Ukraine

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8:41 AM Thursday, October 19, 2017
Real Estate
Below Odesa’s Tourism Promenade, Corporate Raiders Mug Danish Company
Odesa: Pearl of the Black Sea or Marseille of the Black Sea?
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KYIV – Denmark’s BIIR sounds like a model foreign investor for the ‘New Ukraine.’

On May 28, 2014 the day after Russian soldiers tried to burn down their office on Sovietskaya Street, BIIR’s team of eight engineers fled occupied Luhansk – not for Copenhagen, but for Odesa.

In Odesa, BIIR Ukraine grew to 110 engineers. With a goal of employing 500 by 2020, Thomas Sillesen, the company chairman, decided to build a modern headquarters at a showcase location overlooking Odesa port.

He identified a rundown building outside the historic district, just below Istanbul Park, at Primorskaya 3b, the port access road. Due diligence showed the owners had not made payments on their mortgage in 6.5 years. He paid the bank, Finance Trust Group LLC, $400,000 for property.

Thomas Sillesen’s engineering company, BIIR, wins about 20 patents a year for its groundbreaking work with such Danish corporate giants as Vestas and Maersk. (James Brooke)

The airy site with a view of the harbor seemed ideal for BIIR, a company that does advanced engineering work for Denmark’s Vestas Wind Systems A/S, the world’s largest wind turbine manufacturer, and for Maersk Oil, the offshore energy affiliate of the Danish shipping giant.

Despite these blue chip corporate connections, Sillesen came face to face with Odesa’s tawdry secrets: why there are so many rundown buildings in Odesa and why so few foreign investors set up shop in ‘the Pearl of the Black Sea.’

Within weeks of the purchase, police and prosecutors filed civil and criminal charges of fraud against him. Last month, a judge at the Odesa Economic Court ruled in favor of the original owners, Valentin Skoblenko and Alexander Tikhomirov, two politically connected men. The building was returned to them without compensation to BIIR.

How to Get Rid of your Mortgage, Odesa-style

The original owners’ goal is clear: return of the building, debt free.

“In normal societies, it would start with police coming and interrogating us,” Sillesen said in an interview in Kyiv. “Here it was the reverse: they arrested the building. In my country, the case would have been dismissed.”

After ignoring overdue mortgage notices since 2010, the old owners’ new interest – and urgency -- was understandable. A developer had announced that a shopping center will be built next door, at Primorskaya 1. Sillesen says that two months after buying Primorskaya 3b, he was offered twice his purchase price.

Odesa has evolved from the ‘Wild East’ days captured in “Lord of War,” the film about post-Soviet arms smuggling to Africa. But, more recently, Mikheil Saakashvili proved incapable as Governor of Odesa of replicating the reforms he put in place across the Black Sea, in Georgia. Also last year, USAID abandoned a customs reform project for Odesa, taking its computers back up the road to Kyiv.

In this environment, Sillesen had his misgivings about the wisdom of a foreigner buying property in Odesa. Two days before he made the purchase, he met President Petro Poroshenko at an investment meeting in Copenhagen. He directly asked for guarantees.

“Poroshenko said: ‘Thomas you will see no corruption -- the next time I go to Odesa, I will visit you,’” Sillesen recalls of their public exchange at a meeting with 20 other Danish company heads during the President’s April 5 state visit to Denmark.

Corporate Raiding: Not Just in the Movies

But, almost four years after the Revolution of Dignity started on the cobblestone streets of central Kyiv, Ukraine’s anti-corruption scorecard is mixed. Last week at the Kyiv International Economic Forum, the phrase ‘corporate raiding’ frequently came up at Parkovy conference center.

“Every week, we witness raids on European companies,” Hugues Mingarelli, head of the EU delegation in Ukraine, complained on Friday. “Our companies rightly do not trust the courts, because of the high level of corruption. If we establish a decent level of justice in this country, EU companies will rush in.”

Peter Wagner, head the European Commission Support Group for Ukraine, hears from Thomas Sillesen, a Dane who says his engineering company, BIIR Ukraine, is undergoing a corporate ‘raid’ by corrupt officials in Odesa. Corporate raiding was a recurring theme at the Kyiv International Economic Forum. (James Brooke)

Mingarelli may have been sensitive to the issue. On Thursday, Sillesen had buttonholed Peter Wagner, who heads the European Commission Support Group for Ukraine.

“If the Ukraine continues to go on the path decided three years ago, the potential is enormous,” Wagner, a German, had said on a panel. But he cautioned: “Investors will always ask: Is my property safe? Are the institutions reliable?”

Evgen Zaka, Ukraine director for Acino, a midsized Swiss pharmaceutical company, said he braced for problems when he opened here in 2015.

“When we set up two years ago, I braced myself for a raid – fortunately, it never happened,” he said. “We have a tremendous improvement. The number of these unfortunate events is going lower and lower.”

Dan Bilak, head of UkraineInvest, had a more hardline view, perhaps because his state agency is often on the receiving end of investor complaints.

“Stop these attack on business,” he urged, alluding to an abortive raid by prosecutors and police last month on Astarta, the nation’s largest sugar producer. “We are working on the criminal code to avoid these barbarian attacks.”

PM Moves on Monday

On Monday, Bilak’s boss, Prime Minister Volodymyr Groysman announced that he is setting up a working group to prepare a bill to curb excesses by police and prosecutors against businesses.

To be submitted to a Rada vote next month, the bill “provides the responsibility of representatives of law enforcement and controlling agencies, right up to the criminal punishment, for excessive pressure on the truly working business."

"I have a question: why are ‘corrupt officials in uniform’ still not brought to justice? those who press or create excessive pressure on a really working honest business in the country?” the Prime Minister asked. “It is very important that we resolve this not with words and promises, but with concrete legal actions.”

BIIR Appeal Oct. 19

In Odesa, the BIIR team looks forward to its appeal to a higher local court next week, on Oct. 19. If the judge rules aganst them, Sillesen says he will appeal to Ukraine’s Supreme Court, where he is confident that he will win.

“We have a moral obligation to take on these corrupt officials,” he said. “Nobody will invest here, if they think that coming here means getting robbed. Foreigners cannot fight theft by the national police, the national prosecutor, the courts.”

In the case of BIIR, local officials might soon regret tangling with Sillesen, a bullet-headed former boxer.

“After the court ruling is final, we will take the four to five corrupt officials – national police and prosecutors -- who have not followed the law, who have misused their powers -- and we will end up in the European court in Strasburg,” he said. “We will win. They will have to pay damages to us, plus court costs --100,000 euros per man.”

“If someone pisses on me,” he said in the genteel surroundings of the Kyiv Hilton executive lounge. “I hammer them back.”

For comments and story ideas, please email UBJ Editor in Chief James Brooke at james.brooke@theubj.com

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