It seemed like a rags-to-riches success tale, Polish style. But last week, after a scandal surrounding the firm toppled the nation’s highest banking official, it looked more like an object lesson in the dangers lurking on the road from communism to capitalism. Fearing that Art B’s dealings were draining the country’s treasury, Polish authorities searched its headquarters and froze its bank accounts, prompting the two chiefs to resign and turn the company over to a private bank. Authorities arrested six bankers linked to Art B, including Polish National Bank vice president Wojciech Prokop. The same day, the bank’s president, Grzegorz Wojtowicz, was suspended after Polish president Lech Walesa demanded his dismissal. No Art B officials were criminally charged; Bagsik and Gasiorowski, who were out of the country last week, deny any wrongdoing.
Like the business buccaneers of the last century, the pair combined a penchant for brinkmanship with an uncanny ability to spot profitable opportunities. Through their firm, they claimed a controlling stake in 2,000 widely varied Polish companies and other ventures as far afield as Hong Kong and Mexico. Art B assembled South Korean television sets and VCR’s and controlled a growing share of Poland’s vegetable-oil and food-processing plants. For about $35 million. it brought out the entire production of 7,500 tractors from a faltering state tractor company. Through companies Art B controlled abroad, Bagsik sought a 50 percent stake in the Israeli oil company Paz, an investment of about $85 turbo planes, a Canadian Challenger executive jet, two Soviet helicopters and a Cadillac stretch limousine. Each of its 25 department heads drove a Pontiac Grand Prix, courtesy of the company. Bagsik says, “Some of our deals are completely incomprehensible to the West.”
The pair made their first big score as importers. From June 1989 to February 1990, the Polish government allowed anyone with hard currency to import food, charging only a 7.5 percent levy on profits. Since the communist economy had created severe shortages, anyone who filled a truck in West Germany or Austria could almost be assured of selling everything, often with a 100 percent profit. Bagsik was a Hamburg as often as three times a week.
That was the only the beginning. “We made money on finance, not trade,” says Gasiorowski. “You can’t make our kinds of profits on trade.” At the beginning of 1990, when Polish inflation was still in triple digits, Art B operatives took advantage of fixed exchange rate for the Polish zloty. They lined up letters of credit through foreign banks to import Asian electronic products. During the 120 days they had to repay their foreign bankers, they imported and sold the goods as fast as possible, at or even below cost, and then recycled the cash into Polish banks that offered monthly yields as much as 84 percent per year. When it came time to repay the letters of credit, Art B withdrew its deposit of Polish zlotys, plus interest, and converted it to hard currency at the fixed rate. Even when inflation and interest rates began to drop, it continued to make a killing. Whether the Art B pair was buying tractors or shaky state enterprises, they viewed each acquisition as collateral for their next deal.
Those transactions became progressively elaborate, taking advantage of the weaknesses of an antiquated banking system in ways that investigators are only now piecing together. “They speeded up the circulation of money and they system did not keep up with them,” says one senior government official. One favorite ploy, officials say, was to write checks from an account in one bank for deposit in another; since there are no electronic transfers, they could take advantage of the long “float” to earn interest in both accounts. Art B operatives honed this to a science, moving checks or cash, sometimes by a helicopter, through a whole chain of accounts in different banks.
The pair also became good at selling themselves. After a round of recent talks with Bagsik and Gasiorowski over blini and caviar, visiting Chrysler executives were eager to discuss the possibility of Art B’s setting up a network of Chrysler dealerships in Poland. “Here you have to be imaginative and risk-taking,” Chrysler International vice president Patrick Smorra said during the meeting. “If anyone is going to be successful, it’s going to be the guy who goes for the brass ring.” But Bagsik and Gasiorowski seem to have pushed their risk-taking too far. Alarmed by their activity, Polish banks last year began to cut off their credit. Warsaw authorities now say the arrested bankers have caused major losses to the state treasury through the guaranteeing of loans and outright corruption. Bagsik and Gasiorowski claim such transactions are legal and routinely performed by others, if not so grand a scale.
Government officials concede that they may have a hard time making any formal charges against the pair stick, and recognize that any punishment will have to be weighed carefully so as not to blunt the nation’s economic reforms. “It’s important that this not become a trial against capitalism,” says one official. But there is wide-spread popular concern about corruption in Poland, and politicians may think they will benefit from a cleanup campaign. Meanwhile, the country’s most successful capitalists are apparently in hiding. “With each success,” Gasiorowski said in June, “we make more enemies.” But perhaps their worst enemy was their own ambition.
Photo: Masters of brinkmanship and opportunism: Bagsik (left) and Gasiorowski (LEE MALIS-PICTURE GROUP)
Photos: Varied ventures: Art B’s TV-assembly and chicken-processing plants
How did Art B grow? In one case, by playing fixed exchange rates against triple-digit inflation:
1 First, Bagsik and Gasiorowski obtain letters of credit from foreign banks that did not have to be repaid for four months. The only charge: the normal hard-currency interest rate, about 12 percent a year.
2 During the next two months, they use their credit to import goods from Asia, like TV sets and VCRs. Then, in the third month, they sell the merchandise at cost or lower, beating out the competition.
3 With a month remaining, the earnings go into accounts yielding 84 percent. Those are used to repay the 12 percent loan, creating a tidy profit.
