Bate C. Toms: The man with the plan to res­cue Ukraine

Kyiv Post Legal Quarterly - - Contents - By Brian Bon­ner bon­ner@kyiv­post.com

It wouldn't be Bate C. Toms if he didn't have a plan for Ukraine's res­cue that he pro­motes ev­ery chance he gets. Toms, one of the most prom­i­nent lawyers in Kyiv for more than a quar­ter-cen­tury, says that if his plans are adopted, for­eign in­vest­ment will pour into Ukraine as never be­fore.

With the na­tion need­ing tens of bil­lions of dol­lars to build the econ­omy in many sec­tors, it has re­ceived an av­er­age of $2 bil­lion or less an­nu­ally since in­de­pen­dence in 1991.

There are two prin­ci­pal rea­sons why Ukraine is not re­ceiv­ing large amounts of in­vest­ment, said Toms, who is also the long-time pres­i­dent of the Bri­tish Ukrainian Cham­ber of Com­merce.

Those are: Rus­sia's war in eastern Ukraine and lack of rule of law.

His so­lu­tions: A po­lit­i­cal risk in­sur­ance fund and cre­ation of an in­de­pen­dent le­gal om­buds­man to en­sure rule of law.

"The com­bi­na­tion of a rule of law sys­tem and po­lit­i­cal risk in­sur­ance should open the flood­gates to in­vest­ment in this coun­try as ev­ery­one knows Ukraine has enor­mous po­ten­tial," Toms told the Kyiv Post in an in­ter­view this month. "Presently as­sets are for sale at very at­trac­tive prices. The U. S., China and most of the rest of the world was built on for­eign in­vest­ment. Ukraine should be as well."

Rus­sia's war

"As long as peo­ple are be­ing shot on the front in eastern Ukraine, it scares for­eign in­vestors," Toms said. "We have no trou­ble in gen­eral find­ing for­eign com­pa­nies. We have no trou­ble find­ing in­di­vid­u­als within ma­jor world class in­vestors who see enor­mous op­por­tu­ni­ties in Ukraine. The prob­lem comes when they present th­ese op­por­tu­ni­ties at the board level. The board says 'wait a minute. There’s a war go­ing on. If the war ex­pands and we take a to­tal loss we will look pretty fool­ish.'"

Rule of law

Toms said that "the sec­ond prin­ci­pal rea­son

why in­vestors won’t in­vest in Ukraine are the prob­lems associated with the rule of law and cor­po­rate raid­ing. Ukraine has a huge rep­u­ta­tion in the West as be­ing a law­less coun­try, where lo­cal pow­er­ful peo­ple steal prop­erty from for­eign in­vestors as well as lo­cals. And while there has been huge progress made by the cur­rent gov­ern­ment in re­form­ing the ju­di­cial sys­tem, this has had rel­a­tively lit­tle im­pact so far on the for­eign in­vest­ment com­mu­nity, since pos­i­tive rep­u­ta­tions take time to build."

As daunt­ing as those prob­lems are, the so­lu­tions are pretty sim­ple, Toms said.

Risk in­sur­ance

First, he said, West­ern gov­ern­ments should be fi­nanc­ing po­lit­i­cal risk in­sur­ance to pro­tect in­vest­ment in Ukraine. The fund could start at $2 bil­lion, he said, with the United States, the United King­dom, Ja­pan and the Euro­pean Union na­tions mak­ing the ini­tial con­tri­bu­tions.

He said that the World Bank's Mul­ti­lat­eral In­vest­ment Guar­an­tee Agency could ad­min­is­ter the fund.

Most likely, Toms said, the fund would not have to pay any­thing out — es­pe­cially if Rus­sia's war ended.

He be­lieves that West­ern gov­ern­ments owe it to Ukraine to help spur pri­vate in­vest­ment, par­tic­u­larly the United States and the United King­dom, as sig­na­to­ries to the 1994 Bu­dapest Mem­o­ran­dum.

The Bu­dapest agree­ment, also signed by Rus­sia, gave Ukraine as­sur­ances of ter­ri­to­rial in­tegrity and na­tional sovereignty for giv­ing up its Soviet-era nu­clear weapons. Rus­sia vi­o­lated the agree­ment with its 2014 an­nex­a­tion of Crimea and in­sti­ga­tion of war in eastern Ukraine.

"The po­lit­i­cal will should be there," Toms said. "Ac­tu­ally, the cost to th­ese coun­tries should be noth­ing as­sum­ing that the con­flict is ended and it should be, cer­tainly based on what Pres­i­dent Don­ald J. Trump has pro­claimed: That there would be no fur­ther ag­gres­sion. If there is no fur­ther ag­gres­sion, risk in­sur­ance pro­vides guar­an­tees to in­vest at es­sen­tially no cost."

How it works

The in­sur­ance un­der­writ­ten by the World Bank's MIGA pro­gram or the U. S. Over­seas Pri­vate In­vest­ment Co­op­er­a­tion "is typ­i­cally done at very, very low costs." Other ar­eas in con­flict zones, such as Is­rael's West Bank and Gaza Strip, of­fer risk in­sur­ance to busi­nesses, he said.

“The in­sur­ance cov­ers all the money you put in and

some­times can cover some of your prof­its, de­pend­ing on the na­ture of the pol­icy," Toms said. "The main thing that it does is to re­as­sure the in­vestor that he is not go­ing to suf­fer a to­tal loss."

The risks of Rus­sia's war and lack of rule of law are the rea­sons that so many in­vest­ment projects have been put on hold.

Cor­po­ra­tions "have sim­ply sus­pended ac­tiv­ity un­til the con­flict is well and truly re­solved and, even sev­eral years af­ter the con­flict has stopped, po­lit­i­cal risk in­sur­ance is avail­able and they can in­sure that risk. If such a pol­icy can be of­fered to the West Bank and Gaza, it is hard to un­der­stand why it could not be of­fered to Ukraine. Ukraini­ans need to push for this."

Le­gal om­buds­man

When it comes to the other main road­block to in­vest­ment — the lack of rule of law — Toms also has a magic bul­let of sorts.

"We think there’s a way to fast track the eco­nomic re­cov­ery and the in­vest­ment re­cov­ery based on rule of law," Toms said. "That is the devel­op­ment of out­side su­per­vi­sion of the ju­di­cial sys­tem. There’s been a ten­dency since Soviet times for it to func­tion as one sys­tem eval­u­at­ing cases rather than lay­ers of court. The ru­mors are that cor­rup­tion spreads up and down, so ap­pel­late re­view is not what it should be."

What's needed is an in­de­pen­dent le­gal om­buds­man, with an ad­e­quate bud­get, staff and pow­ers, to ref­eree le­gal dis­putes.

"There are many dif­fer­ent ways that a le­gal om­buds­man could func­tion," he said. It could be given statu­tory pow­ers to make legally bind­ing rul­ings or sim­ply to have ad­vi­sory judg­ments fol­lowed be­cause of the "au­thor­ity based on its rep­u­ta­tion."

The idea was pi­o­neered in Swe­den in the early 1900s and helped trans­form the Nordic na­tion of 10 mil­lion peo­ple from one of the most cor­rupt to one of the least cor­rupt na­tions in Europe, he said.

The le­gal om­buds­man's rul­ings could avoid lengthy and costly ar­bi­tra­tion abroad, as well as help the gov­ern­ment pin­point bad judges and ad­min­is­tra­tive agen­cies, he said, "es­pe­cially in the area of rereg­is­tra­tion of ti­tles to land and real es­tate, where there are so many re­ported abuses presently."

Such dis­putes are "ex­pen­sive for in­vestors" and "se­ri­ously dam­age the rep­u­ta­tion for Ukraine. We can greatly re­duce the enor­mous cost to Ukraine’s rep­u­ta­tion and overnight cre­ate a story that can be spread in the press around the world as to how Ukraine solved the prob­lem of cor­rup­tion in its courts, once and for all."

Land-lease over­haul

The third area for crit­i­cal change, Bates said, is cor­rec­tion of the de­fects in a law that made "99 per­cent of land leases reg­is­tered be­tween 2008 and 2016 tech­ni­cally in­valid. This is a ridicu­lous sit­u­a­tion since mil­lions and bil­lions of dol­lars in in­vest­ment have been based on th­ese land leases."

The le­gal prob­lems were in­tro­duced by cor­po­rate raiders, he said, and fixed in 2016. But, he said "it be­comes very dif­fi­cult to keep the in­vestor at the ta­ble" to con­sider land leases dur­ing the prob­lem­atic eight-year pe­riod.

"Over the next seven years, the prob­lem will take care of it­self," he said. "But Ukraine’s econ­omy needs to move quickly. There's no ex­cuse not to re­dress the his­tor­i­cal prob­lem with ex­ist­ing land leases to make them all ef­fec­tively valid."

A gun lies propped on a fir­ing po­si­tions in the Avdiyivka in­dus­trial zone on May 17 in Ukraine's dis­puted eastern Don­bas. While Rus­sia's war rages on, there are ways to mit­i­gate risks and at­tract more in­vest­ment, ar­gues Kyiv-based lawyer Bate C. Toms. (Volodymyr Petrov)

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