the Patient Protection and Affordable Care Act, promulgated in March 2010, as an example: ‘Obamacare created a huge amount of work for healthcare lawyers. If Hillary Clinton wins the election, even though she is with a party that would tend to be more involved with regulation, we don’t know what areas she may emphasise.’
But there are also upsides with a change in administration. ‘There is always an opportunity to pick up new talent and then there is eventually the changing regulatory landscape that tends to keep lawyers busy,’ Howard points out, adding that it was unlikely that the intense activity in firms’ government enforcement and white collar crime practices would slow post-Obama.
Yet, firms with a strong footprint in the capital are hedging their bets by increasingly looking overseas. Referring to the 2010 merger, Howard says: ‘The leaders of [Hogan & Hartson] had a vision that being a global firm would stand us in good stead. Our geographic diversity and breadth of practice mean that we are able to withstand the ebbs and tides of any given practice coming and going.’
As for Covington, Hester says: ‘We are thinking about ways we can serve our clients by being able not only to handle matters at a very high level involving government issues in DC, but also globally.’ The firm is investing in ‘building parallel capabilities’ across other offices, including in China and Europe. For instance, the firm’s European team in Brussels includes ex-diplomats and policymakers such as former prime minister of Sweden, Carl Bildt.
‘It is a period where a firm that can help clients anticipate the direction of policy and regulation can be helpful to companies,’ Hester adds.
Brexit, for instance, has already boosted activity in firms’ DC offices. Covington has teams in the capital, Brussels and London that are working with clients in ‘critical industries’ such as life sciences, pharmaceuticals and financial services ‘to help them think through how they should plan in this uncertain environment. Almost all of our clients have businesses in Europe, so they are all trying to work through these issues’. UK-headquartered AstraZeneca is one Covington’s largest clients.
‘We’ll see more work in Washington as a result of Brexit,’ Haidet says. ‘Our clients who seek our advice in the US are asking us “how is this going to impact on our operations in London and on the continent?” So being able to team up with our London partners to provide clients with that advice is creating an increase in workload in Washington.’ Dentons’ chemical, pesticide and consumer product regulation team (led out of the DC office) represents clients in Brussels and maintains close working ties with personnel of the EC and member states’ authorities.
Meanwhile, Howard has been working with members of Hogan Lovells’ ‘constitutional change taskforce’ based in London to advise key clients in the US on the legal implications of Brexit. ‘There has been a real uptick in the advisory work,’ she says.
It seems, then, that in an increasingly globalised and interconnected legal world, Washington DC is likely to remain the centre of the universe for regulatory work, whichever way the political wind blows.
- For more information, see the Law Society website.
Marialuisa Taddia is a freelance journalist