Has Poland’s Government Become a Threat to Business?

(Bloomberg Businessweek) -- An accusation had been made against Przemyslaw Krych, and, at about 9 on the morning of Dec. 19, 2017, he was arrested at his home in Warsaw. The financier was sure there had been a misunderstanding, and, as armed agents of the Polish government took him away in handcuffs, he confidently told his wife he’d be back later in the afternoon.

How could it not be a mistake? Krych was the founder and co-managing director of Griffin Real Estate, which had more than $5.6 billion in assets under management and was a partner in huge local projects with global investment luminaries Pacific Investment Management Co. and Oaktree Capital Group LLC. He carried his success with a swagger, typically explaining his business this way: “Griffin doesn’t develop real estate. We buy real estate developers and become the biggest player in the markets we enter.” He hobnobbed with powerful politicians and knew what made the government tick. This arrest, he was certain, would be cleared up quickly.

But Krych wouldn’t be back in the afternoon to see his wife as he promised. In fact, he wouldn’t be home for months. He was told the charge involved what appeared to be a 1 million-zloty ($251,000) bribe to Stanislaw Kogut, the chairman of the infrastructure committee in Poland’s Senate. Krych denied it, saying the sum was part of the total of $550,000 he’d given to the senator’s multiple sclerosis charity for more than a decade. This latest amount was earmarked for a new building for kids with autism.

The prosecutors didn’t charge Krych with wrongdoing, but they argued he might tamper with evidence if released and demanded the businessman be kept behind bars until he told them what they wanted to know—as Polish law allows. Krych insisted there was nothing to tell. The judge agreed with the government and remanded Krych to a prison in Sosnowiec in southern Poland.

And prison was where Krych says his story, already Kafkaesque, took on the creepy shadings of a horror movie. His ordeal, he says, is a parable of contemporary Poland: how the disruptive behavior and feudal organization of the populist government have corroded the judiciary and are endangering not just civil rights in general but also the stability that businesses need to prosper. “The notion that the authorities respect laws is pure fiction,” Krych says.

In Sosnowiec, around February 2018, after weeks in what was effectively solitary confinement, Krych was allowed to take walks around a barbed wire enclosure about the size of a tennis court. One day he was joined by two strangers who kept several steps behind him in the exercise yard but were close enough that he could hear what they were telling him. He says they offered a proposition and a number of threats: Give us dirt on opposition politicians or we will destroy you. The destruction could come in many ways, Krych recalls. Child pornography would be planted in his computer; his 16-year-old daughter would be sent to a treatment facility for victims of molestation; his wife would be arrested for embezzlement. Krych demurred. He said he had no information to trade.

But the two men continued to hound him at the exercise court and beyond. They’d walk into the showers as Krych was bathing, disrobe, and talk among themselves as if he weren’t there, discussing details of Krych’s life few people would have known. The duo weren’t the only people who seemed familiar with Krych’s private life. At night, he says, a person nearby would yell out to someone beyond the prison fence, a woman who stood on a hill listening like a bereft lover in a melodrama. But Krych recognized the script of their romance: snippets from letters he was allowed to send his wife from jail, as well as pre-prison family correspondence from his computer and messages from the WhatsApp account on his phone.

The harassment Krych says he endured took other forms. People who appeared to be prison guards—their uniforms sloppily put on, decorated with insignias that changed from day to day—told him to have his belongings ready and packed because he could be moved at any moment to a cell with violent convicts and rapists. He was never relocated.

What did the men want? According to Krych, they were after evidence of corruption among municipal politicians running against candidates of the ruling party. Government prosecutors, the men said, were always ready to strike a deal. The businessman mentioned these encounters to his lawyers, who accompanied him to interrogations by the prosecutor’s office in nearby Katowice. But Krych didn’t bring it up during questioning; he believed it was pointless because his harassers and the government were on the same side.

The prosecutor’s office and Poland’s prison agency declined to comment on Krych’s description of his treatment. Asked if his accusations might be borne out by surveillance video, the agency said that while recording was routine at the facility, the tapes were erased every two weeks. Prison officials say there’s no longer any video evidence of Krych’s six-month stay at Sosnowiec. Much of this story is therefore based on what Krych says happened to him.

Krych’s detention was supposed to last three months, but prosecutors got the court to extend it another three. Finally, on June 19, 2018, he was released and ordered to report to the local police station every month. He’d be asked at each session to turn over evidence about the alleged bribe, but the proceedings seemed increasingly perfunctory, almost as if the authorities had lost interest in him. “No new ground was covered during the meetings,” Krych says. “It was the same questions, which I answered in the same way.” In the nearly two years since he was arrested, Krych hasn’t been charged with a crime.

The day after this story ran online, the prosecutor’s office responded to Bloomberg’s request for comment. The arrest of “Przemyslaw K.,” it said, was a “judicial decision issued by an independent court after examining the evidence gathered in the case.” He “did not complain about the conditions in detention. In June 2018 the court changed its sentence from the arrest to a bail in the amount of 4 million zlotys and this sum of money was paid in.” It said “the investigative process is ongoing and developing” and that the businessman’s “line of defence” is “completely untrustworthy.”

In the months since Krych regained his freedom, he says he’s been able to discern the reasons for his detention. Krych is one of Poland’s preeminent businessmen, but he believes he was merely a pawn in one of the feuds within the Law and Justice party—specifically a shadowy contest that involved undermining Senator Kogut, the infrastructure committee chairman.

The crux of the prosecutors’ hunt for evidence of wrongdoing was a proposal to develop a hotel and movie theater complex in the city of Krakow—part of the power base of Kogut, a member of the ruling Law and Justice party at the time. Krych had met Kogut years before the party won an outright majority in 2015 to form a government. (He was among the highest senate vote-getters in that election.) Beginning in 2006, Kogut’s Foundation of Aid for the Disabled was the recipient of contributions from Krych and his companies, to the amount of $550,000, or a fifth of all Krych’s charitable giving, according to documents seen by Bloomberg. The prosecutor’s office alleged that Kogut helped maintain favorable zoning requirements for the planned Krakow complex, and so the contribution could be construed as a de facto bribe. (An audit of Griffin by the U.K. law firm Dentons, commissioned by Krych’s company and seen by Bloomberg, said that, apart from a few deficiencies in paperwork, there were no anomalies or “fictitious or misleading entries.”)

Krych said at his arrest, and has maintained ever since, that the government allegation was absurd—especially since the Krakow project was the smallest of three that Griffin took over when it bought the developer Echo Investment SA in 2015 and, in fact, he never seriously considered pursuing it. “I would be an idiot to give a bribe for a project with a value of less than €5 million when there’s a €5 billion investment portfolio at stake,” he says. The property has since been bought by the central government, which may turn it into a museum.

Senator Kogut is no longer the power he used to be. He’d been the chairman of the Senate Infrastructure Committee, but, on Dec. 19, 2017—the day of Krych’s arrest—the National Prosecutor’s Office tried to get the Senate to waive Kogut’s legislative immunity to charge him with corruption. Kogut denied the allegations—which were punctuated with news of Krych’s detention—and waived his own immunity to fight the charges. On the same day, Law and Justice suspended him from the party. He resigned as committee chair but stayed on in the Senate after his fellow legislators refused to allow prosecutors to arrest him. He’s insisted on his innocence, but his son, who used to run the charity, spent more than a year under arrest on the Krakow allegations, which he denied. Kogut, who plans to run as an independent in October’s legislative elections, declined to comment.

Several weeks after Krych’s release, the businessman says, he received a message from Adam Hofman, a public-relations executive who used to be a ruling party lawmaker. After agreeing to leave their mobile phones behind, Krych says, they took a walk in Lazienki Park in central Warsaw. According to Krych, Hofman said that the real estate magnate was a victim of a power struggle within the party and that politicians close to Zbigniew Ziobro, the minister of justice, wanted to reduce Senator Kogut’s clout in the Krakow region to promote one of their own allies, hence the probe into the charity. According to Krych, Hofman suggested he have dinner with Ziobro to talk over the situation. Krych says he declined.

Hofman tells Bloomberg he talked with Krych in the park but the meeting wasn’t his idea. He says he knew Krych from previous work together (a claim Krych denies) but that, after listening to Krych’s story, he didn’t see any opportunities to do more business and they never met again. He says he delivered no message to Krych and he wasn’t sent by anyone. Ziobro’s office didn’t return requests for comment.

Infighting among centers of power is a trademark of the Law and Justice government. Its decentralized organization encourages it, with its de facto leader Jaroslaw Kaczynski having no official role other than rank-and-file lawmaker. The party is itself an agglomeration of several preexisting political groups, including one led by Ziobro. Cabinet changes can have dramatic effects, including the sacking of executives at state-controlled companies, the top posts of which are often treated as sinecures for allies of powerful politicians.

In the past couple of years, Law and Justice has ignored the highest courts and passed legislation boosting the sway of politicians over the judiciary. The party has combined the job of justice minister—usually a political appointee—with that of chief prosecutor, who’d been politically neutral. The pursuit of justice has thus become a tool that “belongs to a single political party,” says Krzysztof Parchimowicz, a prosecutor who heads a group that says it’s fighting to maintain the profession’s autonomy. Much concern has been raised about the law that allows for temporary detentions without formal charges. The number of such jailings has risen steadily, from 13,665 in 2015 to 19,655 in 2018, according to the Helsinki Foundation for Human Rights, Poland’s largest human-rights watchdog. Last year the European Court of Human Rights issued rulings against Poland in three cases involving temporary detention.

For businesses, the justice system is a minefield. “There’s a very serious risk when the prosecutor’s office can step into business affairs at any time and with any arbitrary reason,” Parchimowicz says. “The bigger the role of the state prosecutor, the less room for economic freedom and the more damage to the creativity needed for business.”

When he was thrown into jail, Krych asked for a broom and mop to clean his cell. He’d resigned from all his positions at Griffin at his arrest and was therefore heartened that the company continued to operate neatly and efficiently without him. It concluded one of Poland’s biggest real estate deals—one worth about €1 billion ($1.1 billion)—while he was incarcerated. He was also happy that Pimco and Oaktree stuck by him. Both companies—bound by the rigorous U.S. Foreign Corrupt Practices Act—had a stipulation that allowed them to abrogate their contract with Griffin for lack of compliance. They chose not to activate the escape clause.

About a year after his release, Krych went in a leased Maybach to outside the prison in Sosnowiec to show a reporter where he said he’d been mistreated. He didn’t flinch as guards started filming him and his entourage. “What happened here,” he said, “poses a risk that everyone who’s considering investing in Poland should be aware of.” He also related a recent conversation at one of his monthly sessions in the prosecutor’s office. Asked what he was up to, Krych said without emotion, “Pursuing business interests outside Poland.” —With Marek Strzelecki

To contact the editor responsible for this story: Howard Chua-Eoan at hchuaeoan@bloomberg.net, Alan Katz

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