An American giant endures harassment from landlord after terminating a contract, but a deal is reached in the end.
As Ukraine’s top officials renew promises to finally create a welcoming business climate, what do foreign investors endure in real life?
“It was a very serious security threat for our company: possessions had been held hostage, employees and contractors were being harassed. We were concerned that the landlord wanted additional cash from us so much, that they would try to increase the measures of intimidation.’’
Those were the words of Cheryl Ingstad, head of 3M Ukraine, part of the American multinational conglomerate.
Ingstad called the Kyiv Post last week to report that 3M’s Kyiv landlord was obstructing the company’s attempt to change offices. 3M said the harassment – and an attempted shakedown – happened even though the company gave proper notice of its departure and agreed on termination penalties stipulated in the contract.
The landlord, Sienergy Plus, flatly denied all of the charges and accused 3M of breaking the lease early without paying the stipulated three months rent as penalty.
“Unfortunately, terms were not fulfilled and, because of that, we do not agree on the contract termination at this moment,” Yevhen Hobta, director of Sienergy Plus, said.
As to charges of physical obstruction, Hobta stated that “nobody was going to and is not going to prevent 3M from moving out their personal belongings.”
3M – which stands for Minnesota, Mining and Manufacturing – doesn’t seem to be the kind of company that would violate a contract. The U.S.-based company produces more than 55,000 products, from adhesives to optical film, with annual sales of more than $25 billion. The company has been in Ukraine for 15 years and employs hundreds of people here.
When 3M Ukraine attempted to vacate its premises earlier this month, Ingstad claims that security guards hired by the landlord attempted to physically obstruct, harass and intimidate its employees. They rented space at the Fahrenheit business center on 30B Physkultury Street.
Ingstad said the guards blocked freight elevators. When 3M staff tried to use the fire-exit stairwell to carry out office equipment, they found the exits locked, according to Ingstad.
“It was a fire hazard for our employees. We asked to open the exits immediately, to which, the landlord’s representative replied: “If there is no fire, why would you need a fire exit?” said Ingstad.
Money is obviously at the root of such conflicts.
“They were demanding over double the amount of the termination penalty and wanted us to pay VAT [value-added tax], which is illegal. They thought they could make us come to the table and say: ‘OK, how much do you want?’ And we are not going to pay more than our contractual obligation,” Ingstad said.
3M, she said, “will pay everything according to the contract and will do it on or before the day we leave.”
3M officials in Ukraine said they notified corporate headquarters in Maplewood, Minnesota, the U.S. Embassy in Ukraine and mass media. Whether the publicity helped or not, the landlord and tenant reported reaching an agreement in accordance with the contract and 3M is currently being allowed to move its property out of the premises as this edition of the Kyiv Post went to press on Oct. 8.
So, at least some investor stories have happy endings. But the disputes leave a bitter aftertaste. “You can’t even call the police and expect that they will support you,” Ingstad said.
The hassles make investors hesitate before doing business in Ukraine.
“Despite the business opportunities we can see here, foreign investors may view it as a very high risk. Why to invest more, hire more people, when there are other countries welcoming investors, with trustworthy courts to rely on so you would not have that kind of situation?” Ingstad asked.
Why do investors still come to such a risky place? Despite all the problems – corruption, bureaucracy, lack of business ethics, political instability – some hard-core investors report high returns and great opportunities.
Still, not everybody “will dare to step in this land of financial disorder,” according to Volodymyr Lanoviy, the former economy minister. Only drastic reforms in every area “from institutions of power to modernization” will change the situation, he said.
