The musician, the doctor, and the oil company

AuthorShay Aspril
Published date21 July 2022
Publication titleGlobes (Rishon LeZion, Israel)
The greenbacks inside the suitcases were to complete the purchase of a 50% stake in Eltin Finance & Investment , a Dutch holding company owned by the late Australian-Jewish tycoon Jack Liberman, which held 100% of the shares in fuel company Paz Oil (along with control of real estate company Sahar Development & Investments)

Eltin had acquired control of Paz three years earlier from the State of Israel. Liberman's representative in Israel in those days was Zadik Bino, who would be a tycoon himself just a few years later. At the time Liberman purchased the Paz shares from the state, Bino was CEO of Bank Leumi and the chairman of the committee that granted the Australian the credit to make the deal. Four months after retiring from the bank, Bino became Liberman's right-hand man.

The agreement between Liberman, who was in need of cash at the time because of cash flow difficulties in his real estate business, and Pitchfork, the company owned by the Polish duo, stipulated that the two would pay $85 million for 50% of Eltin Finance. $39 million had been transferred in advance, in two payments via bank transfer to a trust, and the remainder was brought by the Poles in cash. The documents accompanying the transfer of the first $39 million state that this was a down payment for "dairies and packaging lines." But it was neither this strange detail, nor the fact that funds were transferred not from Pitchfork but from another company altogether, nor was it the unusual mode of transfer in suitcases that led Liberman to withdraw from the deal. In an arbitration ruling issued in 2005 that dealt with the behind-the-scenes of the affair, arbitrator Ishai Levitt wrote that the Liberman group "…closed its eyes in the light of its need for cash... The fact that the Liberman group ignored the warning signs indicates that it knew or at least suspected it was entering into a deal with a dubious group."

In recent weeks I have talked to some of the main characters who were involved in this affair, most of whom preferred to do so without being quoted. One person who did agree to be interviewed on the record is Andrzej Gasiorowski . We met at his home in Caesarea, on a quiet street inhabited by some of Israel's wealthiest people. In addition, legal documents from Israel and Poland, including some previously undisclosed to the public, press clippings, and documentary films , also helped me put the various pieces of the puzzle together.

The Paz affair, and the connection to the two Poles, has been covered in the Israeli press over the years. But it seems as though only now, with the perspective afforded by the passage of time, can one really appreciate that this story is the stuff that Hollywood blockbusters are made of. How did Bagsik, a self-taught musician raised in an orphanage, and Gasiorowski, a frustrated doctor who dreamed of a better life, go within a short time from being a pair of ne'er-do-wells to two of Poland's richest people? How did a small import company established in June 1989, bringing goods from Germany to Poland in a van, become the country's largest private concern almost overnight? How were they able to purchase a major Israeli concern before the sellers could understand whether the buyers were reputable businessmen or conmen? How did big money affect the relationships between those involved in the affair? And could the fate of the two protagonists of the plot have been any different?

"Shock therapy" creates an opportunity

Our story begins in December 1988, just before the collapse of the Soviet bloc, when Poland was the first Eastern European country to adopt a free economy. On December 23, a series of laws were passed in parliament to privatize government companies and encourage the establishment of commercial businesses. On June 4, 1989, elections were held that marked the end of the communist era in Poland. At the same time, Minister of Finance Leszek Balcerowicz promoted a series of additional laws designed to rehabilitate Poland's economy from years of communism. He initiated a series of dramatic measures that would take effect in January 1990. These included removing price controls, an exchange rate linking the dollar to the zloty, eliminating most industrial subsidies, and facilitating the import of international products into the Polish market. This series of aggressive measures would later be termed "Shock Therapy" by Polish economists. During this interim period, which lasted about two years, chaos reigned in the Polish economy, and was reflected in hyper-inflation: in 1989 it stood at 245% (the jump was recorded in the second half of the year), and peaked in 1990, with an annual inflation rate of 568%. In 1991, inflation stood at 78%.

In early 1989, Boguslaw Bagsik , then 26, heard about the new laws and decided to become an importer. Bagsik had always been considered a brilliant, avant-garde character, prone to melancholy. Ever since his childhood at the orphanage, he yearned for love and respect, and felt being rich would give him both. In his early twenties, he worked as a music teacher and piano tuner at Poland's Musical Instruments Cooperative. In October 1988, he was convicted for appropriation of funds from his employer amounting to about 92,000 old zlotys (less than $10) and sentenced to two years on probation. After the conviction, in an attempt to turn over a new leaf, and with government incentives for entrepreneurship, he set up a company called Art-B (short for Artistic Business) and began importing foodstuffs from West Germany to Poland.

Bagsik took out loans, bought a van, hitched a trailer to it, and started working. A few months later he suggested to Gasiorowski that he should join him as a partner. The two friends had first met at a summer camp for Baptist evangelical youth that operated discretely in a communist country with Catholic roots. They kept in contact over the years as they had a common hobby: music. Occasionally, they played together at jazz nights where both preferred the piano. Gasiorowski also played the violin.

At that time, Gasiorowski was a 30-year-old gynecologist, married with two children, working at a hospital in his hometown Wa?brzych [Valbrich] for $30 a month. When Bagsik made his offer, Gasiorowski hesitated for a long while, but his charismatic friend managed to convince him, and gave him 40% of the company.

In January 1990, as "Shock Therapy" came into effect, monthly interest rates stood at 36% (these later declined somewhat, but remained very high). Bagsik and Gasiorowski realized they would no longer be able to take out loans to buy goods without going bankrupt. They looked for a solution and realized it would never be found where the problem lay. The optimal way to solve it would be to try to upend the pyramid.

The Oscillator: Turning the pyramid upside-down

Alongside Poland's ambition of creating a liberal economy, was a slow and cumbersome banking system formed over decades of communist rule. This intermediate stage, characterized by a system of laws that encouraged free market competition within the outdated infrastructure, created cracks through which particularly clever types could slip. Bagsik - the mastermind behind the operation - discovered that when he deposited a check issued from another bank, his bank clerk would mail a letter informing the source bank that the check had been deposited, and that said amount should be deducted from that bank's customer account.

The post office in Poland in those days did not work well, to put it mildly, and the letter would take...

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