Trapped in Tbilisi

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Given its size, the country commands what might seem like a disproportionate amount of attention in Washington and other Western capitals. That is explained, in large part, by its location. Georgia controls strategically important ports on the Black Sea and much of the Caucasus Mountains, which form part of Russia's southern border. Tbilisi's government is as democratic as any in its region and is more pro-American than its neighbors'. The main road to the Tbilisi airport is named President George W. Bush Street.

Although much of the Georgian country- side is poor, hilly Tbilisi boasts thriving residential enclaves, broad commercial boulevards, charming restaurants and galleries, and stolid Orthodox Christian churches that never entirely knuckled under to the Communists. Tbilisi also has a florid tradition of cronyism and graft. In the past year it has spent heavily on advertising on CNN (TWX) and the BBC to promote its reform attempts. An ad campaign running in The Wall Street Journal describes Georgia as "the world's number 1 in fighting corruption."

Others are not so sanguine about the Georgian business climate. A May 2010 report from the nonprofit Transparency International accused the Tbilisi government of practicing "tax terrorism": using its Financial Police to intimidate businesses and even throw employees in jail as a way of collecting additional revenue and fines. "The government is too quick to resort to incarceration for what would be seen in the West as minor civil and tax matters," says David Lee during a conversation in the ornate lobby of the Tbilisi Marriott (MAR). The president of the American Chamber of Commerce in Georgia, Lee is also the general director of Magticom, a privately held, American-owned company that is the largest telecommunications operator in Georgia. He describes "several cases" in just the past year in which employees of foreign-owned companies have been jailed without trial for periods of up to several months. Locally owned businesses are even more vulnerable, he says.

Worried about irritating Georgian officials, Lee hastens to accentuate the positive: "Compared to many of its neighbors in the region," he says, "this country has been remarkably successful in cleaning up corruption." Asked what message the Fuchs episode sends, Lee sighs. "That case," he responds, "isn't doing anyone any good."

After their arrest on Oct. 14, Fuchs and Frenkiel were driven to jail cells in downtown Tbilisi. Denied bail, they have remained behind bars for more than five months. Each is allowed three 15-minute phone calls to family a month. The two spend Mondays, Wednesdays, and Fridays in a chilly, dimly lit Tbilisi courtroom on trial for bribery. If convicted, they face up to eight years in prison.

Fuchs has impressive legal talent on retainer: In addition to a prominent Georgian law firm, his team includes President Barack Obama's former White House counsel Gregory B. Craig, now a partner in Washington, D.C., with Skadden, Arps, Slate, Meagher & Flom, and Geoffrey Robertson, a Queen's Counsel in London simultaneously representing Julian Assange in the WikiLeaks founder's effort to resist extradition to Sweden. Still, the odds are not with Fuchs and Frenkiel. In 2010, 99.96 percent of defendants prosecuted in the Tbilisi courts were convicted, according to statistics analyzed by Civil.ge, a Georgian news website.

There is one way Fuchs could get out of jail immediately: renounce the arbitration judgment. According to his lawyers, a Georgian Justice Ministry official privately told the Israeli ambassador to Georgia in October that all Fuchs had to do to win his freedom was relinquish the $100 million claim.