An Israeli businessman having a long-standing multi-million dispute with Georgia was arrested together with an associate on charges related to an attempted bribery of a senior Georgian official.

Ron Fuchs and his associate, also an Israeli citizen Zeev Frenkiel, were arrested by the Georgian law enforcement officers in Georgia’s Black Sea town of Batumi on October 14, while meeting with Georgian Deputy Finance Minister Avtandil Kharaidze, whom the two men were offering USD 7 million in bribe, the Georgian Prosecutor’s Office said.

Tbilisi City Court on October 16 denied bail to both Israeli citizens and kept them in pre-trial detention. The same ruling applied in absentia to Fuchs’ Greek partner, Ioannis Kardassopoulos, who is now wanted by the Georgian law enforcement in connection to the same case, according to the Georgian authorities.

According to the written statement released by the Georgian chief prosecutor’s office, Ron Fuchs and his partner from company, Tramex, Ioannis Kardassopoulos, with the assistance of Zeev Frenkiel were trying to bribe Georgian Deputy Finance Minister, Avtandil Kharaidze, offering him USD 7 million in exchange for “convincing the Georgian government” not to challenge a decision of an international arbitration, which awarded Fuchs and Kardassopoulos to total of about USD 98.1 million to be paid by the Georgian state.

The case with its subsequent long-running arbitration proceedings originates back in 1991, when Tramex, represented with its two shareholders Fuchs and Kardassopoulos, started looking for investment opportunities in Georgia’s energy sector. In 1992 Tramex established a joint venture with the Georgian state oil company and obtained concession on oil pipeline network development, which was revoked in 1996 when the Georgian government established Georgian International Oil Corporation, which eventually contracted with a major international consortium on construction of east-west oil pipeline to transport Azerbaijani oil to the western market via Georgia and Turkey.

After that Tramex and the Georgian authorities were for years trying in vain to settle dispute, involving possible compensation for the company.

In November, 2004 Fuchs and Kardassopoulos were notified by the Georgian government that their claims were groundless, which led the two business partners to file two separate, but related suits against Georgia in the International Centre for Settlement of Investment Disputes (ICSID), an institution of the World Bank group.

On March 3, 2010 London-based tribunal ruled that Georgia violated multilateral Energy Charter Treaty and unlawfully expropriated investments made by Kardassopoulos in Georgia and in respect of Fuchs, the tribunal ruled that Georgia violated bilateral investment protection treaty between Israel and Georgia.

According to the decision each investor should receive USD 15.1 million compensation for losses, plus interest totaling to USD 30 million for each investor – interest period covers from the start of dispute in 1996 until the arbitration ruling in 2010. Georgia was also ordered to cover the two investors’ arbitration cost of USD 7.9 million.

Iareporter.com, a news website tracking international investment disputes, reported that Georgia in July signaled that it planned to challenge the ruling through post-arbitration review permitted in ICSID cases. According to this report a hearing is scheduled on Monday when a three-member panel will hear arguments as to whether temporary stay of enforcement should remain in place while the post-arbitration review is underway. The claimants are asking arbitrators to order Georgia to post some financial security in case the award is not annulled and the claimants encounter difficulties in collecting on the award, according to the Iareporter.com.

The Georgian authorities through local television stations released portions of covertly recorded footage showing a meeting between Fuchs and the Georgian Deputy Finance Minister in Istanbul in September. The meeting, according to the Georgian authorities, was one among others, which aimed at finding settlement between the sides and in which the Deputy Finance Minister was authorized to represent the government. In the released footage, the man, said to be Fuchs, tells the Georgian official that he wants to receive USD 80 million and that he can kickback the sum on top of USD 80 million.

Fuchs and his associate deny the charges against him.

“Mr. Fuchs, together with another person, won the USD 100 million worth case against Georgia at the International Centre for Settlement of Investment Disputes. We believe that his arrest is a persecution with a goal to make him say no on the amount he has won against Georgia,” Archil Kbilashvili, a defense lawyer of Fuchs, said after the Tbilisi City Court denied bail to his client on October 16. "Mr. Fuchs was not arriving in Georgia. He arrived here only after receiving an official invitation from the Georgian PM [Nika Gilauri]."