For two years, Albani and Gilbert, who was better known in Britain as an entertainment industry entrepreneur, knocked on literally hundreds of doors in search of intrepid investors.

They eventually turned up 12, convincing them that the risk associated with investing in this young Balkan nation was overblown and that the image of crime and corruption did not match the reality.

One of the poorest corners of Europe, Kosovo is in dire need of outside investment as it tries to make a go of the independence it won from Serbia in 2008.

By September, Gilbert and Albani's Fox Marble Holdings (FOX.L) was listed on the junior tier of the London Stock Exchange and had spent 1 million euros in readying five mines for business.

Mining is seen as a potential driver of growth in Kosovo, a small country blessed with mineral deposits and Europe's youngest population, but shackled with a damaging reputation for gangsters and graft.

Now, Fox Marble's dream is in tatters, its licences to cut and sell Kosovo's marble revoked and millions of euros of investment hanging in the balance.

Whether the victim of over-zealous officials or something more sinister, Fox Marble has gone from investment trailblazer to cautionary tale in the risks of doing business in this country of 1.7 million people roughly half the size of Wales.

"We spent two years convincing people that the country risk was not something that people needed to be concerned about and now everybody is turning to me and saying, 'We told you so'," Gilbert told Reuters.2

In December, Kosovo's Mining and Minerals Commission ICMM.L revoked four of Fox Marble's five licences, saying the firm had failed to start work within an agreed time frame.

"It could take years for the work to start. How do we know?" the chairman of the ICMM board, Ahmet Tmava, told Reuters. "Our resources must not be held hostage."

Gilbert said the firm had needed more time to raise funds but had already spent heavily on machinery, taxes and preparing the mines.

He cited a Kosovo law saying that the ICMM is obliged to inform the company in writing and give it 2-4 months to address the complaint. Fox Marble got neither, Gilbert said. Tmava said the company was informed "verbally".

"VERY STRANGE"

Asked what was behind the decision, Gilbert, who was in Pristina trying to save the licences, chose his words carefully.

He said the mining authorities had acted outside the law, and suggested there was perhaps more to the matter than met the eye. The mines contain deposits valued by Gilbert and Albani at billions of euros.

"It's certainly a very strange situation for a company that is spending money in Kosovo. We don't know what the realpolitik is behind this, but clearly there is something going on."

Asked about the allegations of political interference in the marble case, Kosovo's minister of economy and development, Besim Beqaj, said only: "I'm not aware of anything like that."

Britain's ambassador to Kosovo, Ian Cliff, said the British government was "very concerned" and, in a written response to questions from Reuters, said he had heard of allegations of political interference.

"I hope this is not the case," Cliff said, adding that British Foreign Secretary William Hague had raised the issue with Kosovo "at the highest level".

The United States and the European Union have spent an estimated 4 billion euros in stabilising Kosovo and encouraging good governance and growth since NATO went to war in 1999 to halt the killing and expulsion of civilians by Serbian forces fighting rebels from Kosovo's ethnic Albanian majority.

With ethnic tensions subsiding, Western powers formally gave up "supervisory" powers over Kosovo this year. But an EU police and justice mission retains some executive authority to investigate cases of organised crime, corruption and war crimes.

NATO retains some 6,000 troops on the ground, mainly in the north where a small Serb minority still rejects Kosovo as a sovereign state.

The government insists it is changing perceptions. There are positives: Kosovo's legislative framework has been crafted to meet most EU standards; construction is thriving, driving average annual economic growth of 5 percent over the past five years; foreign direct investment was up 14 percent to 379 million euros in 2011; in October the World Bank lifted Kosovo from 126 to 98th place in a poll on ease of doing business.

"Kosovo has been challenged by a bad image unfairly attached to it due to the past," said Valdrin Lluka, head of the Kosovo Investment Promotion Agency, part of the Ministry of Trade.

"When investors come with expectations of high crime and corruption, they see a beautiful country, friendly people and a friendly business environment," he told Reuters. "Good news is not news, so foreigners get to know only the dark side of Kosovo, and that's what's damaging us."

HARD TO INVEST WITHOUT BRIBES?

But there was more bad news in November: an Austrian firm said it had stopped printing Kosovo's biometric passports for now because 1.4 million euros in fees had not been paid.

Natali Velija, a German citizen and the company's local partner in Kosovo, was arrested on suspicion of embezzling the money, but Velija says it was spent on bribes for a handful of officials from the Ministry of Interior.

The Austrian company denies bribing anyone.

Kosovo suffered a heavy blow last year when the sale of the country's most profitable company, the state telecom concern PTK, collapsed after corruption charges were filed against a number of senior PTK officials.

Avni Zogiani, founder of the Cohu (Wake Up) non-governmental organisation dedicated to fighting corruption, said it was extremely difficult to invest in Kosovo without political connections or a readiness to bribe.

"When we talk about small and medium-sized projects of a few million euros, then they're dealt with through bribes," he said.

Albani said he and Gilbert had struggled to shake the stereotype. "When we went to Italy to buy machines," he said, "they asked, 'Why are you coming with a letter of credit? Where's your suitcase of money?'"

Investors and Western officials in Kosovo also cite frequent power cuts, an underdeveloped administration, widespread tax evasion and high interest rates on bank loans, some as much as 25 percent as banks hedge against political and economic instability.

Kosovo is ranked 105 on Transparency International's graft perception index, on a par with Bolivia, Gambia and Mali.

"I spend a lot of my time persuading British companies and financial institutions that the Kosovo 'country risk' is less than they think - so that they will support investment here," said Cliff, the British ambassador.

"The key practical question for the Kosovo institutions is this: can Kosovo afford to lose 10 million pounds of British investment and the jobs and exports that will go with it?"

Gilbert and Albani, first inspired by a 2005 USAID report extolling the quality and colour of marble in Kosovo, stood to make a lot of money.

They estimate the five mines that Fox Marble won licences to exploit, including Red Rock near the village of Astrazub in southwest Kosovo, contain around 240 million cubic metres of marble worth billions of euros.

Albani and Gilbert say Kosovo marble was used in building the White House in Washington and the Vienna Opera House.

In Astrazub, villagers recall marble mining under socialist Yugoslavia, and say their ancestors told stories of its extraction when Kosovo was part of the Ottoman Empire.

Signs of traditional, small-scale excavation can still be seen. A new mining venture would be a boon for the local economy, which like the rest of Kosovo struggles to absorb new jobseekers who often end up emigrating for work. Kosovo also has lignite, lead, chromium, zinc, nickel and silver deposits.

Mining in Kosovo ground to a halt during the violent disintegration of Yugoslavia in the 1990s, and has only restarted on a limited scale over the past few years. In the north, Kosovo's giant Trepca lead and zinc mine complex stands idle, hostage to complex ownership disputes.

Fox Marble has filed a complaint with the ICMM, and Gilbert insisted they would not give up. "We're not going anywhere. This is grave for Fox Marble, but it's a tragedy for Kosovo." (Editing by Matt Robinson and Mark Heinrich)

• A Permanent Economic Emergency