20/06/2012
NEWS STORY
Few battles in Formula One have gone on as long as the case against the sport's former chairman Gerhard Gribkowsky. The German was arrested in January 2011 after investigators discovered he received £27.5m in 2006 and 2007 whilst working for BayernLB, the bank which owned a 47.2% stake in F1.
The money had been paid into an account in Austria where it was taxed at a lower rate than it would be if it had been banked in Germany where Gribkowsky was resident. This led prosecutors to charge him with tax-evasion and, as he never told BayernLB that he received the money, he was also charged with breach of trust. However, it is the third and final charge against him which is most relevant to F1 as the prosecutors believe that the payment was connected to the 2006 sale of the sport by BayernLB to current owner, private equity firm CVC, so they also charged Gribkowsky with receiving a bribe. For the first time we may get his version of events today.
Gribkowsky has been on trial in Munich defending these three charges since October last year and he has not yet given his side of the story. There was a flurry of media interest in the case when it started and when F1's boss Bernie Ecclestone testified in November however it all went quiet soon after that. It is believed to be Germany's biggest post-war corruption case so it is no surprise that there have been more than a few twists and turns in the trial.
Earlier this year Gribkowsky's lawyers claimed that their client was suffering from the stress of the trial and his conditions in Munich's Stadelheim prison which happens to be the same one where Adolf Hitler was incarcerated. The trial resumed after a brief pause but there was yet another unexpected development recently when Gribkowsky's lawyers asked for the court to hear testimony from numerous new witnesses including Ecclestone's ex-wife Slavica, former Renault F1 team principal Flavio Briatore and Max Mosley, former president of F1's governing body the FIA. The judge rejected the request and the case continued.
As it has been a while since the proceedings began it is worth recapping on the detail of the charges against Gribkowsky. The charges of tax evasion and breach of trust are straightforward but the allegation of bribery is more complex.
According to the prosecutors, Gribkowsky's Austrian company received the £27.5m payment from two sources. Between July and September 2006 £13.3m of it came from a company in Mauritius called First Bridge which was ultimately owned by Bambino, the Ecclestone family trust. The remaining £14.2m was paid between October and December 2007 by Ecclestone himself to Briatore who transferred it to Gribkowsky's company via the British Virgin Islands-based business Lewington Invest.
Last year, Pitpass' business editor Christian Sylt exclusively revealed Ecclestone's explanation for both of these payments. First, in July, Ecclestone said that he paid the money to Gribkowsky because the German had threatened to make the false allegation to the UK's tax authority HMRC that the F1 boss was in control of Bambino despite the trust needing to be independent of him for tax purposes.
HMRC would have had to investigate Gribkowsky's allegation and this would have taken years to resolve regardless of whether there was any truth to it. As Pitpass has explained at length the formation of the trust saved around £1bn ($1.6bn) in tax being paid on the £2.4m ($3.9bn) Ecclestone made from F1. At the time that Gribkowsky made his threats the trust had not been fully set up and if HMRC had got cold feet about letting it go ahead Ecclestone would have had to pay the tax. He also revealed to Sylt that the money had been paid through offshore companies because Gribkowsky had said he didn't want it to look like it had come directly from him.
In November last year, Ecclestone also revealed to Sylt that Bambino paid its share of the money to Gribkowsky for two reasons. Firstly, it wanted to prevent Gribkowsky from claiming to HMRC that Ecclestone controlled the trust because this could have led to the tax authority preventing it from being set up. Secondly, Ecclestone said that Bambino paid the money because Gribkowsky was doing property consultancy for it.
Separate to these transactions, Ecclestone received a £25.9m ($41.4m) commission from BayernLB after its stake in F1 was sold to CVC. Ecclestone told Sylt he got this because he facilitated the sale to CVC and also gave BayernLB "an indemnity for an awful lot of money that all the accounts were in good order because the bank would not give them." At the time of the sale to CVC F1 was in a state of disarray with teams threatening to leave the sport but Ecclestone vouched for its health and this is why he got the payment from BayernLB. The German prosecutors see things differently.
The prosecutors claimed that in fact, Ecclestone paid Gribkowsky to convince him to sell to CVC because it would retain him as F1's boss. They added that the commission was paid to Ecclestone to cover the bribe he allegedly gave to Gribkowsky and therefore BayernLB suffered damages as a result since it should not have had to pay out the money.
For months last year the prosecutors also tried to argue that BayernLB lost out because CVC paid less than the going rate for its F1 shares. Pitpass explained at great length that this argument was fundamentally flawed but the prosecutors didn't give up. Even as the trial got under way the prosecutors adapted this argument to suggest that since Gribkowsky had been paid a bribe to sell to CVC this meant that he would not have favoured higher bidders.
During the trial it has come out repeatedly that, in fact, as Pitpass said, there were no higher bidders. Witnesses in the trial also confirmed that the £527m ($839m) paid to BayernLB for its F1 shares was an extremely good price since the teams were on the verge of pulling out of the sport. Sources close to the German legal process now say that the prosecutors finally accept that CVC did not underpay BayernLB. However, they have apparently not given up on the bribery charge.
The prosecutors are now understood to have woven Ecclestone's defence into their own claims and believe that he paid Gribkowsky to get him to sell to CVC, since it would retain him as F1's boss, and to stop him making false allegations about his tax affairs to HMRC. The prosecutors add that the commission paid to Ecclestone covered his alleged bribe to Gribkowsky so BayernLB lost at least £25.9m ($41.4m) as a result.
There seems to be one very significant flaw with this theory. In order to support the prosecutors' claim that Ecclestone paid £14.2m to Gribkowsky to get him to sell to CVC since it wanted to retain him as F1's boss, surely one needs to demonstrate that other buyers would not have kept him on? The court case revealed that there were plenty of other buyers, and all of them offered less than CVC contrary to the prosecutors initial suspicions, however, Pitpass has not seen any reports suggesting that any of them would not have retained Ecclestone. So why would Ecclestone have personally paid Gribkowsky £14.2m to sell to CVC because it too wanted to keep him on?
Quite simply, this theory doesn't seem to make any sense. It remains to be seen whether Gribkowsky will be found guilty of receiving a bribe but the judge has indicated that he believes there is weight behind the charge. Sources close to the legal process in Germany concur that it is highly likely Gribkowsky will be found guilty of receiving a bribe and although the prosecutors' theory may seem hard to believe, this is the one they have given to justify the bribery charge.
If Gribkowsky is indeed found guilty of receiving a bribe this doesn't mean to say that the prosecutors will charge Ecclestone with paying it. The sources in Germany explain that it is extremely unlikely that prosecutors will press charges against Ecclestone for various reasons. Firstly, the trial against Gribkowsky has already taken nearly eight months so prosecutors would not want to repeat the exercise again for no further gain, particularly since Ecclestone's resources are far more substantial than Gribkowsky's so the cost of the trial would be far greater.
The prosecutors' aim is to find Gribkowsky guilty and Ecclestone's testimony was a part of that - it was not obtained to try and get him to implicate himself. After all, if the prosecutors had wanted to charge Ecclestone with paying a bribe they could already have done so just as they charged Gribkowsky with receiving a bribe.
Apparently, there is also a simple mechanism which Ecclestone could use to settle with the prosecutors if Gribkowsky is found guilty of receiving a bribe. Under Bavarian law a defendant in a corruption case can agree the maximum financial advantage gained and pay this to settle. The parallel in Ecclestone's case would be the £25.9m commission which the prosecutors claim was paid to cover the alleged bribe to Gribkowsky. Ecclestone firmly disputes that the commission was paid to cover a bribe and instead he says it is commission which was approved by the BayernLB board.
Nevertheless, if Ecclestone had to, he could certainly pay the money back without losing any sleep. The prosecutors have already seized Gribkosky's cash and assets so if there was any loss to BayernLB through the commission being paid, it has already been recovered.
Gribkowsky's assets and cash had to be seized and there is no suggestion that he volunteered to pay BayernLB the money he received from Bambino and Ecclestone. His strategy has been to keep completely quiet so far but that is expected to change today as it is believed that he will make a statement for the first time.
It is understood that Gribkowsky's lawyers have recently been in discussion with prosecutors about coming to a settlement but sources close to the legal process say that the talks come too late in the day as the trial has already been going on for seven months. The German media is reporting that perhaps the only way this strategy could be of any use to Gribkowsky would be if he made a full confession so the verdict of the case could come sooner than expected. We may have this to look forward to today.
Interestingly, even if this leads to Gribkowsky being found guilty of receiving a bribe it doesn't look like this will improve the chances of a court case which has been going on in the UK alongside the German proceedings. The UK case claims that F1 was in fact worth far more than the total of £527m ($839m) which CVC paid to BayernLB. So because Gribkowsky allegedly received a bribe for agreeing to sell F1 to CVC the sport ended up being sold for less than it was worth.
The UK case has been brought by former F1 owner German media firm Constantin Medien (previously known as EM.TV) which sold its stake in the sport to BayernLB for just €8.5m in 2003. It did this on condition that when BayernLB sold the stake Constantin would get a 10% share of any proceeds above £628m ($1bn). As the £527m received by BayernLB was below the $1bn threshold, Constantin did not get its 10% share.
It may seem like a guilty verdict would strengthen Constantin's argument but this isn't necessarily the case. As we mentioned earlier, the prosecutors are believed to have acknowledged that CVC did not underpay for F1 and BayernLB did not lose out financially as a result of the price it paid. The witness testimonies in court supported this view and the prosecutors also revealed that no other buyer was prepared to pay as much as CVC offered for F1. The prosecutors claim that the damage done by the bribe stems from the commission paid to Ecclestone to allegedly cover it but since this had no impact on the sale price this does not seem to give fuel to Constantin's case.
As Sylt has also revealed, Ecclestone says that Dieter Hahn, one of the key people involved with the Constantin case has already offered to settle it. Ecclestone says he has declined the offer and adds "Dieter Hahn has started so now let's get on with it. I would be happy to see that case go to court. I 100% think it will go to court." So although Ecclestone may not be appearing in court in Munich again, regardless of what Gribkowsky says today, it may not be long before he takes to the stand in the UK.