With the release of an Israeli arrested on bogus charges in the Republic of Georgia, the two U.S. allies can get back to building a close relationship
On Oct. 14, 2010, two Israeli businessmen sat down to a lavish supra, or feast, in the Georgian Black Sea resort town of Batumi. Rony Fuchs and Ze’ev Frenkiel were there at the behest of Nika Gilauri, the prime minister of Georgia, who had invited them to visit in hopes of settling a $100 million financial dispute that had dragged on for some 15 years.
In the early 1990s, Fuchs, then working as an oil trader in New York, developed a plan to build a pipeline to transport oil and gas from the newly free and resource-rich regions of the former Soviet Union. Through a Georgian-born member of the Israeli Knesset, Fuchs met a variety of officials in the country’s new government. In 1993, he won a 30-year exclusive concession from Georgia to develop an energy transportation network to carry the Georgian oil and gas westward from the Caspian Sea to Europe, potentially earning him tens of millions of dollars.
At the time Fuchs signed the contract, the small country in the Caucusus was one of the most corrupt in the former Soviet Union; basic things like the rule of law and sanctity of legal contracts had not yet been established. But the potential windfall was huge—and Fuchs thought he had the right connections. Yet when a new government led by former Soviet Foreign Minister Eduard Shevardnadze came to power in 1995, it quickly canceled all previous energy contracts in order to make deals with larger, multinational companies.
Fuchs hired Kissinger Associates to help him recoup his claim. In January 2003, Henry Kissinger himself wrote to Shevardnadze. “Shevardnadze accepted what Dr. Kissinger wrote to him and everything was on the verge of solution,” Fuchs told an arbitration panel that later ruled on his case. But in November 2003, the Rose Revolution, which brought Mikheil Saakashvili to power in Georgia, interrupted the process. While Saakashvili promised to clean up Georgia’s image as a post-Soviet backwater, he apparently had little interest in resolving the Fuchs dispute. So in 2007, Fuchs brought a complaint for the International Center for the Settlement of Investment Disputes, an autonomous body affiliated with the World Bank. In March 2010, it ruled that the Georgian government owed Fuchs $102 million, a sum that represented forgone profits and legal costs.
But Georgia refused to pay. And so senior officials in the Georgian Finance Ministry in Tbilisi, the capital, decided on an easier and cheaper way to settle the matter: Nab Fuchs in a sting operation. As Paul M. Barrett reported in a story for Bloomberg Businessweek earlier this year, a Georgian Finance Ministry official tasked with working as intermediary between Fuchs and the Georgian government reported to his superiors in early September 2010 that he had made contact with a “Jew businessman acting in Georgia [who] had tight relations with Rony Fuchs.” The “Jew businessman” was Ze’ev Frenkiel, a former employee of Fuchs’ living in Georgia.
Less than two weeks later, Frenkiel arranged a meeting between the Finance Ministry official and Fuchs at an Istanbul hotel. In a conversation secretly recorded by the Georgians, Fuchs agreed to a $72 million settlement if the Georgian government promised not to appeal the arbitration decision, with the expectation that he would return $7 million of the sum to the country’s deputy finance minister as a kickback. The October dinner in Batumi, thrown by the Georgian Finance Ministry, would finalize the deal.
It didn’t go down that way. Right before the signing ceremony, Fuchs and Frenkiel were placed under arrest, interrogated, and thrown into jail.
Fuchs, now 61, retained President Barack Obama’s former White House counsel Gregory B. Craig and Geoffrey Robertson, a prominent British lawyer who represents WikiLeaks founder Julian Assange. He would need the best defense money could buy: 99.96 percent of defendants in Tbilisi courts are convicted. According to Fuchs’ lawyers, a Georgian official had told the Israeli ambassador to Georgia that the convictions would be dismissed if Fuchs would give up his claim to the $100 million. Fuchs refused. “We are being held hostage here, and the Georgian government wants a $100 million ransom,” he said in January to a reporter attending the trial, according to Bloomberg Businessweek. “We will not pay it.” Up until this point, Georgia and Israel had had generally positive relations; a sizable number of Georgian Jews lives in the Jewish state. But both Israeli President Shimon Peres and Foreign Minister Avigdor Lieberman unsuccessfully lobbied the Georgian government on behalf of their imprisoned countrymen. In April 2011, Fuchs and Frenkiel were found guilty of bribery and given prison sentences of seven and six-and-a-half years, respectively.
Yet three weeks ago, on Dec. 2, after the two businessmen had spent some 14 months in jail, Saakashvili announced that he had pardoned the two businessmen. Immediately after the men were released, Peres called the Georgian president. “I know this was your personal decision,” Peres said, according to the Jerusalem Post. “It was a generous gesture and I have tremendous respect for it.” Saakashvili repaid the praise, issuing a statement: “This episode was difficult and uncomfortable for both sides, and I am happy it has ended.” Peres, he added, is a “big friend of Georgia.”
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