[House Hearing, 105 Congress] [From the U.S. Government Publishing Office]FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS APPROPRIATIONS FOR 1998 ======================================================================== HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS HOUSE OF REPRESENTATIVES ONE HUNDRED FIFTH CONGRESS FIRST SESSION ________ SUBCOMMITTEE ON FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED PROGRAMS SONNY CALLAHAN, Alabama, Chairman JOHN EDWARD PORTER, Illinois NANCY PELOSI, California FRANK R. WOLF, Virginia SIDNEY R. YATES, Illinois RON PACKARD, California NITA M. LOWEY, New York JOE KNOLLENBERG, Michigan THOMAS M. FOGLIETTA, Pennsylvania MICHAEL P. FORBES, New York ESTEBAN EDWARD TORRES, California JACK KINGSTON, Georgia RODNEY P. FRELINGHUYSEN, New Jersey NOTE: Under Committee Rules, Mr. Livingston, as Chairman of the Full Committee, and Mr. Obey, as Ranking Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. Charles Flickner, William B. Inglee, and John Shank, Staff Assistants, Lori Maes, Administrative Aide ________ PART 5 TESTIMONY OF OTHER INTERESTED INDIVIDUALS AND ORGANIZATIONS REGARDING UKRAINE ________ Printed for the use of the Committee on Appropriations ________ U.S. GOVERNMENT PRINTING OFFICE 42-189 O WASHINGTON : 1997 ------------------------------------------------------------------------ For sale by the U.S. Government Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 COMMITTEE ON APPROPRIATIONS BOB LIVINGSTON, Louisiana, Chairman JOSEPH M. McDADE, Pennsylvania DAVID R. OBEY, Wisconsin C. W. BILL YOUNG, Florida SIDNEY R. YATES, Illinois RALPH REGULA, Ohio LOUIS STOKES, Ohio JERRY LEWIS, California JOHN P. MURTHA, Pennsylvania JOHN EDWARD PORTER, Illinois NORMAN D. DICKS, Washington HAROLD ROGERS, Kentucky MARTIN OLAV SABO, Minnesota JOE SKEEN, New Mexico JULIAN C. DIXON, California FRANK R. WOLF, Virginia VIC FAZIO, California TOM DeLAY, Texas W. G. (BILL) HEFNER, North Carolina JIM KOLBE, Arizona STENY H. HOYER, Maryland RON PACKARD, California ALAN B. MOLLOHAN, West Virginia SONNY CALLAHAN, Alabama MARCY KAPTUR, Ohio JAMES T. WALSH, New York DAVID E. SKAGGS, Colorado CHARLES H. TAYLOR, North Carolina NANCY PELOSI, California DAVID L. HOBSON, Ohio PETER J. VISCLOSKY, Indiana ERNEST J. ISTOOK, Jr., Oklahoma THOMAS M. FOGLIETTA, Pennsylvania HENRY BONILLA, Texas ESTEBAN EDWARD TORRES, California JOE KNOLLENBERG, Michigan NITA M. LOWEY, New York DAN MILLER, Florida JOSE E. SERRANO, New York JAY DICKEY, Arkansas ROSA L. DeLAURO, Connecticut JACK KINGSTON, Georgia JAMES P. MORAN, Virginia MIKE PARKER, Mississippi JOHN W. OLVER, Massachusetts RODNEY P. FRELINGHUYSEN, New Jersey ED PASTOR, Arizona ROGER F. WICKER, Mississippi CARRIE P. MEEK, Florida MICHAEL P. FORBES, New York DAVID E. PRICE, North Carolina GEORGE R. NETHERCUTT, Jr., Washington CHET EDWARDS, Texas MARK W. NEUMANN, Wisconsin RANDY ``DUKE'' CUNNINGHAM, California TODD TIAHRT, Kansas ZACH WAMP, Tennessee TOM LATHAM, Iowa ANNE M. NORTHUP, Kentucky ROBERT B. ADERHOLT, Alabama James W. Dyer, Clerk and Staff Director FOREIGN OPERATIONS, EXPORT FINANCING AND RELATED PROGRAMS APPROPRIATIONS FOR 1998 ---------- TESTIMONY OF OTHER INTERESTED INDIVIDUALS AND ORGANIZATIONS REGARDING UKRAINE ---------- Thursday, April 24, 1997. UKRAINIAN NATIONAL ASSOCIATION WITNESS EUGENE M. IWANCIW Mr. Iwanciw. Thank you, Mr. Chairman for the opportunity to testify before this subcommittee and for your past support for Ukraine. I request that my full testimony be put into the record. I am aware that recently a number of concerns about Ukraine have arisen. So, let me address those concerns. In any discussions of Ukraine there is desperate need for both balance and fairness; balance of looking at the total picture of what is occurring in the Ukraine and not just focusing on isolated instances and fairness in judging the Ukraine by the same criteria; the same yard stick, if you will, with a standard no lower, but certainly no higher than any other U.S. foreign aid recipient. The Ukrainian National Association believes that while the standards of balance and fairness are not reflected in the U.S. media coverage of Ukraine, we are certain that these standards will be reflected in Congressional discussions and decisions. While press reports have recently focused on problems of doing business in the Ukraine, the media has not focused and has not reported the growing number, currently at 210, of U.S. companies going to and doing business in Ukraine. U.S. private investment in Ukraine is growing with an increase of almost $100 million in this past year alone, and negotiations for well over $1 billion in the next year to 18 months. It is clear that Ukraine, like all nations, face some serious problems. The most critical being government corruption. Understanding this, the Ukrainian President Leonid Kuchma has begun a comprehensive campaign against corruption, including the development of a Clean-Hands Program based on the successful program used in Poland, the firing of numerous ministers and various lower level officials, and an appeal to President Clinton for U.S. technical assistance in that effort. Just today, President Kuchma issued a mandate that all anti-corruption efforts are to report directly to him. The President of the Ukraine has put his reputation and his political future on the line in the battle against corruption. He needs, not only U.S. technical assistance, but cooperation. While we constantly hear that Ukraine is the third largest recipient of U.S. foreign assistance, the reality is far different. While yesterday's Wall Street Journal reported that Ukraine received billions of dollars of assistance, the reality is U.S. assistance has been $866 million of which over one- third has gone to retire nuclear weapons which the Ukraine inherited. The funds don't go to the Ukraine; they go to American organizations that are providing technical assistance. But even if we count the Nunn-Lugar Assistance Funds, the Ukraine ranks ninth among NIS nations in per capita U.S. assistance; half of what Belarus has gotten; 60 percent less than what Tajikistan, a communist country, has gotten. The assistance actually provided as a percentage of the aid budgeted puts the Ukraine in next to the last position among NIS nations. In the area of anti-crime assistance, a very relevant subject for today, the Ukraine has received only 50 percent of the average assistance provided to other NIS countries for fighting crime. We need to do a better job providing the Ukraine with the level and the type of assistance desperately needed. Mr. Chairman, the reason we provide assistance to the Ukraine or to any other country is based on enlightened self-interest. A strong democratic, economically viable Ukraine could do as much to promote peace and stability in Central Europe as would the expansion of NATO. People as diverse as Lenin and Dr. Bazezinsky, over an 80 year period have said there is no Russian empire without Ukraine. And right now, Ukraine is fighting for its survival as an independent nation, which would be the greatest barrier to a renewed Russian empire. As this subcommittee deliberates the fiscal year 1998 bill, I urge you to consider the proposals in my written testimony, as well as the long-term costs that a reduction or a restriction of assistance to Ukraine will have on U.S. national security interests in the Ukraine and in the region, the 52 million people in the Ukraine who look to the United States for inspiration and assistance in building a civil society and an independent nation and also on the American companies doing business, making profits, and contributing to the development of the Ukraine. I have spoken to many business executives, and they've pointed to the problems. But I think if you poll them, you will find that overwhelmingly, they would say it is important for the United States to stay engaged, to continue to provide assistance, and to focus that assistance in the economic area rather than in some of the areas for which we have provided assistance. Thank you very much, sir. [The statement of Mr. Iwanciw follows:] [Pages 3 - 9--The official Committee record contains additional material here.] Mr. Packard [Chairman]. Thank you very much. I do appreciate your testimony. Before you leave, may I make a couple of comments and hope that by that time the Chairman will be back. I have worked and lived next to the border between the United States and Mexico. Corruption has been an ongoing problem in Mexico for a long time, but it's a different kind of corruption and they are seriously attacking it and improving. The most important thing in economic development as it relates from your country to our country is the invitation and the accommodation of joint venturing and economic infusion into your economy by, in this instance, American industry. One case, and you have said that it's an isolated situation, but even one case of the destruction of a company, an American company, that comes to your country because of corruption is one too many. It will discourage any other company from coming. We encourage our companies to go to Ukraine and to any other country that will treat them fairly and honorably. It only takes one case of corruption that works against and destroys a company that will discourage other companies from coming. There are huge amounts of what we call Maquiladoras going to Mexico from our country in my region of the United Statesbecause they're invited and they are treated with respect and treated fairly and under the law. If they weren't, those Maquiladoras would flee Mexico as quickly as they will flee your country if corruption works against them there. That's an area that we cannot solve for you. You have to do it internally within your own country. It would be inappropriate for us to make any attempt to come into your country in an effort to try to clean-up the corruption there. All we can do is insist that it happen or our companies will be discouraged from coming. We want to come. We want our companies to come and prosper in your country. We think it's good for our country. We think it's good for our companies. We think it's good for the Ukraine and its economy. But, we have great concerns about any company that will come back to the United States, any United States company, that would come back and complain bitterly about corruption that has virtually destroyed that company or its efforts in making a success in your country. I think we will hear some of those stories before we're done this afternoon. Mr. Iwanciw. Well Congressman, first to correct the record. I am an American. The Ukrainian National Association is an American organization and can trace its roots back 104 years to the Shamakin in Pennsylvania. And we are concerned and we share your concerns. We have from our community and from my organization expressed those concerns to the Ukrainian Government. We see foreign assistance, not as an end in solving economic problems of the Ukraine. Those problems will be solved through foreign investment; to a large extent U.S. investment. Foreign assistance, however, can provide a tool to help and to work with the Ukrainian Government. In two weeks, the National Security Advisor and the head of internal security of the Ukraine will be in Washington preparing for the Gore-Kuchma Commission meeting. They will be meeting with our national security council to discuss joint programs at combatting corruption. The United States has experience. Ukraine need to learn. Six years ago, Ukraine did not exist as a country. For 350 years prior to that it did not exist. And we have to be careful of what are realistic expectations. They shouldn't be any higher or any lower than what we expect from Mexico, Russia, Poland, or any other country. Let's just be fair. And I think if you look at the total record, if you will look at the European media, at Financial Times, at the Herald Tribune you will see a completely different picture of Ukraine. The negatives will be there about corruption, but you will see a lot of positive things; a stable currency; one of the most stable countries in Central and Eastern Europe, and a country that the Organization for Security and Cooperation in Europe (OSCE) said, has a minority's policy that could serve as a model for Western European countries. Look at the whole picture. That's all I request. Mr. Packard. Well then I think this committee has and is. We have been very supportive of our sister, the Ukraine. Mr. Iwanciw. And we appreciate that. Mr. Packard. And we will continue to be supportive. We think that good things are happening there, but that does not mean that we should not be concerned about the problems that exist there. Mr. Iwanciw. We share the concern. We will work with you. Mr. Packard. Those concerns, if they are not addressed, can have a significant affect upon the attitude of this committee, the attitude of Americans generally, and certainly the attitude of American businesses that may wish to go and do business in the Ukraine. That's all we're saying. We have been very supportive. I think the level of support and aid to the Ukraine over the last several years, included in this year's budget, is an indication of our belief in and commitment to the Ukraine and its future. But, again, that should not be interpreted as an indication that we will overlook or that we will be oblivious to the corruption that exists there. Reports have come back far greater in Ukraine than we've seen in Russia, or that we've seen in Mexico, or that we've seen in other places. So, I think the fact is that we're concerned. And I'm simply expressing that concern from the committee. Mr. Iwanciw. We understand and we look forward to working with you. One suggestion I might make. I heard the idea was floated that the committee would require a Presidential certification on that business climate. We would oppose it if it were aimed at Ukraine only. But if it was aimed at all recipient countries of foreign aid, that is something acceptable. We support a level playing field on which we believe Ukraine will do quite well in the coming months as the Anti-Corruption Program takes effect. Ukraine should be judged fair and by the same yard stick as other countries. Mr. Packard. A very good point. Thank you. Mr. Iwanciw. Thank you. Mr. Packard. Do you have a question? Mrs. Lowey. Yes, Mr. Chairman. I'm sorry that we were called to vote, but I would just like to say that concerns have been expressed today, and I would like to emphasize again that the needs of Ukraine are so great that our investment in Ukraine and democracy in Ukraine is absolutely a must. What we would have to do is work with you and work with the government to ensure that the money is going to those areas where it is so desperately needed. In fact, it's unfortunate that it is in so many of the areas of the world we have seen corrupt practices. So that what you're saying is that to put in place guidelines that would refer to all areas that receive foreign aid certainly should be considered. But I want to emphasize again for my colleagues that having been in Ukraine several years ago, I know their needs are extraordinary. And we should work together with other groups to ensure that the money is going to address those specific needs. I thank you for your testimony and for your suggestion. Thank you. Mr. Iwanciw. Thank you very much. We look forward to working with this subcommittee. Mr. Packard. Before I turn the Chair over to Mr. Knollenberg who has been asked to Chair this committee in a few minutes, do you have any questions of this witness? Mr. Knollenberg. I do not. Mr. Iwanciw. Thank you, sir. Mr. Packard. Thank you very, very much. Mr. Knollenberg [Chairman]. The next witness is Gala Radio of Ukraine, Joseph Lemire. Appearing also is Marta Fedoriw. Thank you. You can sit right here if you would. You may proceed. ---------- Thursday, April 24, 1997. GALA RADIO AND TV COMPANY AND GRAND HOTEL-LVIV, UKRAINE WITNESSES JOSEPH LEMIRE, PRESIDENT, GALA RADIO MARTA FEDORIW, PRESIDENT, HALYCH, INC. Mr. Lemire. Thank you, Mr. Chairman. I thank the committee. I would submit my testimony which has been prepared not just in conjunction with Gala Radio, but the American Chamber of Commerce. I would like to submit our testimony, not just for Gala Radio, but American Chamber of Commerce. Since I saw this subcommittee two weeks ago, a lot has happened in Ukraine; not a lot of good things. The American Chamber of Commerce wanted several of their companies to submit information also. Mr. Knollenberg. Your testimony will be included in the record and admitted as written. Mr. Lemire. Thank you, Mr. Chairman. Things are coming in from Ukraine because as several of the committee Members know, Ambassador Morningstar is in Kiev right now. And there was a meeting of 13 American companies last night. Ambassador Morningstar got an ear-full, as I was told, this morning. There were no success stories; not one. These are the major companies operating in Ukraine. As was pointed out yesterday in the Wall Street Journal, 24 out of 34 companies that are registered with the American Embassy in Ukraine have serious difficulties. Our company, Gala Radio, has been written up in many of the press. So, without going into the detail, there is a detailed summary back in Section Two of the testimony. And here is a binder of some 80 status reports that have gone to the Administration, both Ukrainian and the American Administration on the day-by-day events. Basically what happened is we were taken off the air last year. It was a Voice of America Radio Station, the first one in Ukraine. We were taken off the air when we were beginning to broadcast for the Olympics as an official sponsor. It was given to another company. That company continues to broadcast. That's not our only investment. We have several other investments, one in which is with this lady right there, Oksana Baiul. In January of this year after a year and a half of trying to get a beauty salon operating in Kiev with Oksana Baiul, they walked in and pad locked the beauty salon for us not paying a bribe. Mr. Callahan, I've heard you speak a lot about Mobile, Alabama. I don't think somebody is going to work into a beauty salon in Mobile, Alabama where I've had my hair cut several times and pad lock a beauty salon. With regard to the actual problems and how to address it, I've been here 30 times since last July when this happened. I've spent a lot of time with the State Department. Things are not moving forward. As recently as last Friday night, the wife of our station manager who is 23 years old, 5-feet 1-inch, seven months pregnant was taken from her flat and kept for nine hours by the Economic Police. All she was quizzed about was our activities. Since it is against the law in Ukraine to keep a pregnant woman over night. They forced her to go to the hospital to take tests to show she was pregnant. She was seven months pregnant. It was very easy to see that she was pregnant. She was let go later. As far as it being an isolated incident, as it was just mentioned, in Section Four and in Section Three, there are numerous other companies, multi-nationals, small, large, having problems; all the same in Ukraine. Why is it happening? There tends to be just a complete disregard for the truth, for honoring of contracts, for following the laws. Specifically our matter was brought up by Vice President Gore in Lisbon, Portugal in December. President Kuchma said it was because we didn't pay our taxes. The next day for two weeks we had tax inspectors. The result of those tax inspections, they owe us $12,000 because we had to give back advertising revenue because we were taken off the air. Mr. Senkiw, managing partner of Arthur Andersen who sees quite a few different companies said it pretty well. It is like taking 10 steps forward and 100 steps back and all that effort for one step is just not worth it. And many companies are seeing that now. Motorola, Marathon and others are leaving. The current economic situation in Ukraine is not good. A lot of the numbers were put forth in the previous testimony. This past Monday, it came out that Ukraine is not going to come out of this, this year. Their GDP dropped 10 percent last year. Their whole production has slowed down to a crawl. Fifty percent of the people are unemployed if you consider non- payment of wages. What is the real problem though? For some reason that message is not getting up here to Washington. Mr. Callahan. Could you conclude in 30 seconds? Mr. Lemire. The message is not getting here to Washington. What the companies said last night was, one, and these are 13 of the major companies operating; one, Ukraine aid needs to be tied to conditions. Two, with the position that the United States has with the World Bank and the IMF, there needs to be pressure placed on them for conditions. And three, and more importantly is some sort of mechanism immediately to help take care of the 20 or so investment problems that have already been communicated to the Administration. I thank the committee for allowing the time and if there is any more further information, I can provide it as they're coming in from Kiev now. I received some more as I was coming over here from Dupont that they would like to be submitted. [The statement of Mr. Lemire follows:] [Pages 15 - 33--The official Committee record contains additional material here.] Mr. Knollenberg. I just want to note one thing. Mr. Livingston, who is from New Orleans, would like to have been here. He could not make it. And I'm going to defer to the Chairman, since we have a little time, I guess, here that we could provide for questions. Mr. Callahan. Well, let me just make a comment or two. I've read your report that you've already submitted. I read it this morning. I'm incensed at what I read. In addition to your reports, we're reading in the New York Times and in the Washington Post and other notable publications of some of the problems that American business people are facing there. And I assure you we are not going to tolerate that. I don't know how we're going to handle it. Number one, we're starting off this week or next week in the supplemental appropriation bill by rescinding all of the earmarks to Ukraine trying to send them a message. We're not necessarily taking away the money, but we're rescinding in earmarks, giving the Administration a wedge. We're going to insist that the Administration afford you guys some relief. An American businessman's property should not be confiscated period. And we are not going to tolerate it. Not only you, but we're going to set up some type of vehicle like a class action suit against the Ukraine. We're not going to take them to court, but we're going togive the Administration a mandate telling them that until the Ukraine gets straight with this illegitimate seizing, with this harassment, and oppression of American business people, that there is going to be zero money. There is not going to be any money earmarked in my bill when I mark it up. The committee may change it, but I doubt it. There is going to be zero money in there for the Ukraine unless they make some immediate, drastic changes in the way they're doing business. I was told by Senator Domenici the other night that the banks in the Ukraine are now taxing deposits. He told me that in some cases the tax on deposits is 80%--if you as a businessman put $100,000 in the bank to meet your payroll, they're taxing it $80,000 on deposits. That is going to cease or either the American aid is going to totally cease for the Ukraine unless they take some immediate action to correct the inequities that have been taking place as a result of the corruption, as a result of the government harassment of people. So, your message is brief with respect to the presentation to this committee, but we've all read your report. And we've read reports from others. I can assure you that we're going to or I'm going to try to get this committee, and I don't know anybody on this committee that will disagree, to give some immediate relief to the Ukraine. My message to them today is straighten up, repay you and others for the confiscated assets. Do it immediately or they're not getting any assistance from the United States through this committee. So, that is my message to you. I appreciate you bringing your plea to this committee. We'll insist of the Administration as well that they take immediate action. And Ambassador Morningstar when he gets back, that he take immediate action. That he take that message to the Ukraine and take it immediately because there is going to be zero in this bill of ours until such time as we can see concrete efforts of reform in the Ukraine. Mr. Knollenberg. I'd like to add that this is such an important matter, and I know Ms. Fedoriw has a story to tell, if you could condense that to just a minute. And Ms. Pelosi has joined us as well as Mr. Packard. Ms. Fedoriw. Ms. Fedoriw. If I could read it, it will be easier. Mr. Knollenberg. If you could just summarize it. Ms. Fedoriw. I'll try. Thank you, first of all, for the opportunity to testify before you here today. And I would request that my testimony go on record. Thank you. Just a quick overview. As an American whose parents fled Communist Ukraine, I had the good fortune to grow up in the United States and experience the rewards of Democracy. And so in the early 1990s when changes started to take place in Ukraine, I owned a travel agency in the United States for over 12 years at that point. I became one of the first American investors in that country. In 1990, I signed an agreement to lease, renovate, and operate a small hotel in the center city of Lviv, Ukraine. It's a western city in Ukraine. My project was received with tremendous interest. It was written up on the front page of the Wall Street Journal; a capitalist democracy dream story. This is 1992. What happened in effect has been a total nightmare. The nightmare is actually described in a chapter by Anne Applebaum published by Random House between East and West across the border lands of Europe. In August of 1992, after I plunged my total $100,000 investment, plus another $300,000 into travel and working back and forth between Ukraine, the renovation project itself, then training the hotel staff according to American business and service standards, upon opening day of the hotel I learned that the company documents had been falsified, had been manipulated, and my Ukrainian partner, and I did have one, a local Ukrainian partner, was in total control of accounting, operations management. He basically said to me, get out. We don't need you anymore. We used you for your money and your name, but we don't need you any more. Well, just to make it very brief and quick. I turned to city officials. I found out very quickly that I was getting the run around. That the entire situation was that this Soviet or Ukrainian partner was in cahoots with the city government officials. Starting with the police, the mayor, and so on and so forth; the prosecutor general and so on. I pursued the matter seeking justice through the court system. After about three months of that, I went home for a Thanksgiving Day holiday to spend with my family and the general manager that I had hired, who happened to be a distant relative of mine because my parents did come from that region, was shot and killed on the street. He was shot by a hired assassin; he and his wife as they were walking home from work. His wife survived and she is raising their two children alone. My partner has since told me very quietly, you started causing me trouble and I answered you. You continue and I'll answer you again. I haven't given up. I sit before you today after four years and eight months since August of 1992 of fighting this system in a legal manner in the Ukraine. I have been through--I filed a lawsuit against the City Property Fund which originally gave the lease. It's a complicated matter, but anyway, with my Ukrainian and American lawyer, we filed a lawsuit. The case has been heard three times in lower courts in Lviv, with always a decision against me, always overturned on appeal by a higher court. I have now reached the Supreme Court of Ukraine. And as recently as last fall, I spent three months in Kiev waiting to hear of a hearing date so that I can come and present my case. And only at the end of my stay there, I learned that a hearing was held and I was not notified. When I wrote to the Judge and asked why was I not notified of the hearing date, he said to me, oh, the notification letter must have gotten lost in the mail. We don't have money for registration or registered mail. It's a basic run around. It's a basic run around to wear out financially and emotionally the American investor. The government officials that I meet with all promise to help out, but I really think that the basic idea is to just wear me out. Although I must add in the end, there are Ukrainian government officials who want to see this corruption and this stopped. There really are people like that. And so, I would like to in summary ask you this. They need your help; these government officials in Ukraine who do want to see the corruption stopped. And the way that you can help is to make the United States aid money conditional; conditional upon reforms; reforms that will stop the corruption and reforms that will ensure implementation of laws. Then and only then will the U.S. taxpayer be assured thathis tax dollars are spent on a wise investment, an investment that helps build Ukraine into an economically strong and politically stable country. Denying aid to the Ukraine at this time will only serve the communists who are waiting in the wings to take over again; to say that the experiment with democracy and capitalism has failed. But to continue giving aid unconditionally will only serve the corrupt government officials who are lining their pockets as the economy slides downward and political instability follows. So, from my experiences in Ukraine, I submit to you the foreign aid to Ukraine is the strongest method we have to help Ukraine make a turn around. I recommend that, one, U.S. assistance should be tied to demonstrable progress against corruption and toward reform. And a part of U.S. assistance should be allocated to a mechanism which will address and resolve immediately the more than 20 American investor problems in Ukraine today. Thank you so much, Chairman Callahan, and Chairman Knollenberg, and Members of the subcommittee for hearing my case, that of an American investor in Ukraine. [The statement of Ms. Fedoriw follows:] [Pages 37 - 42--The official Committee record contains additional material here.] Mr. Knollenberg. So, you've lost---- Ms. Fedoriw. Over $400,000. Mr. Knollenberg. Your business and $400,000? Ms. Fedoriw. Right. My life's savings. Mr. Callahan. There is a time for questions, I think because of the importance of the situation and the testimony of these two witnesses. My question would be two-fold. One, do you consider your life in danger when you go back to the Ukraine? Ms. Fedoriw. Yes, I do. Yes, I do. And I must admit that because I am an American I think that I'm a little safer because for example the general manager I hired was a local citizen. So, I really think--and by my coming here and talking to you testifying before you, that gives me more assurance to feel safer when I go there. Mr. Callahan. Secondly, and this question is directed to both of you--do you think the Ukrainian people are seeking the kinds of reforms that we discussed here today? Do they recognize the corruption? Ms. Fedoriw. Yes. Mr. Callahan. Is it local as well as against foreign businesses? Is that same corruption against local businesses? Ms. Fedoriw. Yes, it is. For example, this partner of mine is basically a thug who has the support of local government because he pays them off probably. And I've heard that he has come in and taken over a restaurant, a locally owned small, little restaurant that had been privatized about two years ago. Mr. Callahan. Does the Judicial System need to be reformed? Ms. Fedoriw. Extremely. The Judicial System is extremely corrupt. Mr. Callahan. You have no recourse in their Judicial system? Ms. Fedoriw. No recourse; none. Mr. Lemire. Congressman Packard. We won at both levels of the Supreme Court. We couldn't go any further. The government said we're above the court. That was said in the Wall Street Journal. We're above the court. And to add to your question about concern, yes. I'm under the protection of the American Embassy. They house me inside the Embassy because of threats on my life last year. Mr. Callahan. You mentioned, I believe other big American businesses, Motorola and others. Are they having the same kind of treatment? Mr. Lemire. It's identical. I have here now Dupont. Inside here also is Monsanto. They are all having similar types. Obviously the multi-nationals at times do not want to go on record for fear of their own employees. When I left on Tuesday night, my employees were concerned, very concerned because of what happened last week. We've had our places broken into. The worst thing is we've identified the people. We have affidavits of the people who have done it. However, the Procurators Office will drop the charges. We have on tape with the police investigating it saying, ``we've been called from higher ups to drop the matter.'' And the worst thing is that those people are right now applying for Visas to come to the United States. And the State Department cannot stop those because they say they have not been convicted of any crime. Mr. Callahan. Thank you, Mr. Chairman. Mr. Knollenberg. There will be a question from Ms. Pelosi. Ms. Pelosi. I don't have a question. I just have an observation and that is that I want to thank our witnesses. As I said, when Mr. Morningstar--Mr. Holmes to testify--joined us that day that this is something that we've heard about on our last visit to Russia last summer. That when we talked about business investment, et cetera, in Kiev and in the Ukraine it was forget it. I think that we have to do what we suggest which is to use our aid as effectively as possible so that we can help the people of the Ukraine enjoy some of the benefits of democracy. That will not come unless we can attract investment. The point that I'm making is the damage, Mr. Chairman, as we send aid to places and as we encourage people to democratize, I think we have to have some expectation that we're going to have to help them build and then we can have institutions like an independent Judiciary and other ways to keep order with respect to individual rights. Once again, I commend your courage and interest in helping the people of the Ukraine--same time without the expectation of the U.S. business investment. Thank you. Mr. Callahan. Let me just suggest one thing and to any of you who might have some grievance with the Ukraine that involves the loss of an asset. If you would send to us an explanation of the loss and what it would take to satisfy your grievance, either the absolute return of your property or a cash payment in lieu thereof and give us that. I will send it to the State Department and I will tell them that I hope this message gets loud and clear back to the Ukrainians that if they're interested in American aid, they'd better get it straightened out before our bill is marked up or they're going to get zero. That I have instructed the staff to leave out any aid whatsoever for the Ukraine until such time as they address these issues to our satisfaction. Now, we're not legal experts with respect tointernational law, but let them answer to you, through us, the grievances that you all individually send to us. We will dispatch it to them for definite answers on your specific problems. We will demand of them some relief. They don't have to respond, but we don't have to appropriate either. Ms. Fedoriw. Right. Right. Mr. Knollenberg. Mrs. Lowey. Mrs. Lowey. Yes, just briefly, Mr. Chairman. I just wanted to thank you both for coming before us. Having been a part of a bipartisan group in 1993 going to Russia and Ukraine, I remember the great feeling of optimism among the people. I want to congratulate you and many other ``pioneers'' who went there to invest with the hopes of not only profiting individually, but lifting up the people of the Ukraine. And I would hope that through the work of this committee and testimony from people like yourselves we can continue to direct our assistance to bettering the life of the Ukrainian people and sending a very strong signal to both Russia and Ukraine that their efforts to root out corruption are absolutely essential, but we've got to be careful that we're not falling into the trap of letting the communists regain power because they'd love to see capitalism fail. Ms. Fedoriw. Right. Mrs. Lowey. So, working with you and working with those in the government who want to see democracy flourish, I hope that we can continue to build on the investments that you and others have made in democracy and a better life for the people of the Ukraine. Mr. Packard. Mr. Chairman, may I ask one more question? Mr. Knollenberg. Mr. Packard. Mr. Packard. In the expropriation of companies and properties and assets, has that been by partners or individuals swindling you out of your business or has that been an actual expropriation by government officials? Mr. Lemire. In both of our cases, the radio station and the beauty salon it was directly by the government. And with regard to what Mr. Callahan was saying, we're already preparing a lawsuit underneath the Bilateral Investment Treaty which kicks in on May 16th. So, our expropriation was directly by the government. Ms. Fedoriw. In my case, it was my partner in cahoots with the government. Mr. Packard. Thank you. Mr. Lemire. Mr. Chairman, just one last Comment. What concerns us is President Kuchma is planning a visit here on May 16th. And whenever that happens, that tends to reenforce the fact that whatever they're doing is good. When he goes back, then he goes back and communicates to the people that everything is fine. And there are very good people in the Ukraine. There really is. But then it reinforces what they're doing. And we just don't feel like that's right. All of our matters can be taken care of with a phone call and they're not. Mr. Knollenberg. Let me just close by saying we do appreciate your testimony this afternoon. This isn't just a small business concern. I think both of you had relatively small businesses. Ms. Fedoriw. Right. Mr. Knollenberg. We're probably hearing now from Fortune 500 companies that have immense complaints. Mr. Callahan. Overlaps--mentions about the President's Ukraine visit. I think the recommendation is made to the Vice President of the United States that his activity be delayed until some of this can get resolved. Ms. Fedoriw. That's an excellent idea. Mr. Knollenberg. Thank you both very much. Mr. Lemire. Thank you. Mr. Knollenberg. We can proceed out of order in terms of the witness schedule. I'm going to recognize Congresswoman Maxine Waters; if she would come forward. We will give you the customary five minutes. Congresswoman. Thursday, April 24, 1997. UKRAINIAN CONGRESS COMMITTEE OF AMERICA WITNESS ASKOLD S. LOZYNSKYJ Mr. Lozynskyj. Thank you, Mr. Chairman. Having heard the prior testimony, I can pray. I am somewhat reluctant to take this seat. Nonetheless, I have submitted my testimony in written form. And I request that it be a part of the record. Mr. Knollenberg. It is so ordered. Mr. Lozynskyj. Frankly, Members of the subcommittee I was somewhat surprised and taken aback by the reaction to the testimony that has been offered. Without detracting from the weight of that testimony I would submit that this is not a court of law, nor is it being operated in accordance with rules of evidence or rules of procedure. Much of what had been said was hearsay, innuendo, suggestions ``in cahoots with the government,'' being accepted at face value as being a fact. Sure, Ukraine has a problem with corruption. It's not endemic to Ukraine only. It's a problem which pervades the former USSR. Under the Soviets, there was a system where the government was corrupt. The Red Directors were corrupt. You were rich when you stole. Unfortunately, this is the legacy of the past. What we are failing to see is that Ukraine has only been independent for five years, in a vacuum of any laws, or the mechanism to enforce those laws. There is absolutely no way that Ukraine can deal effectively with corruption in such a brief period of time. Let's consider Ukraine's progress within the last two years alone. The pace of economic reform has moved most expeditiously. In fact, Ukraine has privatized approximately 50,000 enterprises. Ukraine's inflation rate has decreased from 10,000 percent per year to a projection of 25 percent in fiscal year 1997. Ukraine's currency introduced in September of 1997 has not only been stable, but in fact it's appreciated vis-a-vis the dollar. Sure, corruption is a problem, but Ukraine is not the United States. If Ukraine were the United States, Ukraine would not need foreign aid nor would it need foreign capital infusion. Ukraine, to a large degree, is the wild west. Russia is the wild west. In fact, Russia is wilder than Ukraine in that regard. There are a number of examples of business failings or the inability to do business in Ukraine. Yet, there is an array of successful businesses operating in Ukraine. Coca-Cola, in fact, Coca-Cola recouped its investment threefold in its first year. Sure, it was confronted with corrupt practices. It found a way to circumvent corruption. I, myself, represent the Ukrainian Congress Committee of America. We are the umbrella organization for Ukrainians in the United States. Individually, I have, together with partners, invested in Ukraine as well. We opened up a manufacturing plant for pallets for companies like Coca-Cola. We imported a quarter of a million dollars worth of American machinery to help construct those pallets. Sure, we were confronted with corruption. There was a Red Director looking for a handout. We managed to circumvent that by saying, no. We're not going to pay bribes. There are a number of other examples. Motorola, was not successful in Ukraine. On the other hand, Dave Woo, a South Korean operation was. They have a number of joint ventures including mobile communications in Ukraine. You can't sit there and say that anyone who is successful in Ukraine is successful because they're paying corruption money. You can't say that because then the Airbus would be paying corruption money. Dave Woo would be paying corruption money. Coca-Cola would be paying corruption money. You can't simply condemn all of these operations. In fact, there are more successful operations, Western operations, in Ukraine than those who have been aggrieved. Granted, I'm not disparaging those ventures that have been aggrieved. But the fact of the matter is that this problem is a serious one that we need to deal with. If you simply condition aid to Ukraine on overcoming the corruption, doing away with it without assisting in this project, then you are condemning Ukraine because you will send a signal to foreign corporations and investors, not to do business in Ukraine. Our function as Americans is to show Ukraine how to deal with this corruption. And in fact, we have been abysmally, I might add, ineffective in that regard. USAID assistance for Ukraine has been an absolute travesty. We have used government money to set up luxurious premises in Kiev and other cities. We've equipped them with the finest equipment and we have done everything other than making Ukraine a law abiding society. There are a number of examples. There is no accountability as to how we spent our money in the past. Congress seems to appropriate money, but never asks for accountability. USAID has been running amuck with different programs which have not contributed towards stabilizing the situation. My suggestion is instead of condemning Ukraine, work with Ukraine in dealing with the corruption. Ukraine is not ignoring this corruption. Ukraine is dealing seriously with it. The President has established a new program; a Clean Hands Program. He is dealing with the problem of disaffected foreign investors. Just recently, he set up a special advisory council to deal with this problem. That advisory council includes Coca-Cola. It includes Boeing. It includes a number of American companies. He is seriously concerned with the problem. I will conclude my remarks. All I ask is that you will look at the entire picture; the problems facing the Ukraine, what Ukraine has accomplished. Democratically, it's a paragon of democracy in Eastern Europe. Economically, it leaves a lot to be desired. We need to work with Ukraine rather than condemning it. [The statement of Mr. Lozynskyj follows:] [Pages 48 - 51--The official Committee record contains additional material here.] Mr. Knollenberg. Mr. Lozynskyj, thank you very much. Two things. We have a vote on, number one. There may be some questions that people will want to ask of you. I'm going to suggest that we defer those questions. We have two people that have to testify before 4:10 p.m. If you can remain in the area for those questions, if there are any and I think there might be some, we'd like to get back to you. In an effort to get the vote out of the way, I'm going to stick tight. Somebody is going to have to vote so I can go over and vote and return. Mr. Callahan. Mr. Lozynskyj. I apologize for not being here when you testified. Many of the Members said that they didn't get the opportunity to ask you any questions. So with that, Joe, since you are presiding, maybe you will lead off with any questions. Mr. Knollenberg. We've heard some people testify previously about--certainly you referred, I remember, to Russia as being the wild west. And I think you prefaced your testimony with the Ukraine as a bit of the wild west too. My question really has to do with--I think you have to admit there is corruption or are problems and it does affect business coming into Ukraine, particularly American business whether it is small or large. Now, yes, you have examples of achievement or success but you agreed that there is a problem with the justice system. I think that's apparent. It's pretty obvious. I'm not suggesting we're looking away from those problems, but how can we level the playing field so business, American business, can come into Ukraine? How can we do that? I mean, we can't continue to fund a situation that is thrown back in our face. And it's American Business people frankly who are coming to us and complaining. They are saying that they don't have the opportunity. They don't have that level playing field they need to help, not just themselves, but to help Ukraine. How do you respond to that? Mr. Lozynskyj. Well, first, there are a number of American and Western and other businesses that are capable of doing business in Ukraine. I'm not suggesting that there is no corruption. I'm suggesting that, in fact, I stated that corruption is pervasive. It's endemic to the former Soviet Union. We in fact have never dealt with the transition from the command economy to a market economy. So, we in effect are neophytes in that regard. Under a vacuum of the Rule of Law, you will have the strongest three powers able to exert control via corruption; the government, state enterprises which are either becoming privatized or are remaining in the state domain. The Red Directors are clearly not willing to just simply leave and give up their wealth. Thirdly, you have organized crime. Sure, we have organized crime in the U.S., but we can't even fathom the organized crime that is pervasive in countries that are in this transitional period. Where we have simply not done our job is that we have appropriated money and we have spent money on American companies doing whatever it is they do in the Ukraine. USAID was entrusted with the function of assisting in establishing a Rule of Law society in the Ukraine. USAID does not even have a game plan. In fiscal year 1997---- Mr. Knollenberg. Does Ukraine have a game plan? Mr. Lozynskyj. Well, depending on who you speak with. If you speak with Victor Penzenik, Ukraine has a game plan. If you spoke with the Prime Minister--perhaps he doesn't have a game plan. There are good people in Ukraine. What I'm suggesting is that our money could be better spent in setting up this legal infrastructure. And there will continue to be corruption in Ukraine. Lord knows we have corruption in this country after 200 years of democracy. Ukraine has been independent and democratic for five years. It's obvious that there is corruption. But the fact of the matter is that we need to deal with it rather than condemn Ukraine. If you condemn Ukraine you will not get any investment from other companies, Western, or American companies. Furthermore, you will lose a strategic ally, a very significant strategic ally which is, frankly speaking, tottering between the Russian sphere of influence and the Western ambit. All indications are that Ukraine wants to join the West. But unfortunately, if the West then Ukraine will fall into the--fortunately Ukraine is not--at this stage. But that incredible scenario incredible as it may seem, is very real. Mr. Knollenberg. It is evident that there are problems that affect Americans that are trying to do business there. That's what we're saying. Mr. Lozynskyj. Right. Mr. Knollenberg. Is it because of the corruption? Obviously you say it is. Mr. Lozynskyj. I'm acknowleding that there is corruption there. Mr. Knollenberg. The problem is--leaving corruption aside for a moment--Americans are investing over there. We have to have some concerns about their security. You've invited them to that country to perform, to build a business, and then we find that it ain't so easy. That's our major concern. Corruption, obviously, is a concern of both Ukraine and U.S. But how do we actually encourage American business people? Mr. Lozynskyj. Well, I am suggesting that there are businesses that are making it in the Ukraine, American, Western, Japanese, even Chinese businesses that are making it in the Ukraine. They have found ways of circumventing the corruption. Case in point, GALA Radio has a judgment issued by a Ukrainian Court. The problem is enforcing that judgment. This is where a mechanism for enforcing equity or money judgments comes in. Ukraine does not have a mechanism. Ukraine doesn't have a mechanism for collecting taxes. That is one of its major problems. That's why they've rescinded the tax free foreign investments because Ukraine doesn't have the experience. We have the experience. And in that regard, we haven't been very helpful. So, what I'm suggesting is if you condition aid---- Mr. Knollenberg. ``We'' being whom? Mr. Lozynskyj. We, the United States. We're an American organization. We need to teach Ukraine to deal with corruption. Simply announcing it a contingency that to receive aid you must clean up this corruption is not going to cut it because there is no way that Ukraine can deal with corruption by itself. Mr. Callahan. Let me just inject here that we will give everybody an opportunity. You're the only Ukrainian official here. And you've come at a bad time with respect to perception. We're glad you are here because hopefully you can be the conduit. Maybe you can take the message back. You know, the United States, when we saw the destruction and the break up of the Soviet Union, we almost immediately adopted Ukraine. Then Ukraine became what we thought was going to be the shining star. You were going to be the pillars of the democracy of the former Soviet Union, of the New Independent States. We believed what you told us. You and your leaders told us how you wanted American enterprise to come and help you build a democracy. We believed you. You told us of complete cooperation. You told us of the fact that you were not going to allow corruption to the best of your ability. And now it appears, and once again all of this is perception. The perception of the Ukraine is what you've presented to us. Now, the perception of the Ukraine is whatthe American business people are submitting to us and the National American Press is submitting to us. So, that pillar of democracy has crumbled to dust. We no longer believe it. So, maybe we're wrong. Maybe these people are wrong. Maybe they're not telling us the total facts. Maybe they really didn't lose any money there. We don't know that. We're not a judge. We're not a court. We are appropriators. We appropriate because of perception. And the perception is that while we have bent over backwards to give the Ukraine more money than only two nations in the world receive. So, we have bent over backwards to believe your perception and to help you build a democracy. And every perception we get is failure. Now, it's not your fault, I don't guess. It might not be the President's fault. But nevertheless, it makes no difference whose fault it is. It's somebody's fault. You're a Member of the Congress, change the laws. You say you have the---- Mr. Lozynskyj. I'm a member of the Ukrainian Congress Committee of America. We're an American organization. And frankly, Mr. Chairman, you're making sweeping assertions in the sense that everything that Ukraine has done has been a failure. I would submit to you, Mr. Chairman, that Ukraine has done much good has disposed of its entire nuclear arsenal, the third largest nuclear arsenal in the world. It gave away its tactical nuclear arsenal. Ukraine's economy, the inflation rate, has come down from 10,000 percent to a projected 25 percent. It's currency has appreciated vis-a- vis the dollar. In the area of corruption, Ukraine is now addressing that as well. What you're doing, frankly speaking, is blatantly unfair. You've taken Ukraine, you've taken one issue, you've listened to two witnesses who have had bad experiences in doing business in Ukraine and you have condemned the country, forgetting everything that Ukraine has accomplished in its five-year existence. The United States does not have a better ally in Eastern Europe than Ukraine. In recent weeks, as a matter of fact, last week only Ukraine refused to deliver its portion of the turbines that went into the nuclear deal with Iran. Russia was trading with Iran. Ukraine refused to be a part of it at the request of the United States and Nathan Scharansky, the Minister from Israel. You're forgetting all of this and you're focusing on two or three witnesses and the area of corruption. And I acknowledge that there is a problem with corruption. And I'm submitting to you that we should be a part of the solution and not exacerbate the problem by condemning Ukraine. Mr. Callahan. Listen. I think that I do have it right. I do not represent Ukrainians. I represent Americans. And when American business people, 24 out of the 34 American business people that have started companies in the Ukraine have complained to us. And you think I should say, forget about that; forget about that because the Ukraine won't sell missiles or nuclear technology to Iran? You're getting something in return too, sir, in the Ukraine because you have the backing of the United States of America behind you saying if you will agree to those military endeavors, then we will protect you. And that ought to mean something to you and to the Ukrainians. Then when you thank us by telling us that it takes long periods of time to eliminate corruption by stealing from American citizens, then that is wrong. So, you can take a message back through whatever vessels you have that Ukraine is not going to get a nickel through this committee until such time is the perception of corruption is removed. Now, I don't think I can be any more clearer on that. So, don't start telling me how good the Ukraine is or what I'm overlooking. Let me tell you what you're overlooking. You're overlooking the concerns of the Members of this committee and our constituents. That's who we answer to. We don't answer to the President. We don't answer to anybody else but the people we represent. So, don't turn your blind eye to the fact and you talk about the success stories. The success of maybe downsizing your nuclear capabilities. I don't think you own the arms anyway. I think they belong to Russia. But nevertheless, that's good. That's progress. You know, that's great progress. We're trying to save you from yourself. So, in that respect we are talking today there is not going to be any aid for the Ukraine. I don't know how much clearly I can put it. There is going to be a restriction in the bill prohibiting the United States from giving aid to Ukraine in any form until they respond to these allegations that these American companies have given to us. Now, that might not be too clear, but I think you can comprehend what I'm telling you; that we feel betrayed because we were the ones that adopted you. You didn't adopt us. We liked what we saw. We liked what you told us. And now we feel betrayed and that pillar of strength and trust that we depended upon for you to build and to teach your sister countries over there how to do it, all of a sudden has turned to dust. So, I don't think I can be more clearer than that. You know, the Coca-Cola Company, for example. They're not saying that their investment there has been a total success. Mr. Lozynskyj. They've recouped their initial investment three-fold in the first year. Mr. Callahan. Mr. Morningstar--they didn't mention to him. Mr. Lozynskyj. I met with Coca-Cola--in January. Mr. Callahan. The same thing with McDonald's. So, in any event I think you get the message. And we appreciate you coming today. Mr. Lozynskyj. McDonald's is only now investing $120 million in Ukraine. McDonald's has not experienced the corruption that you're alluding to. In any event, Congressman, what I'm suggesting is that there are a number of Ukrainian Americans in this country who feel very strongly about these issues. And when you say that you represent your constituents, that is precisely what we're suggesting to you. Look at the concerns of your constituents as well. Mr. Callahan. Well, you have some of my constituents from South Alabama call me. You have them call me. And you have them tell me to ignore the 24 complaints out of the 34 businesses that are there. Mr. Lozynskyj. There are more than 34 businesses there. Mr. Callahan. The 34 that I'm aware of then. Mr. Lozynskyj. There are hundreds of American businesses in Ukraine and allegedly 24 have complained. Mr. Callahan. Well---- Mr. Lozynskyj. What I might suggest is that perhaps we can provide more information on this subject. Mr. Callahan. I think you had better provide some more information if you want more aid for Ukraine. And you'd better do it expeditiously. Mr. Packard. Mr. Packard. I don't believe that this committee nor this government wishes or intends to condemn the Ukraine. What we do intend to do though is to condemn the corruption in the Ukraine and there is a difference. We want to be of assistance to help build a secure and a successful economy in the Ukraine, but we will not tolerate corruption. It's just that simple. I think that was clear. We did not tolerate it in the Philippines when Marcos was President there. We gave $5 billion in aid over a period of time to that country. Much of it was pocketed by Marcos and his cronies. And we are not going to replicate that in any other country. So, we are going to demand accountability. And I don't know of a better way to expect accountability than to literally tie it to the assistance that we give. I believe that does not condemn Ukraine, it simply sends the message that we are not going to accept or tolerate corruption. It should be a huge incentive rather than a disincentive for Ukraine and its relationship with the United States and with this Congress. We have been and we will continue to be as a committee, I think, very, very generous with Ukraine in terms of our foreign assistance. But we insist on accountability. And I think we're trying to convey that. That means accountability on the corruption issue. We think the legal system some way has to be able to address corruption. I know of no other way. If you don't have a legal system that can punish those that are corrupt, then there will be no reason for corruption to disappear. They will take advantage every chance they get if they know that they can legally get away with it. That's where I sense that we've got to find a solution. It's in the legal system. If our companies who are abused through corruption have no legal recourse, or they, in the words of some of those who have testified, the corruptors are in bed with the legal system or with the government, then there is no hope for our companies to survive there. Even those who don't feel the effects of corruption will not go to Ukraine because they can certainly sense that they will be next. A big company naturally could work around it. They can survive. They can often have a longer waiting period. They can wait it out. And they can fight it out in the courts. But it is small business that will literally be destroyed. Where an individual will invest all that they've made here in this country under our wonderful entrepreneurial system, and they've made hundreds of thousands of dollars and in some instances millions of dollars, and then to plant all of it into an investment in the Ukraine only to find that within a matter of a few years, a very few years, it's all gone and they have no recourse. That is what can't continue. And I think you understand that as a businessman. You understand it simply cannot continue because the message will go out very clearly as it's come back to this committee that businesses had better steer clear of the Ukraine. And that's the last thing we want. That's the last thing Ukraine wants. And certainly you, as an American enterprise that's trying to move business to the Ukraine, wouldn't want that either. We're not condemning the Ukraine. We are condemning corruption. We will do that in our own country. We will do that in any other country that does business with the United States. We have to. We have no other recourse but to condemn corruption that's going to extort business monies from those that invest in the Ukraine. Mr. Lozynskyj. Congressman, we're condemning the corruption as well. What we're saying is that we, as Americans, should be a part of the solution. And on page four of my testimony there are four very concrete proposals that we should address to support the struggle against anti-corruption in Ukraine, endorsing comprehensive commercial law reform, creating a legal infrastructure, support for revitalization of Ukraine's energy sector, and for the revitalization of Ukraine's agricultural sector. If we become involved in those projects through the money that we spend in Ukraine we will assist Ukraine in becoming a law abiding society. But if we condition aid and say, you cleanup the corruption and then we will give you the money, nothing will happen in that regard because Ukraine alone over a short period of time is incapable of dealing with it, just like Russia, just like all of the other countries formerly within the Soviet Union. They're incapable after five years of independence and after 72 years of Soviet rule to deal with corruption by themselves in a very brief period of time. And we have to be of assistance. If we're not---- Mr. Packard. The sad fact is, if I may interject. The sad fact is that you had a lot of Members of this subcommittee that up until we became Members of this subcommittee never voted for a foreign aid package. And I'm one of those. Now, that I'm a Member of the subcommittee and writing the legislation I feel an obligation to support that which we write. But we are not great advocates of enlarging our foreign aid package. We are advocates of accountability. We are advocates of making certain that money is used appropriately because we reluctantly vote to send the money; most of us. I know the Chairman feels that same way. Mr. Callahan. Let me just let you leave with two or three thoughts. One, perception. I predicated everything I said upon perception. The perception is if I'm wrong you prove me wrong. If these people are lying, you prove them as liars. Perception is the thing we're concerned about and corruption, you are right. You can't just say there is no more corruption. But tolerated corruption is something else. And that's what we're seeing. We're seeing tolerated corruption in the Ukraine backed up by the Congress; backed up by the government. And we cannot allow tolerated corruption to impede the ability of our people to do business in the Ukraine. Well, we thank you very much. Mr. Lozynskyj. Just one question. Will you tolerate corruption in Russia? Mr. Callahan. No or anyplace else. Mr. Lozynskyj. Okay. Mr. Callahan. But keep in mind, we've given Ukraine probably five times what we've given to Russia. Mr. Lozynskyj. On the contrary Congressman. In fact Russia has received at least ten times the aid Ukraine has. ---------- Thursday, April 24, 1997. WITNESS DAVID SWEERE Mr. Sweere. Thank you committee and thank you distinguished Chairman and Members for this special opportunity. I was not enrolled on the roll to speak, but I'm very grateful for the opportunity. I will not take much of your time at all, but I want to tell you that I'm an entrepreneur and have been working in the Ukraine since July of 1990. I've been on the ground as a resident in the Ukraine since July of 1991. I have built business over there within the agricultural sphere that until two years ago, represented fully 10 percent of the foreign investment in Ukraine up until two years ago. Today, it still represents of American investment in Ukraine. So, we have a significant project in Ukraine within the Surb agriculture which incidently is Ukraine. Ukraine spells agriculture. And Ukraine's future, we believe, is agriculture. It's history is agriculture. It's present is agriculture and its future obviously will be agriculture. Also, we, unlike a lot of companies are making a real investment. We're not just there trading. We're not just there selling. We're not just there seeing what we can get. We're there for the long pull. We have made a commitment that represents basically my companies total resources because we're not a large multi- national, but we are involved in this project with three very, very important institutions. Number one, the European Bank for Redevelopment and Construction as an investor in this project which is the only project in agriculture that they are involved in, in the Ukraine. And I might add that one of the most important indirect investors is the United States Government through the form of USAID assistance. We are one of the firms that received a reimbursement grant from USAID under the FRSP-I Food Restructuring Program which was an earmark I believe under the old bill. And naturally we would beat the drum that it's not true that AID is a travesty in the Ukraine. That's I think an irresponsible remark. Certainly, there are things that could be improved in some directions and priorities that could be maybe changed relative to AID's work in the Ukraine. For one thing, I'm a great believer and I think all of you at this committee are great believers in free enterprise, and market economy, and private sector economic development. You can't have democracy in that country until you have an economy. And you're not going to get over this corruption problem until we have reforms. So, they should direct their aid and I would encourage you to encourage them or condition some of the aid. They've got to instill reforms and this is going to conquer the corruption problem. Without reform, without major economic reform at this time, and I mean now wemay as well all go home. We need major tax reform, major judicial reform, and major foreign investment protection reform. What I mean by that is for example I think the World Bank for two years has been trying to get Ukraine to accept an import/export guarantee insurance program. The Ukrainians refuse to sign it because this is going to force them into doing some pretty serious reform, and de- monopolization reform. For example, there are 1,600--well, approximately 1,600 state elevators in the Ukraine. Not one private one except the one that we're building. Mr. Knollenberg. Grain elevators? Mr. Sweere. Grain elevators. In other words, the state still has a total monopoly on the bottleneck, let's call it, in agriculture. So, this is where they need to make reform and this reform will translate into economic growth and economic growth in my opinion will negate at least most of the need for the corruption. But it is of course complex and it is not an easy question for any of us. But I do believe that we need to direct more aid to Ukraine, but conditional on reform. And I believe that's not an easy task. I believe in another big word and that is coordination of leverage of the aid with the international financial institutions. I know the President of the European Bank would welcome such coordination, where our aid is conditional and tied to their private sector, you know, demands on reform. And anything that this committee can do to influence the Administration to coordinate international efforts of the other donor nations of the G7; it's a monumental, monumental task over there, but a monumental opportunity for both our markets and for the European markets. It is the future. Europe knows this that the future is East. And our markets particularly in agriculture, America could benefit the greatest from investment in agriculture there because they need everything. In addition to that, we also can benefit from the geo-political factors obviously that would be the benefit of a stable democratic country there. I think I will close there. If any of you have any questions, I'll be happy to answer them. I just want to add one more thing. It's not to say that we haven't had our problems. We have monumental problems every day. And we've had some pretty serious problems. But I believe that these problems can most generally be worked out. It's just that we need your continuing help. We need your conditional support. Thank you very much. Mr. Callahan [Chairman]. We admire your confidence. We do appreciate your testimony. I can tell you that at least half of your request won't be granted. It is going to be conditional. Mr. Sweere. Thank you very much. Thank you very much, Mr. Chairman. Mr. Packard. Just a quick question. Has your particular investment over there been touched by corruption? Mr. Sweere. I think as you get off the plane you are touched by corruption in Ukraine. It starts with the Malitia all the way up through I think--to answer you question specifically, we have been approached by what would be referred to over there as the mafia to influence our decisions in building this project. They did not--there is real war going on between the private sector and the public sector. Often times there is that public sector monopoly that has tremendous influence. Relative to one of our major problems that we've been confronted with, we had a substantial amount of grain blocked from shipment. In fact, we can substantiate that we had grain confiscated. This would not--I would not classify it as direct corruption. This is lack of law and order; lack of, in its own--not really geo-political or ideological, but it's grasping and controlling of old state structures for power and money; whether that's defined as corruption, I don't know. Mr. Packard. Thank you. Mr. Callahan. Thank you, sir. Mr. Sweere. Thank you. Mr. Callahan. Thank you very much, Doctor, We're not much in this committee on earmarks. But we will probably include some language in the report to strongly encourage, and maybe a little stronger than last year because evidently it didn't get through. But we will send USAID a strong message. W I T N E S S E S ---------- Page Fedoriw, Marta................................................... 12 Iwanciw, E. M.................................................... 1 Lemire, Joseph................................................... 12 Lozynskyj, A. S.................................................. 46 Sweere, David.................................................... 58