23.07.2020 (Caucasian Journal) Our guest today is Mr. Seth BLY-CHAR, CEO of ICONIA Capital, a real estate developer based in Tbilisi but owned by U.S. investors. (Read Georgian version here.)
Alexander KAFFKA, editor-in-chief of Caucasian
Journal: Dear Seth, welcome
to Caucasian Journal! Our guests often talk about the importance of
foreign investments for Georgia, the”investment climate”, “ease of doing business”,
and other pretty abstract notions. But
today we have a chance to touch the practical side of things: The hands-on experience of an American
investor in Georgia. The fact that your experience is “mixed” makes it even
more valuable to readers. For a start, can you give a short answer: Do you
regret about investing your money in Georgia? If you could go back to 2015,
would you rather have taken your investment elsewhere?
Seth CHAR: Mr. Kaffka, firstly, thank you for this
opportunity to interview with your prestigious publication. You had mentioned that our investor
experience in Georgia was “mixed,” but in reality, it is only “mixed” on the
best of days: overall, our experience in Georgia over the past five years has
been overwhelmingly negative.
If I could do it all over again in 2015, I would still have
visited Georgia, since it’s still an incredible country, but not as an investor
or businessperson.
AK: Thank you for a frank answer. I hope our
readers are now firmly “hooked” and willing to hear all the whys and
wherefores. So, you are an American citizen coming to Georgia, buying a land
plot in downtown Tbilisi, and founding a 100% American-owned real estate
business to construct the first modern “mini- skyscraper” here, correct? Can
you tell a bit about yourself, and how did you get to Georgia?
SC: Indeed, this is all correct. I am a Eurasian American who was born and
raised in Hawaii; coincidentally I also graduated from the same high school as
former President Obama (Punahou School).
We even shared some of the same teachers! During my time at Punahou, I took an elective course on world
history, and the country of Georgia was brought up several times as part of the
series on the Soviet Union. I found my
introduction to Georgia to be fascinating, being that it played an important
role in the shaping of the 20th century, and also being a country
that has been a key player in the formation of the historical Silk Road.
After high school,
Georgia once again found its way into my attention as I was studying history at
university. As a university student,
Georgia was often talked about by my professors, as they excitedly explained to
me that we were witnessing the unfolding of a true historical event: the birth
of modern Georgia through the Rose Revolution.
As a young wealth
manager, stockbroker, and investment banker, I had the opportunity to observe
one of the many roadshows that then President Misha Saakashvili was doing
across the U.S. I was immediately
intrigued with the former President’s “sales pitch” of his country: that it was
open for business, was a dear and trusted friend of the United States, and that
honest business and hard work would be rewarded in Georgia.
When considering
which country to invest in, Georgia was immediately the first place that came
to mind. Since the Rose Revolution, the
overwhelmingly positive changes, libertarian-minded economic reforms, and
crackdowns on corruption were all points that made investing in Georgia at the
time a “no-brainer.”
The business situation in Georgia had changed drastically, and we were about to embark on a five year struggle that is still ongoing today.
Sadly, by the time I
actually arrived in Georgia and started our business, it was in late 2014.
Unbeknownst to me at the time, the business situation in Georgia had changed
drastically, and we were about to embark on a five year struggle that is still
ongoing today.
AK: So you are all set - with money, land, an
architectural project, and a construction permit, and are about to start
erecting your skyscraper. And then like bold from the blue, your permit is
frozen, and your whole business is stopped - on the grounds of just a
neighbours’ complaint?
SC: As insane as it sounds, yes: our business
was first stopped in March 2015 with the stroke of a pen from several of our
neighbors, living near our construction site, and who, to this day, continue to
illegally occupy and trespass on our land.
Now, it’s important to clarify at this point, that this
group of neighbors are not just a simple arrangement of concerned community
citizens protesting some controversial construction project. These antagonists, through direct wording as
well as documented acts, have confirmed a personal financial interest in
dismantling our business and illegally seizing our property. Their goal is to, in the short term,
continue the illegal occupation of our land, by using it as an open air parking
lot for their personal vehicles. In
addition, this group of assailants are not ordinary Georgian citizens. They are comprised of influential court and
government officials.
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| Render image of Iconia's building next to existing buildings |
SC: As has been officially recorded by court
documentation, our opponents have applied to the courts, and won four years of
court freezes, under the following arguments:
- That our proposed construction project, inspired by famous New York structures and utilizing the most luxurious of materials, is “ugly” and would cause the value of their own apartments to fall;
- That our construction activities on our own land would block parking for their cars;
- That our construction would cause too many traffic problems in the community.
In any modern and developed country, such arguments against
an American investor overseeing a multi-million dollar investment that would
create hundreds of jobs for local people would be laughed out of the
courtroom. Instead, these arguments
were accepted immediately and the court instantly ordered our business to be
stopped. With expensive and
time-consuming expert analyses from the Levan Samkharauli forensics bureau, as
well as solid documentation and evidence, we have been fighting these frivolous
and false arguments for the past four years.
However, while we have the superior evidence and materials, the courts
have somehow decided to completely ignore our defenses while upholding the
statements of our opponents: statements which have been proven to be total
fabrications and lies.
AK: We all know the standard advice given
in such situations - go to the court. You did so; and how many years have
passed since? So, what’s your opinion on the court’s functioning, so far?
SC: We have been sued twice, beginning in June
2016, and the court has ordered our business to be frozen indefinitely until
present. Therefore, it has been a long
and horrible four years in Georgia, fighting with opponents who are somehow
able to stop an American investment in Tbilisi due to their “personal
feelings.” These are the same courts
who have also refused to tell us why our business has been stopped, and has
refused to confirm which laws we have broken, if any.
These same courts have also refused our request to
counter-sue and seek financial and reputational damages from our
opponents. On top of that, the courts
have broken their own guidelines and regulations multiple times, by purposely
stalling instances of court, hearing dates, and written decisions in order to
further prolong our difficulties and exacerbate our financial damages.
Lastly, the two regulatory bodies for the Georgian courts
and attorneys: the High Council of Justice and the Georgian Bar Association,
have been completely ineffective in combating the alleged corruption taking
place with our case.
Needless to say, my opinion of the courts in Georgia is
quite poor. It’s not enough to say the
courts aren’t functional, in fact they are dysfunctional to the extreme.
AK: I
know from your press releases about the particularities of your many years’
standoff, which included even personal threats that you received. One may
Google for details, to find even hidden camera footage, as well as scans of
official documents and other evidence. I’m more interested in your “lessons”
for other investors, which can also be used by authorities and civil society to
improve the situation, and make life better for everyone. Since your court
experience was not satisfactory, what other tools did you try, to resolve your
situation?
As a foreigner, you will not have the same professional network and family contacts with the authorities that a Georgian businessperson may enjoy.
SC: We have publicly published evidence, which
includes audio recordings and video footage, of the threats and harassment
we’ve received in Georgia as we attempt to defend our business from
attack.
One of the lessons that I can offer to other investors is to
acknowledge their status as a foreigner in this country very early on. You see, Georgia is a very small country,
and the business and political community in Georgia are closely intertwined. As a foreigner, you will not have the same
professional network and family contacts with the authorities that a Georgian
businessperson may enjoy. In both my
business and personal circles, there are always stories from my Georgian
colleagues regarding a local businessman making one phone call to their cousin in
City Hall, the courts, or etc. and having some major problem suddenly
resolved. As a foreign investor, you
should understand that such resources are not available to you, and if they are
offered to you: refuse and run very far away.
Every move you make to fight must be done with transparency and under
the full limits of Georgian law - period, no exceptions.
Following this, while you have to acknowledge that you’re a
foreigner and need to use the legal tools available to you, I would advise
other investors to “think like a Georgian.”
Learning to speak the language, at least on a basic level, and becoming
an expert at Georgian culture and thinking is critical towards developing a
strategy to protect your business and your employees.
My final piece of advice would be to swiftly and
aggressively take legal remedies outside of Georgia, should the need
arise. It certainly has in our case,
since we have discovered that it may be impossible to receive any kind of resolution
or justice within the current local courts.
Since, as you noted, our court experience was not satisfactory (we are
still frozen in the Supreme Court, without being informed on what we did wrong,
if anything), we hired an American law firm and started the process to sue the
Georgian government in international arbitration court.
We had to take this drastic action in November of 2018
because, quite frankly, we were out of options and given no way to resolve our
issues locally. Depending on the
outcome of the Supreme Court decision in the next month, we intend to continue
this $10 million arbitration claim and also have backing for this claim by our
investors in the U.S.
AK: Are there any parties, or individuals,
who turned out to be helpful and supportive in your situation?
SC: Our biggest supporters and fans have been
ordinary Georgian citizens themselves, from the community; as well as
independent journalists, newspapers, and even television news stations.
As far as business organizations, ICC (the International Chamber of Commerce) in Georgia has been of immense help, especially in early 2019 when our issue was escalated to very uncomfortable levels. Iconia Capital LLC has been an ICC member since our early formations in Georgia, and continues to be a proud participant in the organization.
As far as business organizations, ICC (the International Chamber of Commerce) in Georgia has been of immense help, especially in early 2019 when our issue was escalated to very uncomfortable levels. Iconia Capital LLC has been an ICC member since our early formations in Georgia, and continues to be a proud participant in the organization.
Within the political arena, many of the pro-West political
opposition have pledged their support and sympathies towards us, and our cause.
Perhaps the most well known supporter of us is Mayor Kakha Kaladze and his team
over at the Tbilisi City Hall. Mr.
Kaladze, his Vice Mayor, and his legal team have all been very helpful and supportive
of us over the years, and we continue to be grateful for their continuing
assistance.
AK: What next steps do you envision?
SC: Our business and construction project
continues to be frozen, as it was first ordered in June 2016 as a response to our
opponents’ first lawsuit against us.
Our case is currently under appeal at the Supreme Court of Georgia. We are currently awaiting a final court
decision from the Supreme Court.
This decision was due on June 14th last
month. It is now more than a month
later, and all requests to this court for information from our legal team have
been met with bizarre responses and deflections. Therefore, the Supreme Court of Georgia is now in violation of
their own rules and regulations.
If the decision is made outside of legal standards and/or
with a lack of transparency and fairness, we intend to escalate this issue
further using all available legal remedies: both within and outside of
Georgia.
AK: At
this point let’s wrap up the particular Iconia Capital case, as I wanted to
learn your personal opinion and feelings, even if emotional and subjective. Do
you feel discriminated against? If so, why? Is this connected to being a
foreign national?
When you’re a foreign investor in Georgia, and in conflict against well connected, tight-knit local opponents... it’s akin to walking into a card game where the dealer and opposing players having already stacked the deck against you.
When you’re a foreign investor in Georgia, and in conflict
against well connected, tight-knit local opponents, you’re immediately at a
disadvantage; it’s akin to walking into a card game where the dealer and
opposing players having already stacked the deck against you.
Additionally, looking around Tbilisi and monitoring our
competitors – you can’t help but feel discriminated against when your American
project has been stopped for five years, while similar and even more
controversial projects are being constructed and built with minimal fuss and
conflict. These competitors hail from
other countries, such as Russia, Iran, and China, or are Georgian businessmen
with Russian financing and support.
Now, there is nothing wrong with people from Russia, Iran, or China, but
the U.S. taxpayer, including myself, has contributed to billions of dollars
worth of aid going into Georgia over the years, which is exponentially more
support and care than Russia, Iran, or China has ever contributed to this
country. In fact, this phenomenon has
become so obvious that even the U.S. State Department and members of Congress
have noted this alarming situation in written reports and memos.
Discrimination in treatment against American investors in
Georgia is strictly prohibited under the terms of the 1994 U.S. - Georgia
Bilateral Investment Treaty: an agreement signed and accepted by the Georgian
government, and is still in force today.
AK: As an
American citizen, you have the option to turn to the U.S. authorities, to apply
considerable American influence, which is being used by other companies who
also announced they have suffered from unlawful behavior. We know about letters from U.S. congressmen,
and even legislation initiatives criticizing Georgia. What’s your opinion on
this?
SC: On top of these politically oriented
reports, there has been direct mentioning of our company’s problems, as well as
those from other Americans, from Congress.
Congressman Markwayne Mullin, who has been a staunch supporter of
American businesses in Georgia from the beginning, even mentioned our company
by name in an op-ed published in The Hill.
AK: Do you think Georgia still remains an
attractive destination for foreign investors? Perhaps you think you were just
unlucky, having occasionally bumped into a wrong neighborhood?
SC: I do not think that Georgia remains an attractive destination for foreign investors. Reports like the World Bank’s “Ease of Doing Business” survey are also quite misleading and unhelpful when evaluating today’s Georgia as a stable locale for business. You see, most investors, including myself, care very little about forming an LLC in four hours and for $30 USD if it will be impossible to continue doing business in normal conditions after that LLC is formed. Therefore, the World Bank’s rankings mean little to nothing in reality with regards to educated investors evaluating Georgia as a safe haven for their capital.
I even have noted to my Georgian colleagues, who are aware
of our situation and have asked for advice about investing in the U.S., that it’s easy to start a business in Georgia but difficult to make it work. Whereas, in the U.S., it’s been the opposite experience for me: it’s harder and more expensive to get started, but once you do, it’s much easier to develop, grow, and succeed.
Our case in Georgia is definitely not an isolated one, and
for further evidence of this, review the reports and analyses made by the
European Diplomatic community, NGOs such as Transparency International, the
Georgian Ombudsman, and the U.S. State Department. You will find that the situation in Georgia with regards to the
investment environment is in very, very dire straits indeed.
AK: I guess you must have very concrete
recommendations about things that must be improved. Can you summarize, say, 3
top priority areas where action is needed now – to protect investors and
minimize their risks?
SC:
1. Establishing a
“zero tolerance” policy towards nepotism, cronyism, and political correctness
in houses of government where critical decisions are made.
2. Breaking the
“Judge Clans” in the courts, restore faith in the judiciary, and give actual
authority to the High Council of Justice to discipline and investigate rogue
judges.
3. The government
needs to openly and defiantly show their support for foreign investors, while
severely punishing their attackers.
AK: If you have any other comment that you
wish to share with our international readership, the floor is yours.
SC: Thank you very much for this opportunity
to interview, and I hope that my responses will be useful to investors and
political authorities alike in evaluating the ongoing situation here in
Georgia.
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