Nezavisle ceske elektronicke noviny Leto - 2000
Testimony of Ronald S. Lauder
For Czech translation - click here
Thank you, Mr. Chairman. My name is Ronald Lauder, and the story that brings me here begins in 1986, when I had the privilege of representing the United States of America As the ambassador to Austria in Vienna, in the heart of Central Europe.
Vienna is just across the border from the country that was then called Czechoslovakia, a country that had been under Communist rule since 1947. Sitting where I was in Central Europe, I witnessed the devastation that this part of the world had experienced from the Second World War, the Holocaust, and the failure of the Communist system under which the Czech people had toiled for forty years
Even before the fall of the Berlin Wall, I set out to make a positive contribution in this part of the world through the Ronald S. Lauder Foundation by starting Jewish schools that have educated more than 10,000 children in schools in fifteen countries.
The Velvet Revolution of 1989 brought great hope to the Czech people as they set out to create a Democracy and a market-based economy. The fall of Communism was a watershed event in the history of Central and Eastern Europe, and I was optimistic that I could also make a significant positive contribution by helping to establish a free press.
Accordingly, I underwrote the establishment of independent television stations in the new democracies of Central and Eastern Europe. Under the Communist system, the governments in these countries owned and controlled all forms of media: television, radio and newspapers. I hoped to provide these societies with the same kind of free press that we enjoy in this country.
The former Communist countries of Central and Eastern Europe needed -- and still need enormous capital investment. It was my hope that if my independent television stations were successful, I would thereby create an example for other private investors, who might, in turn also want to invest in these countries. In 1994, I brought Central European Media, (or CME), to the United States capital markets and raised $66 million dollars in an initial public offering.
CME, thereby, became a public company with shares traded on the NASDAQ stock exchange. The shares of CME were traded by well-known U.S. brokerage firms such as: Merrill Lynch; Morgan Stanley; Dean Witter; Salomon; Smith Barney and Prudential Securities. CME shares were purchased by thousands of U.S. citizens, large and small, directly and indirectly for their private accounts, mutual funds, pension plans, IRA's, Keogh plans, and for their children's education.
The first television station that Central European Media launched was TV-Nova in Prague, the capital of the Czech Republic. TV-Nova was an enormous success. Soon after its launch in 1994, the station had revenue of approximately $100 million dollars per year and was proclaimed by the news media to be the most successful launch of a TV station in history. The success of TV-Nova allowed Central European Media to return to the U.S. equity markets in 1995 and 1996, to raise an additional $220 million dollars in equity and sell $170 million dollars in bonds in 1997.
Much of these proceeds were used to finance successful launches of stations in Romania, Slovakia, Slovenia and Ukraine. To this day, Central European Media's television stations in Romania, Slovakia, Slovenia and Ukraine are the leading independent television stations in those countries.
So what went wrong? How did hundreds of American taxpayers see their investments as Central European Media's stock tumble despite the fact that this company built one of the most profitable television stations in Europe?
The answer is sad but simple: TV-Nova was stolen.
TV-Nova, a television station that generated $100 million of revenue every year in 1995, 1996, 1997 and 1998 was stolen from CME by the joint access of the Czech Media Council and Vladimir Zelezny, CME's former business partner in TV-Nova. The media council stole TV Nova by repudiating its prior official approvals of CME's position after TV- Nova became successful, by initiating administrative and criminal prosecutions attacking the business protections it had formally guaranteed. When it was soliciting CME's capital in 1993, and by affirmatively supporting Dr. Zelezny, rather than stopping him, when he violated obligations to CME that the Media Council was required by law to protect, Vladimir Zelezny stole TV Nova by renouncing his agreements with CME, exercising improper influence on members of the media council, and threatening Czech political leaders with blackmail.
Yet the TV- Nova scandal is about even more than the theft of American investment, it is about the rule of law. This country - and our taxpayers -invested heavily in hope building a foundation for free markets behind the old iron curtain. The dream was that capitalism would take root quickly and secure freedom for the future.
Sadly, the TV- Nova scandal proves in the Czech Republic only crony capitalism has sprung up. The rule of law has been ignored in favor of insider connections and backdoor deals. More than investment decisions are at stake here. American foreign policy in the region must be reassessed in light of the reality that corruption, not capitalism, is growing there.
TV- Nova still exists and remains enormously profitable. However, the Czech government maintains that CME does not own it. The advertising revenue of TV-Nova no longer goes to the public shareholders of CME, many of whom are us citizens. Instead, Vladimir Zelezny is pocketing TV-Nova's $100 million of advertising revenue. The position of the Czech government today is a far cry from its position in 1993, when I considered making this investment.
In 1993, the Czech government went out of its way to encourage U.S. investors to make an investment in a private television station. The Czech government pledged to protect any investment U.S. investors would make in a television station, and pointed out that such an investment would be protected by the bilateral investment treaty between the United States and the Czech Republic, which was signed in 1991. This treaty is a sovereign guarantee that specifically states that U.S. investment in the Czech Republic may not be expropriated.
In the 1991 bilateral investment treaty, the Czech Republic agreed to treat investments made by United States nationals fairly and equitably, to provide such investments full protection and security, not to impair the enjoyment of such investments through arbitrary or discriminatory measures, and not to expropriate such investments either directly or indirectly.
In making our investment in TV-Nova, Central European Media took the bilateral investment treaty between the United States and the Czech Republic at its word. We made this investment with the knowledge that our television station was protected unequivocally under the bilateral investment treaty. We had every reason to expect that should the Czech Government ever attempt to expropriate our television station, the U.S. government would insist immediately that the Czech government reverse any such expropriation. Unfortunately, this has not occurred.
Almost one year ago, on August 5, 1999, TV-Nova's television signal was illegally terminated. The termination of our signal immediately deprived Czech viewers of TV-Nova's programming and our company of the life-blood of any television station: advertising revenue. On that same day, Vladimir Zelezny, began to broadcast a competing television signal instead, despite being legally bound to broadcast our signal under an exclusive contract officially blessed by the Czech government at the time of our investment.
CME immediately went before the Czech Media Council, the Czech equivalent of the FCC and the government entity that had officially blessed our exclusive contract at the time of our investment, and demanded that the broadcast of our signal be resumed. Sadly, the media council refused. The Media Council effectively said: "this is of no concern to us. This is merely a business dispute. Go to the courts."
CME has gone to the Czech courts. In fact, we recently received a decision by the court that our contract is exclusive and that Vladimir Zelezny must broadcast our television signal. We then returned to the Mmedia Council and showed them the court ruling that required Vladimir Zelezny to broadcast our television signal. Sadly, the Media Council again refused, saying that we must wait to appeal a process that could take years.
In the meantime, Vladimir Zelezny continues to broadcast his own television signal and pocket $100 million per year of revenue that belongs to the shareholders of Central European Media, many of whom are U.S. citizens.
The list of Zelezny's crimes is extensive. We have submitted proof to the Czech police that Zelezny has forged false contracts to justify his illegal actions and has submitted those false contracts to Czech courts. Our proof of these crimes, including detailed expert reports demonstrating the forgery, has been ignored. We have also submitted proof that Zelezny has engaged in tax fraud and cut sweetheart deals with advertisers on TV-Nova that stole revenues from CME, but this proof, too, has been ignored by Czech police. On top of this, Zelezny has stolen copyrights, lied under oath, and even broke into CME's computer system in London.
The responses CME has received to its proof have made clear that no matter what evidence CME presents, Czech prosecutors will not go forward without inducements that I, as a responsible businessman operating under American law and rule of ethics, cannot and will not provide. Zelezny has hired private detectives to stalk and intimidate CME employees and their families. Vladimir Zelezny has dossiers on the Czech Republic's leading politicians, and his threats to expose on his television station the unseemly details of these politicians' lives have paralyzed the Czech government's ability to deal with this issue.
So what needs to be done? First, the State Department should demand immediately and publicly that the expropriation of TV-Nova be reversed. Second, the State Department should insist that the $100 million dollars of advertising revenue that Vladimir Zelezny has pocketed over the last year be returned to CME. Make no mistake about it: the Czech government has the ability to follow the rule of law here. It is simply a matter of encouraging Prague to do the right thing. Perhaps the best way to get the Czech's attention is for the State Department to say, loud and clear: "stop stealing from American taxpayers!" Third, the Treasury Department should demand that the international institutions funded by U.S. taxpayers cease giving financial support to the Czech Republic until the expropriation of TV-Nova is reversed.
It is an insult to American taxpayers that the European Bank for Reconstruction and Development, the International Monetary Fund and the World Bank, funded by U.S. taxpayers, continue to give U.S. taxpayers money to the Czech Republic despite the expropriation of TV-Nova.
It is absolutely outrageous that the International Monetary Fund and World Bank are planning to reward the Czech Republic by holding their annual meeting in September in Prague! American investors have already lost hundreds of millions of dollars from the expropriation of TV-Nova. It compounds this crime to take tax dollars from these same investors to fund the EBRD, the IMF and World Bank when these institutions show such little regard for U.S. taxpayers.
The future of the former communist countries of Central and Eastern Europe is not yet written, and the United States can make a huge difference by insisting that our treaties be honored, that the rule of law be upheld and by not rewarding criminals. We need to reverse the expropriation of TV-Nova. Not just for the sake of American investors, but in the larger sense, for the good of the Czech Republic and the United States. Our goals in the region are clear: peace and prosperity. But history is also clear: peace and prosperity only follow the rule of law.
Vladimir Zelezny is not the only thief in the region. Bribery and blackmail are not his alone. If the expropriation of TV-Nova is allowed to stand, countless others will be inspired to follow his example. No one, neither Czech citizens, nor American taxpayers, can afford to see the rule of law ignored.
Thank you for the opportunity to tell the story of the expropriation of TV-Nova.
I would be happy to answer any questions.
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