From left, Zeev Frenkiel and Rony Fuchs Hadar Cohen
By Paul M. BarrettIn October 2010, oil trader Rony Fuchs traveled to the Black Sea resort of Batumi at the official invitation of the Georgian government. The Israeli financier thought the visit would result in the settlement of a $100 million commercial battle he had been waging with the former Soviet republic for almost 15 years. That dispute is now resolved, but not the way that Fuchs had hoped.
Rather than negotiate a compromise in the ordinary fashion, the Georgians threw Fuchs and an Israeli colleague, Zeev Frenkiel, into prison, accusing them of attempting to bribe Georgian officials during an earlier meeting in a luxury hotel room in Istanbul. Georgian agents had secretly videotaped the booze-soaked gathering, during which Fuchs agreed to return $7 million to the officials in an under-the-table side payment. Fuchs and Frenkiel claimed they were entrapped in a scheme by the Georgians to escape or reduce the country’s debt to Fuchs related to the canceling of oil pipeline interests he had acquired in Georgia in the early 1990s (“Trapped,” Bloomberg Businessweek, Feb. 28-Mar. 6).
In April 2011, Fuchs and Frenkiel were convicted in a Tbilisi courtroom and sentenced to seven and six-and-a-half years behind bars, respectively. The case drew diplomatic protests from Israel, a key ally of Georgia, and underscored the continuing danger of doing business in former Soviet lands.
Behind-the-scenes negotiations continued even as Fuchs’s defenders and Georgian officials insisted publicly that they would stand on principle. On Dec. 2, Georgia announced a resolution: President Mikheil Saakashvili pardoned Fuchs, 61, and Frenkiel, 65, in a deal that allowed them to return to Israel immediately. The Georgian government also said it would pay Fuchs about $37 million to resolve his claim.
“Upon a request from the Israeli government, as well as from the Israeli President personally, taking into consideration the convicts’ age and their health condition, the Georgian President decided to pardon them,” Saakashvili’s spokeswoman, Manana Manjgaladze, told reporters on Dec. 2.
Fuchs’s main Georgian defense attorney, Archil Kbilashvili, confirmed the account. “The financial dispute is over,” the lawyer said via e-mail. “Georgia agreed to pay about $37 million, and [Fuchs] accepted that.” Beyond that, Kbilashvili said he could not comment because of a confidentiality agreement with the Georgian government. Fuchs arrived at Sde Dov Airport north of Tel Aviv on the same day the agreement was announced. “It feels great to come back,” he said, according to the Israeli newspaper Haaretz. “The pardon was granted following mediation by senior Israeli diplomatic officials, as well as efforts on the part of Foreign Minister Avigdor Lieberman,” Haaretz added. In a statement, a spokesman for Lieberman invited his Georgian counterpart to visit Israel to repair strained relations.
Fuchs’s dealings in Georgia date to the early 1990s, when he and a Greek partner, Ioannis Kardassopoulos, obtained the rights to build an oil pipeline across Georgia. In March 2010 an arbitration panel in London ruled that the Tbilisi government owed Fuchs and Kardassopoulos $98 million, plus interest, for expropriating the oil concession in the mid-1990s. The settlement allowed Georgia to avoid further public airing of its dealings with Fuchs in additional arbitration proceedings scheduled for this month.
Discussing the pardon, Georgia’s Deputy Justice Minister, Tina Burjaliani, said Georgia’s liability had grown to $110 million, according to Civil Georgia, a news website. Casting perhaps unintended light on her government’s motivation, Burjaliani added that the settlement helped Georgia “to save about $70 million.”
The bottom line: After pursuing claims of about $100 million against the Georgian government, Fuchs has won a settlement and his freedom.
With Helena Bedwell Barrett is an assistant managing editor and senior feature writer at Bloomberg Businessweek.
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