[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.







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Fedoriw, Marta...................................................    12
Iwanciw, E. M....................................................     1
Lemire, Joseph...................................................    12
Lozynskyj, A. S..................................................    46
Sweere, David....................................................    58