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Practicing law in Pyongyang - and adoring it

Michael Hay is taking a sanctions pause and working in Seoul now

Jan 23,2019
Michael Hay [PARK SANG-MOON]
In the worst of times, when North Korea’s economy was on the verge of collapse, one Westerner saw untapped economic potential that could one day rival South Korea’s.

A New York attorney with over 25 years of legal experience, Michael Hay, 57, has one of the most unique experiences of any foreigner who has worked with North Korea.

Hay made his first venture to the North in 1998 as a part of a trade mission with the European Union Chamber of Commerce. It was toward the end of the so-called Arduous March, a four-year period of floods, droughts and famine that led to the death of millions of North Koreans.

Hay was, in his own words, hooked by the experience.

By 2001, he had opened a legal consulting practice in the North’s capital of Pyongyang, which soon developed into a foreign law firm - the only one in the country for over a decade.

The firm, Hay, Kalb & Associates (HK&A), specialized in providing legal and investment counsel to foreign investors, entrepreneurs and NGOs wanting to work in North Korea from 2004 to 2016. Along with a handful of North Korean government lawyers who assisted him, Hay represented foreign firms in the country’s arbitration courts, which he says operated in fair and equitable ways.

During that time, Hay resided among average North Koreans in a downtown apartment in Pyongyang, a city which he described as highly welcoming.

But by 2017, foreigners willing to do business in North Korea found themselves increasingly spooked by the mounting geopolitical tensions brought on by Pyongyang’s nuclear and ballistic missile tests. With a new round of international sanctions taking effect from March 2017, Hay’s clientele began to withdraw from North Korea, ultimately forcing him to suspend operations of his law firm and consultancy on Aug. 14, 2017, and leave Pyongyang.

Now he holds seminars for people interested in doing business in North Korea. Last December, Hay was recruited by the Seoul-based law firm HMP Law to offer what its co-founding partner Mok Kun-su said is “differentiated legal expertise” to its clients seeking new opportunities in the North.

The Korea JoongAng Daily interviewed Hay about his unique experience practicing law in the North at HMP Law’s office in central Seoul on Tuesday.

Below are the edited excerpts of the interview.



Q. Could you tell us what first drew you to work in North Korea?

A
. I’ll try to be brief, but it’s a long story. The origins began in New York. I could see the future of South Korea because there were more and more articles in The Financial Times and all the other newspapers. And I had Korean friends in New York. So I became interested in the culture. I wanted to change to a more international type of work. So I went to South Korea because I could see its future, which was very strong. I spent 14 years in South Korea and helped build a law firm from 14 lawyers to 300 lawyers. During that time, I had visited Rajin-Sonbong in North Korea on a trade mission for the European Union Chamber of Commerce. I was, as we say in English, hooked. I could see the future of North Korea. I decided to do what nobody else had tried. My first visit was October 1998.



Did you work on inter-Korean projects?

No, because I specialize in working for foreign entities like companies, NGOs or embassies. I made a conscious choice to do that because I wanted to be viewed as independent. Working or representing inter-Korean relations would deny me the air of independence that was to me essential to make foreign clients comfortable. So I made a conscious choice to focus on foreign clients.

I could have represented South Korean companies, but I did not think I had the correct skills. I wanted to leave that kind of work to be done between Koreans.

We know you’re bound by client confidentiality, but could you give us a brief overview of some of the things you’ve worked on?

I can do my best within two constraints. Yes, there are nondisclosure agreements I’m bound by because sometimes the projects are very sensitive. The other reason is I am a New York attorney and I have taken an oath of confidentiality. But to give you an idea, the companies I’ve represented ranged from aviation, energy, financial institutions or railway companies, from various countries predominantly in Asia, then Europe and then North America.

Regarding North America, I wish to make a point not understood by many people. Forty-five percent of hits to my original website (HK&A) come from the United States. So despite sanctions and the inability of Americans to travel to North Korea, many people are watching very carefully because they see the future and the recent developments in inter-Korean relations.



Michael Hay used to ride his bike around the Grand People’s Theater, just across the street from his office in Pyongyang. This photo was taken in the fall of 2014. [MICHAEL HAY]
Speaking of recent developments, how do you gauge the efficacy of the recent sanctions on North Korea and whether they may be loosened?

Well I’m not a diplomat. I’m not a politician. I’m a businessman. As a businessman, I never have to take absolute factors into account. In many fields [North] Korea has been totally underestimated, including IT for example. You cannot launch missiles without highly developed IT.

Deciding on the sanctions is beyond me and is a decision for other countries to make. But I have to work in accordance with the sanctions. That is why I made the decision to suspend operations [for the firm in North Korea]. But that does not prevent me from visiting North Korea and it certainly does not prevent me from doing something I love, which is giving presentations, seminars abroad to chambers of commerce or other think tanks that are fascinated by North Korea. So on the bigger picture, sanctions are something for the politicians and diplomats to work out.

But regarding [the sanctions’] effect, the North Koreans, in very simple English, don’t care about sanctions. They have lived with sanctions for 70 years. Sometimes they laughed at them. Of course, the sanctions are having effects in certain sectors. They are affecting consultants who advised foreign companies because these companies left North Korea due to sanctions. The North Koreans frankly are not hurting as badly as other countries would like them to be. That is absolutely clear, and they are at a very high level of self-confidence. The highest I’ve ever seen or ever witnessed.



You’ve told news outlets before that the rule of law in North Korea is rather meticulous, particularly regarding regulations on foreign companies, arbitration, etcetera. Could you tell us more about that?

There exists a clearly defined system for dispute resolution by professionals in North Korea. Like many Asian countries, they prefer arbitration instead of litigation, so I have worked continuously with arbitration in North Korea since approximately 2000.

My specialization from my time in New York, South Korea and North Korea is dispute resolution. In the North, the proceedings were fair in every arbitration case that I was involved in. The foreign party was treated just as fairly as the North Korean party. The rules were similar to the rules of other arbitral institutions in places such as Singapore, Hong Kong or the International Chamber of Commerce in Paris. Rules regarding evidence or the cross examination of witnesses were also similar. So overall they have a rather highly developed arbitration system and that was recently revised in 2014. I saw the revision take place.



So would you say that even in cases where political interests are involved, there is a respect for the rule of law in North Korea?

That’s an excellent question. I would say two things. Number one, we all like to play sports on our home turf instead of the opposite side’s turf. In that respect, the rule of law was respected by the arbitrators I was pleading in front of.

If they did not provide adequate arbitral proceedings that were fast and equitable, there’s no way I would have stayed twelve years in Pyongyang because my reputation would be near zero. I would be seen to be making propaganda for a system that did not offer good dispute resolution.

So yes, they have very good dispute resolution system. Many of the arbitrators have been trained abroad at very high levels in Western European countries and are very familiar with arbitration rules.



How does the system compare to what you’ve seen in South Korea?

I like to avoid making comparisons for several reasons, one of which is that I am a foreigner. I like to leave Korean things among Koreans where possible. So I would prefer not to go into detail regarding which one has more merits or demerits. I can tell you that my experiences in both countries were very positive.



But there is a legal similarity between the North and South.

Absolutely. But not just with South Korea, but with international tribunals such as the International Court of Arbitration of the ICC [International Chamber of Commerce] in Paris. One time, I took a [North Korean] delegation to the ICC. They were very interested in the rules of the ICC, as they were in the rules of Hong Kong and the Hong Kong International Arbitration Center. They were very interested in the rules of other entities that are offering dispute resolution such as the London Court of International Arbitration.



Could you give us an anecdote about a case that had a lasting impact on you?

The principle for arbitration is total confidentiality. It’s the same in all countries. But I can tell you one anecdote in which I was representing a foreign company facing three major entities from North Korea regarding a joint venture. There was a problem in the joint venture. And there was a challenge. The challenges were made directly to me [by the North Korean entities]. During the proceedings, the North Korean arbitrator finally stood up and told everybody to stop objecting to my presence. If you don’t stop objecting, then we will stop the proceedings today, he said. That’s how fair the arbitration was. The proceedings were not stopped, and the opposition listened to the arbitrator. The same day, the arbitration pleadings were totally finished. The documents exchange came later. That’s one anecdote that I love to tell people because it was as fair a hearing as I can ever remember by an exceptionally well trained arbitrator trained in Western Europe and other countries.



How are the North Koreans represented in cases when they deal with foreign companies?

Sometimes they have attorneys. Sometimes they don’t. It’s as simple as that. I can also give you an example. Chinese companies tend not to use lawyers so there are very many Chinese companies involved in arbitrations. One of the reasons is they did not use a lawyer from the beginning of the project, and even during an arbitration, sometimes there is no lawyer representing the Chinese company or the North Korean company. It’s not necessary to have a lawyer under their rules. A person or businessman can represent himself if he wishes. But obviously that’s not a very good idea. If you’re going to achieve good dispute resolution you need good legal advice, and this is one of the things that we are promoting at HMP law.



A lot of worries about investing in North Korea are the risks of asset seizures or not being able to repatriate one’s earnings.

My answer to this important question is quite short. I didn’t represent Orascom [an Egyptian telecom company whose assets North Korea did not allow to be repatriated], which is a massive company. A large investment in North Korea, be it from Orascom or any company whether it is small, medium or multinational, must recognize that going into a country like that has risks. But there are risks investing in Britain now with Brexit or in Venezuela, where assets can be seized and nationalized. We have seen this in many countries.

I merely say that when going into North Korea, the key is preparation. That’s the first rule. The second rule is preparation. And the third rule is more preparation. Preparing so you know the territory and you can make a corporate decision based on risk factors and your risk assessment with your public relations firms.

Let’s be clear. North Korea is a challenge because so little is known about doing business there. If companies have had problems in North Korea, my experience is they have not prepared sufficiently. They have not engaged with consultants beforehand.



What could attract foreign companies to invest in the North?

Koreans are very determined and very disciplined. North Korea, as with South Korea, has a very high literacy rate, one of the highest in the world. Highly skilled, highly trained and highly motivated workers who are excellent at doing their jobs. I have seen them in action. I’ve seen them in factories. I’ve seen them in IT development entities, and their skills in IT are phenomenal.

In addition you have the geographical or literally the geological opportunities: mining of minerals and precious metals. They have an abundance of assets in the ground but can’t get the stuff out of the ground due to a lack of technical know-how. Perhaps they lack the equipment. Perhaps they lack sufficient internationalized personnel. This is a fantastic opportunity for foreign companies once sanctions are eventually loosened. Whether they are from Australia, Canada or South Africa, major mining companies can go in to make a joint venture with a North Korean company to help them get the stuff out of the ground, including gold. They can share the profits as a joint venture, all within a properly constructed legal framework.

That means don’t go out and do business in Korea without taking advice from consultants or lawyers experienced in the North. There are some consultants who claim to have great experience with the North and that is simply not true.



One of the major concerns that investors have had about North Korea is a lack of infrastructure. Could you comment on infrastructure development?

The development of infrastructure is astonishing. Pyongyang is, in many respects, a beautiful modernized capital city. Their infrastructure is such that there’s an enormous amount of buildings: apartment buildings and business-oriented buildings. There has been a huge increase in traffic density in the past four to five years. Overall the infrastructure of Pyongyang is very welcoming. There is a lack of infrastructure in, for example, railways. That’s one good example where there are opportunities for foreign companies that have the technology, the money, the people and are willing to cooperate.



There have been concerns by analysts that the wealth in Pyongyang is not trickling down to the provinces or the general population. Can you tell us more about that?

I can tell you not very much for one simple reason. In my seminars, one thing I repeatedly say is that one has to be very careful about statistics regarding North Korea. The statistics are usually made by people who have never visited the country. But for some reason and somehow they come up with estimates, statistics and analysis of what is going on inside North Korea. North Korea is a country where information is divided and separated. So frankly I take such information with a bucket of salt.



On a personal note, how was your life like as a foreigner living in Pyongyang?

I had absolutely wonderful time in South Korea and had an absolutely wonderful time in North Korea. And if you ask me why, it’s the people. Koreans have a disposition that makes them friendly. From the little children to the harmony that you see in people exercising by the Taedong River in the morning. The people are perhaps shy but they will engage and recognize when somebody is friendly towards them. I had wonderful experiences in North Korea and hope for many more.



Can you tell us more about the North Korean partners you’ve worked with?

The majority of my counterparts were elite lawyers from Kim Il Sung University College of Law and worked for the Ministry of External Economic Relations. They wear several hats.



How would you see the future of investment in North Korea?

Unbelievable. As I previously mentioned, the determination, the training, the self-discipline. The literacy rate, the very motivated workforce. The natural resources, which are in abundance in North Korea. When the geopolitical situation changes, there will be a surge of people printing business cards and calling themselves specialist lawyers or specialist consultants in North Korea. There already is huge interest because they’re monitoring the situation and attending seminars. They’re just not currently investing because of the sanctions. Korea is basically my life. I have total and utter confidence in the resolution of various major issues. I’m very confident in the future of Korea. Absolutely confident.

BY SHIM KYU-SEOK [shim.kyuseok@joongang.co.kr]


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