23rd Dec 2011

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.”

It’s unclear why, half a year after their conviction, Saakashvili chose to intervene this month. David Kakabadze, the director of Radio Free Europe/Radio Liberty’s Georgian language service, told me that he believes that “the pressure was too big.” He explained: “Relations between the two countries really were deteriorating because of this.” Indeed, a visit by Georgia’s parliamentary speaker, David Bakradze, to the Knesset scheduled for March 2011 was canceled by his Israeli counterpart, Reuven Rivlin. But lurking underneath Saakashvili and Peres’ happy talk is the real reason for the release: Fuchs agreed to take $37 million, some $70 million less than what he was owed, in exchange for his freedom.


Since Fuchs’ arrest last October, the Georgian government has been at pains to stress that the case had nothing to do with bilateral relations. “The Fuchs case is not about the Israel-Georgia government relationship,” Giga Bokeria, Saakashvili’s national security adviser, told me earlier this month. “It’s one serious case of corruption.” But the controversy, given that Saakashkvili’s big success is that he’s dramatically reduced corruption, was clearly tarnishing Georgia’s reputation in Israel and the West. Michael Cecire, a Tbilisi-based economic policy analyst, wrote that the episode was “nothing less than a body blow to Georgia’s credibility as a decent place to park investment cash.”

The Fuchs ordeal was an impediment, one of several, in a relationship that has generally blossomed in recent years. Israel and Georgia are natural allies. Both are small, relatively young (and flawed) democracies that live in difficult neighborhoods. Both countries are Westward-oriented; Georgia, under Saakashvili, has been fervent in its desire to join NATO as a deterrent to the predatory desires of its neighbor to the North, Russia. And both countries are clients of the United States. Israel is the largest recipient of American military aid, and Georgia has received billions of dollars as part of an ongoing economic and humanitarian recovery package created in the aftermath of the 2008 war it fought with Moscow over the separatist Georgian territories of Abkhazia and South Ossetia. (As a symbol of gratitude for this and other support for Georgia’s territorial integrity, in 2009 the Tbilisi City Council voted to rename the main road linking downtown to the airport President George W. Bush Street.)

For nearly a decade, Israel had been eager to help Georgia militarily; its soldiers trained Georgian ones, and Israeli defense firms had carried on a healthy trade relationship with Tbilisi since 2001. That all came to an end, however, in the aftermath of the 2008 war, when Moscow reportedly threatened Israel with arms sales to Syria and Iran should Israel continue equipping the pesky little state in the North Caucasus. (This quid pro quo was confirmed in a 2009 State Department cable released earlier this year by WikiLeaks.) While the Georgians were initially angry at Israel’s decision—one Georgian Cabinet minister called it “a disgrace”—tempers have since cooled as both sides reconciled themselves to the painful costs of realpolitik. “We do understand the challenges that Israel faces,” Bokeria, the Georgian national security adviser, told me. In February, however, Russia announced that it would sell anti-ship missiles to Syria, prompting reports that Israel would renege on its part of the deal and resume selling weapons to Georgia.

Another bump in the Georgian-Israeli relationship was caused by Iran. In November 2010, Georgia and Iran signed an agreement that eliminated visa restrictions and resumed direct flights between Tehran and Tbilisi. “We’re in a kind of Bermuda Triangle here,” Alex Rondeli, president of the Georgian Foundation for Strategy and International Studies, told the Los Angeles Times at the time of the deal. “Georgia needs U.S. support, but it needs friendly relations with its neighbors, too.”

Yet despite these obstacles, Georgia is one of several countries in the region—along with Armenia, Bulgaria, Cyprus, and Greece—that has benefited from the recent demise of the Israel-Turkey relationship. In September, the Turkish government signed an agreement with NATO to host a U.S. radar, part of a larger U.S. missile-defense system, on its territory. Turkey demanded, however, that it not be obliged to share information with Israel as part of the deal. Saakashvili, who studied at Columbia University and understands the innate American sympathy for underdogs, saw an opportunity and jumped. “We are willing to share with any country, including Israel,” Saakashvili told Newsweek in September.

Tbilisi has also courted the pro-Israel community in the United States. Soon after taking power in 2004, Saakashvili signed a lobbying contract with Orion Strategies, a lobbying and consulting firm headed by Randy Scheunemann, an adviser to John McCain’s 2008 presidential campaign. (Full disclosure: In 2010, I visited Georgia on a trip sponsored by Orion.) The firm employs Michael Goldfarb, a spokesman for the Emergency Committee for Israel, a right-leaning advocacy group. Last year, Tbilisi sent a former deputy prime minister, Temuri Yakobashvili, who is Jewish, to Washington as its ambassador. At a press conference after the 2008 war, Saakashvili mentioned Yakobashvili and his Jewish defense minister, each of whom had lived in Israel, boasting that, “both war and peace [for Georgia] are in the hands of Israeli Jews.”


Support for Israel and Georgia have also become increasingly partisan issues in the United States, partly at the instigation of Republicans, but also as a consequence of Obama Administration policies. In an effort to improve relations with historic adversaries, the administration has attempted to reconcile with Russia and that broader, transnational entity known as the Muslim world in part by hanging Georgia and Israel out to dry. In the case of the former, this has meant issuing a de facto arms embargo on Tbilisi, though the U.S. government formally denies such a ban exists. Last year, President Obama said that Russia’s occupation of Abkhazia and South Ossetia, whose independence is recognized by just Russia and three other states, “need no longer be considered an obstacle” to the United States signing an agreement with Russia on civilian nuclear cooperation that had been put on hold after the 2008 war. And last month, Georgia relented under pressure and acceded to Russia’s joining the World Trade Organization, something that Moscow had been trying to achieve ever since the breakup of the Soviet Union.

Relations between the United States and Israel have also been strained over the past three years, and Republicans, eyeing an opportunity to win Jewish votes and portray the president as weak, have attacked President Barack Obama for selling out an embattled ally. Their critique, similar to the one regarding Georgia, is that the Obama Administration has applied an undue amount of public pressure on Israel so as to prove its own peacemaking bona fides to the Muslim world.

The tension between Jerusalem and Washington has led some to believe that affinity between Georgia and Israel will grow as a consequence of their both having received the cold shoulder from the White House. “Israel and Georgia unfortunately suffer the same fate under the Obama Administration,” said Jamie Fly, executive director of the Foreign Policy Initiative. “They are both small allies of the United States that are threatened by neighbors that the administration is obsessed with engaging. Although Israel has a domestic constituency that forces President Obama to attempt to justify his policies, Georgia, unfortunately, does not.”

The distraction of the Fuchs case behind them, and Russian duplicity potentially opening the way for a resumption of arms sales, Georgia-Israel relations would seem to have nowhere to go but up. Perhaps the greatest realm in which the friendship can grow is through the power of example. Given its comparable position as a nation under fire, Bokeria, the Georgian national-security adviser, told me, Georgia can learn from Israel “how to be a free country in those circumstances.” The Jewish state “shows that in many ways, it’s better to be a free country and a liberal democracy to survive,” he said. “I think Israel shows that, and I think Georgia shows that too.”

Were these small states able to determine the course of their relations unmolested by the exigencies of regional politics, then there’s little reason to doubt their alliance would be positive. One suspects, however, that the aggressive behavior of their respective enemies will continue to throw a wrench into the future of an otherwise strong relationship.

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