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Foreign Investors in Ukraine Face Rampant Corruption

Legacy of former Soviet Rule creates a Wild West atmosphere

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Last month, Joseph Lemire's phone rang in the middle of the night. The anonymous caller had but a two-word message: "You die."

Thus far, threats have been the American entrepreneur's only return on a $500,000 investment in a Kiev radio station.

Doing business on Eastern Europe's wild frontier can be a dicey proposition. While Ukraine and its neighbors are minting a lot of young lawyers, locksmiths often decide more business disputes than judges by simply locking out all but one contestant. At times, bribery seems like a national sport. Last year, a World Bank study conservatively estimated that the black market accounts for a whopping 45 percent of Ukraine's gross domestic product.

Several Western firms have complained loudly during the past month of mistreatment by the government or local partners.

Two consortia developing mobile communications, one involving industry giant Motorola Corp., claim that Ukraine's government is trying to charge them outrageous license fees for digital frequencies after promising them free in exchange for prior investments.

Multinational chemical giants such as Monsanto and DuPont are miffed that an informal grain-export ban has held up payments for their products. Meanwhile, American investors in a television production company, the Perekhid Media Group, are accusing Ukrainian broadcasting authorities of trying to push them off national TV channels despite a contract guaranteeing them access.

This is exactly the kind of publicity Ukraine does not need as it makes a belated push for foreign investment. The country has attracted roughly $1.2 billion in foreign capital over the past five years - far less than many of its smaller neighbors. Reformers in the government say Ukraine needs $40 billion in foreign investment over the next few years to jump-start its stalled economy. Even the government itself acknowledges that corruption is reaching epidemic proportions.


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