Toward a level playing field in Latvia Outlook Thought Leadership Forum:

1. Toward a level playing field in Latvia Outlook Thought Leadership Forum: “Will Latvia remain an attractive place for doing business?” June 30, 2011 – Jens Pastille, Attorney at law

2. 01 Why Latvia is attractive for business • excellent location at the crossroads of Scandinavia, Germany and Russia • special appeal to Germans and Scandinavians (“recall factor”) • multilingual populace • well-educated work force at low wages • newly regained international credit standing • (still) low taxes • ice-free ports and generally good infrastructure • Riga: Great life, low costs Dieser Bereich steht für Texteund Grafiken zur Verfügung

3. 02 What investors often get wrong • underspending – underestimating investment costs • “management by helicopter” – failing to allocate sufficient management capacity / not trusting local staff and expertise • „Corruption everywhere!“ – confusing the smallness of the country and personal relations with graft and nepotism • greed – having unrealistic profit expectations

4. 03 Where Latvia could do better • German investors’ top three investment criteria • 1. legal certainty • 2. efficiency of public administration • 3. check on corruption

5. 03 Where Latvia could do better • German investors’ top three investment criteria • 1. legal certainty • 2. efficiency of public administration • 3. check on corruption • German investors’ top concerns in Latvia • 2. legal uncertainty (tax is first) • 3. inefficient and intransparent bureaucracy • 4. corruption and crime • (Source: Konjunkturumfrage 2011, German-Baltic Chamber of Commerce)

6. 03 Where Latvia could do better German investors’ top three investment criteria 1. legal certainty 2. efficiency of public administration 3. check on corruption German investors’ top concerns in Latvia 2. legal uncertainty (tax is first) 3. inefficient and intransparent bureaucracy 4. corruption and crime “Am I welcome?” “Am I reasonably protected when things get rough?” “Does my business get a fair shot on a level playing field?” TRANSLATION

7. 03 Where Latvia could do better German investors’ top three investment criteria 1. legal certainty 2. efficiency of public administration 3. check on corruption German investors’ top concerns in Latvia 2. legal uncertainty (tax is first) 3. inefficient and intransparent bureaucracy 4. corruption and crime “Or are any such shortcomings outweighed by disproportionately high profits?” “Am I welcome?” “Am I reasonably protected when things get rough?” “Does my business get a fair shot on a level playing field?” TRANSLATION

8. 04 For example: The legal system • Flaws in the legal system • length of civil proceedings • abuse of insolvency proceedings • abuse of interim relief proceedings • abuse of the criminal process

9. 04 For example: The legal system • length of civil proceedings • threeinstancesofcourt; twofulltrialstages • practicallynodefaultjudgments; ineffectiverulesforlatesubmissions • unregulated and vast arbitration landscape • abuse of insolvency proceedings • abuse of interim relief proceedings • abuse of the criminal process

10. 04 For example: The legal system • length of civil proceedings • abuse of insolvency proceedings … • unreasonably broad insolvency criteria • omnicompetence of insolvency judge • effectively no appeals process • abuse of interim relief proceedings • abuse of the criminal process

11. 04 For example: The legal system • length of civil proceedings • abuse of insolvency proceedings • abuse of interim relief proceedings • focus on securitization by attachment (“civil arrest”), rather than injunctive relief or TROs • low-level single judge • insufficient appeals process; no statutory time-limits • abuse of the criminal process

12. 04 For example: The legal system • length of civil proceedings • abuse of insolvency proceedings • abuse of interim relief proceedings • abuse of the criminal process • investigative (pre-trial) proceedings outside judicial review • numerous overly broad offenses on the books • several special police forces operating with near-impunity and without judicial review

13. 04 For example: The legal system • … are often a product of poorly reflected legal imports unsuitable for a small country. • … result from “technical” deficiencies. • … lend themselves to abuse and stalling tactics. • … damage the reputation of the legal system, thus jeopardizing its pacifying commission. length of civil proceedings abuse of insolvency proceedings abuse of interim relief proceedings abuse of the criminal process

14. 05 Conclusions • Latvians are by no means more prone to corruption than others, but the Latvian legal system is. • The uneven playing field in Latvia is in large part a product of bad laws, i.e. laws that fail to function in their own socio-economic context. • The most serious normative dysfunction attaches not to substantive legislation but to procedure - the core of the legal system: civil procedure, insolvency laws and the criminal process lack safeguards against abuse. • Laws can be changed faster than mindsets or institutions. • Better laws do work.

15. Your contact Jens-Christian Pastille, LL.M. Rechtsanwalt Managing Partner Baltic States Rödl & Partner Krišjāna Valdemāra iela 33 LV-1010 Rīga Lettland Tel.: +3 71 67 33 81 25Fax: +3 71 67 33 81 26E-Mail: jens.pastille@roedl.pro