Lawyer Helps Open New Markets : Trade: An Encino attorney assists U.S. companies in overcoming the obstacles to doing business in Russia and the other former Soviet republics.

David K. Peteler firmly believes that Russia is on an irreversible course toward creating a market-oriented economy. Unfortunately, the Encino-based attorney can also speak volumes about the formidable task of realizing that goal.

Peteler, who specializes in Russian business ventures, was in Moscow last year, providing legal advice to a committee formed by the Russian government to privatize state-owned enterprises. There he attended a meeting to discuss the establishment of securities laws. As the meeting began, a representative from the former Soviet Ministry of Finance walked in clutching a copy of a paperback book used by American law students as a quick and dirty way to cram for exams on securities law.

“Thank God at least he was looking at something that had some notion of the principles involved,” said Peteler.

But the episode underscored for Peteler the huge gulf that remains between the sophisticated economies of the West and Russia, which is struggling to re-create itself in a world that has passed it by. And for Western companies seeking to establish a foothold in Russia and the other former Soviet republics, the anecdote serves as a reminder of the rough road that lies ahead.

Nonetheless, Peteler--who started his own practice this month after resigning as a partner at the Los Angeles office of Baker & McKenzie, the world’s largest law firm--sees plenty of opportunities for Western companies in the former Soviet Union.

“Russia will continue to go through turmoil as it finds its new identity,” he said. “There’s a long education process. But for a lot of them, they think their only chance to make it is to deal with a Western company and they’re not going to blow it.”

Peteler’s interest in the former Soviet Union began at an early age. A Minnesota native, he majored in Russian studies at Carleton College in Northfield, Minn. In 1974, during his senior year, he traveled to St. Petersburg (then Leningrad) on a student exchange program, where he became fluent in Russian.

Peteler, now 38, went on to earn a master’s degree in Russian literature from the University of Michigan before attending law school at Columbia.

At Baker & McKenzie, Peteler worked on some of the highest-profile Western business deals to date, and spent five months in Moscow between November, 1990, and December, 1991. During that time he helped negotiate a joint venture between British Airways and Aeroflot, the Soviet state airline, to create Air Russia, a new international airline that plans to begin daily flights in 1994.

He also helped Lotus Development Corp., a Cambridge, Mass., computer software maker, establish a subsidiary in Moscow. Among local companies, Peteler worked with Benton Oil & Gas Co., an Oxnard energy concern that has entered a joint venture to drill for oil in western Siberia.

Also at Baker & McKenzie, Peteler was retained by the European Bank for Reconstruction and Development to assist Russia in its efforts to privatize state-owned businesses. The London-based bank, with 39 member-nations, was formed in April to provide Eastern Europe with investment funds. Peteler’s role was to advise Russia about laws and regulations needed for private businesses to operate.

Peteler now hopes to draw on the many contacts and knowledge he picked up during his stint at Baker & McKenzie to counsel Western companies seeking to do business in Russia and other former Soviet republics. He will soon be leaving on his first trip to Russia since starting his own practice; until then, he phones Moscow daily. He expects that he will spend as much as a third of his time in Russia during the coming year.

One of Peteler’s first jobs since striking out on his own has been trying to iron out a snafu encountered by a local company in the former Soviet Union.

Pacific InterTrade Corp., a Westlake Village firm that sets up trading deals between U.S. and foreign businesses, last year arranged to export American-made equipment used in fabricating television picture tubes to the then-Soviet Union. The company’s American clients include RCA Corp., Corning Glass and small companies in Ohio and Pennsylvania that make the glass TV tubes.

But there’s been a hitch. Most of the equipment was paid for by the Soviet bank that handled all foreign exchange transactions, but about $50,000 worth of the equipment hasn’t yet been paid for. Now that the Soviet bank is essentially out of business, the payment is in limbo.

“It’s not a huge amount,” said Robert Lees, Pacific InterTrade’s president. “But for a small company, it’s painful.”

Enter Peteler, who is trying to get the payment released by the Russian bureaucracy that is emerging in place of the Soviet system. Peteler said he used a Russian contact to track down the person now in charge of making such payments, and has been acting as a “squeaky wheel,” trying to get the payment released.

Lees hasn’t gotten his money yet, but he said he’s been impressed with Peteler’s insider’s knowledge of the system. “He’s like a bulldog, going in and seeing where the payment is, in what pile, on what desk,” Lees said.

Ashurst Technology Corp., a Las Vegas maker of batteries and capacitors, has also retained Peteler to help set up its joint venture in the Ukraine. Benton Wilcoxon, Ashurst’s president, said he hopes to sell Ukrainian-produced batteries and capacitors throughout the former Soviet states, where there is a great need for even the most basic of these devices.

But Wilcoxon said he needed Peteler to help sift through the bewildering array of obstacles confronting the joint venture. Questions that have been negotiated are how the venture will be taxed and whether local currency payments will be converted to dollars.

Peteler said his work for Ashurst involves getting copies of the new Ukrainian laws as they are passed so he can determine how to structure the joint venture. But the real trick, he said, is working with his government sources to find out how the new laws should be interpreted, because the laws are being passed so quickly they are usually “pretty vague” as written.

While Peteler’s role often requires the finesse of a diplomat, he sometimes finds a sledgehammer approach to be the only workable solution to a problem. For instance, he advised one client, which he declined to name, to put a “bug” in the computer software it supplied to its Russian partner to make the software shut down automatically once a month. As long as the Russian partner meets its obligations, it receives a new code to get the software running again.

But Peteler and others say the Russians are generally well-intentioned, and are trying to embrace Western-style capitalism as quickly as they can. And pressure from Western companies is helping to move forward the lawmaking process, said Jane Kitson, general manager of Lotus Development Russia. Kitson believes, for example, that Russia’s adoption last month of an anti-piracy law protecting software was due largely to Lotus’ lobbying efforts.

And despite the well-reported hardships facing the former Soviet states, Peteler has no doubt that he will be kept busy by clients who are lured by the potential of huge untapped markets. Indeed, Paul Melling, a Baker & McKenzie partner in Moscow, said the level of Western business activity in Russia “has never been greater in the 3 1/2 years since we’ve had an office here.” And, Melling added, “We’re here because our clients want us to be here.”

But until the ruble becomes convertible to foreign currency--a goal of the new Russian government--Peteler says the best opportunities are for companies that can tap the region’s enormous natural resources and cheap labor by taking raw, or semi-processed, materials such as oil, minerals or paper pulp out of the country for sale in international markets.

He also suggests that businesses that are prepared to stick it out for the long term might do well by accepting payments for goods or services in rubles and then using the rubles to buy hard assets such as factories or office buildings, which might appreciate over time.

Either way, he said, “don’t ever go to Russia and plan to make a quick buck.”