21/06/2012
NEWS STORY
Yesterday Pitpass featured a preview of the day's upcoming events in the trial of F1's former chairman Gerhard Gribkowsky who was expected to talk for the first time about why he received £27.5m from the sport's boss Bernie Ecclestone and his family trust.
We predicted that "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 were bang on the money as this is precisely what happened and a verdict in the trial is due next week. We also predicted the court will conclude that the money Gribkowsky received was a bribe and his testimony yesterday confirmed this. As an article in today's Telegraph, written by Pitpass' business editor Christian Sylt reveals, Gribkowsky's testimony also boosted the chances that he will be on the receiving end of another lawsuit - this time from Ecclestone himself.
To recap, Gribkowsky was arrested in January last year 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 Gribkowsky's home of Germany.
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. He was accused of receiving a bribe because the money was paid by Ecclestone and his family trust and prosecutors believed that Gribkowsky got it to encourage him to sell BayernLB's F1 stake to the sport's current owner, the private equity firm CVC, in 2006. The prosecutors claimed that CVC was Ecclestone's preferred buyer because it agreed to retain him as F1's boss. They added that BayernLB incurred damages as a result of this since the bank paid Ecclestone £25.9m from the sale proceeds they claimed that the reason he wanted this was to cover the cost of the payment to Gribkowsky.
Ecclestone said that, in fact, the £27.5m was paid by him and Bambino because Gribkowsky threatened to contact the UK's tax authority and make the false accusation that the F1 boss controls the trust. Bambino needs to be independent from Ecclestone for tax reasons and if it wasn't it could have landed him with a £1bn tax bill so suggesting that he was in control would have been a serious threat indeed. Ecclestone explained that he got the £25.9m fee from the deal because he facilitated the sale to CVC and also gave BayernLB "an indemnity for an awful lot of money that all the [F1] 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 says he vouched for its health. Gribkowsky's statement yesterday contradicted all this.
He told the Munich court that the allegations made against him by the prosecutors are "essentially true" and added that he was paid the money so that he would wave through the sale to CVC. "I allowed myself to be bribed," said Gribkowsky adding that at a meeting in May 2005, Ecclestone told him "if you help me to sell Formula 1, I will employ you as a consultant." Gribkowsky said he wanted $50m and was only expecting to get a fraction of it as he claimed in court that "$10 million would be more normal." However, he got nearly the full amount.
Earlier in the year, at a luxurious St Tropez house, Ecclestone had been introduced to CVC co-founder Donald Mackenzie who indicated that the private equity firm wanted to take over F1. Gribkowsky says that after the meeting in May Ecclestone informed him about CVC's interest and on 9 September it made its first written offer followed by its second ten days later. CVC paid £527m ($839m) for BayernLB's shares and when the sale was finalised Gribkowsky got a consultancy contract. He received the £27.5m under this agreement but said in court that he never actually worked as a consultant.
Gribkowsky added that Ecclestone originally asked for a £62.6m ($100m) fee for his role in setting up the sale but agreed to reduce the amount to in negotiations which is why he ended up getting £25.9m. Gribkowsky told the court that he agreed to Ecclestone's fee despite knowing that he had the power to reject it completely. "With hindsight, I know now that I should have said no to his demands," he explained.
It seemed Gribkowsky had needed to be convinced of his own guilt. "It took me a long time to come to terms with what I have done and to admit even to myself: Yes, it was bribery and yes, I should have paid tax," he said adding "still today I have troubles accepting this as a reality." This isn't as strange as it may seem.
In a nutshell, Gribkowsky said that Ecclestone told him if he agreed to sell to CVC the shares in F1 owned by BayernLB, he would get a £27.5m pay-off. Ecclestone then demanded £25.9m from BayernLB for setting up the sale to CVC. This led to money connected to the sale moving from BayernLB to Ecclestone and then to Gribkowsky. Once Gribkowsky agreed to take the £27.5m from Ecclestone it could be said that he was no longer acting on behalf of the bank but for Ecclestone and it is this which gives rise to the allegation of bribery.
If the facts in the explanation above are true they would seem to demonstrate that Gribkowsky received a bribe from Ecclestone to sell F1 to CVC and in turn Ecclestone got money from BayernLB as a result of setting up the sale. However, regardless of whether the facts are accurate, this explanation leaves out a crucial piece of information.
Not only was CVC the highest of many bidders for BayernLB's F1 shares but even after paying the £25.9m commission to Ecclestone BayernLB still said that it was incredibly happy with the price it received. As Pitpass reported last year, during the trial, bosses from the bank revealed that the price paid by CVC was far above their expectations and as we stated in yesterday's report, the prosecutors have finally accepted that CVC did not under-pay for F1.
So, let's get this straight: Gribkowsky says he received money from Ecclestone in order to ensure that he sold BayernLB's F1 shares to CVC. Ecclestone's payment to Gribkowsky did not directly lead to any loss for BayernLB and by getting CVC as a buyer the bank benefited tremendously. BayernLB says it was incredibly satisfied with the payment it received after deducting Ecclestone's commission so it didn't lose out as a result of that.
Given that BayernLB didn't lose out, does it really matter that Gribkowsky technically could have been biased by having received money from Ecclestone? It certainly would matter if for example Ecclestone had told him to sell to one of the bidders which was not offering as much as CVC but this is not what happened. By selling to CVC it seems that Gribkowsky acted in BayernLB's best interests despite being in receipt of the £27.5m from Ecclestone. Bearing this in mind you can perhaps start to see why Gribkowsky still has "troubles accepting" that he received a bribe.
A possible counter to this is that BayernLB did in fact lose out as a result of the alleged bribe paid by Ecclestone since prosecutors claim that the F1 boss demanded the £25.9m commission to cover the payment to Gribkowsky. This argument seems to be fundamentally flawed for many reasons.
CVC had made it very clear that it wanted Ecclestone to remain as F1's boss if it bought the sport. Indeed, company documents produced by Churchill Capital, the company which introduced Ecclestone to Mackenzie, state that "key to structuring the transaction was allowing Bernie Ecclestone to retain operating control to continue growing the business." If Ecclestone had left if he didn't get his £25.9m commission the sale to CVC could not have taken place and BayernLB would have lost a lot more than £25.9m since the private equity firm was the highest bidder.
Likewise, Ecclestone says that CVC required from him a guarantee that all the F1 accounts were in good order because BayernLB would not give it. Ecclestone gave this in return for his £25.9m commission so if he had not got the money then CVC would not have got the guarantee and could not have bought F1 which would have led to BayernLB losing out. It needs to be stated here that the consultancy firm Deloitte has confirmed that Ecclestone's commission is perfectly legitimate, commonplace, supported by all the necessary documentation and was agreed by the BayernLB board.
In summary it looks like neither Ecclestone's £25.9m commission nor the payment to Gribkowsky, led to BayernLB losing out. Accordingly it would seem to be purely academic if the payment to Gribkowsky was technically a bribe or if Gribkowsky could have been influenced by it. To recap, this deduction comes straight from Gribkowsky's testimony.
Bizarrely, Gribkowsky appears to have dug himself a hole as elements of his testimony don't seem to make sense. As Ecclestone's lawyer Sven Thomas told Sylt yesterday "what he was talking today was a lot of contradictions to documents." For example, he says Gribkowsky's claim that Ecclestone made the alleged bribe in May 2005 "does not make sense" because "there was no one who could buy the shares at the time." That's not all.
"Gribkwosky was told by the BayernLB board to sell the shares. That was the instruction and that is what he was supposed to do," Ecclestone told Sylt yesterday. The bottom line is that Gribkowsky had a legal duty to act in the best interests of BayernLB by selling the F1 shares to the highest bidder and this was CVC. So why would Ecclestone and Bambino have needed to pay Gribkowsky to encourage him to sell the shares to CVC when he had a legal obligation to do so anyway? This seems to blow a gigantic hole in the arguments proposed by both the prosecutors and Gribkowsky. It isn't the only one of his statements which is hard to follow.
He claims that he didn't speak out earlier due to concern about the consequences for F1's planned stock market flotation but quite why he would care about that is anyone's guess.
Likewise, as explained above, Gribkowsky said he had the power to reject Ecclestone's commission completely and added that "with hindsight, I know now that I should have said no to his demands." However, as also explained above, if Ecclestone had not got his commission then CVC would not have bought F1 and it is hard to see how that could have been in the best interests of BayernLB since it was the highest bidder.
So why might Gribkowsky have given a testimony which seems to mirror the prosecutors' claims but also appears to have gaping holes in it? Well it could be true. However, Ecclestone offers an alternative explanation in Sylt's Telegraph article. "Gribkowsky was bound to say that. He was going to get twelve years, but he got seven," says Ecclestone. Indeed, just as Pitpass predicted, in return for Gribkowsky's confession the judges yesterday informally agreed that he would get a reduced prison term of between 7 years and 10 months to 9 years.
However, in Germany public prosecutors are obliged to consider automatically whether convicts should be released after serving two-thirds of their sentence. Gribkowsky has already spent 18 months in prison so if his sentence is at the lower end of the spectrum he could be released in three and a half years. It is still far from short.
To get an idea of the severity of the German legal system, compare it to the sentence handed to Andrew Fastow, the former chief financial officer of Enron. He was one of the key architects of one of the biggest corporate frauds in US history which left Enron bankrupt with debts of £20.3bn ($31.8bn) yet Fastow was only jailed for six years. It looks like Gribkowsky will get longer despite BayernLB benefiting tremendously from the deal that he put in place. As Ecclestone says, it is "quite the opposite to any damage having been done."
Ecclestone has not been charged with any wrongdoing and although there are many rumours at the moment that the German prosecutors will try to make a case against him for paying the alleged bribe this looks to be extremely unlikely. Given that Gribkowsky had a legal duty to sell BayernLB's F1 shares to CVC anyway you would have thought a court would have a hard time proving why Ecclestone or Bambino paid £27.5m for him to do this.
In addition, Sven Thomas says that Gribkowsky's allegations are not binding on Ecclestone since he is not a party to the trial. He adds that to bring a case against Ecclestone the German prosecutors "must have a location, a place of jurisdiction and I do not see this in Germany. What happened in Germany? Nothing at all. So there is nothing I am worried about." In a nutshell, what he is saying is that whilst the alleged bribe paid to Gribkowsky could have affected the sale of shares owned by a German company, Ecclestone's involvement did not take place in the country. Even his commission was paid for work done in the UK so it could make it even harder to bring a case against him in Germany. That doesn't mean to say that Ecclestone won't be going to court there.
In Sylt's Telegraph article Ecclestone robustly denies Gribkowsky's allegations saying "of course I didn't say that he must sell to CVC. How can I say to him that he must do something? The only thing I said to Gribkowsky is if I sell the shares I want commission. Whoever you sell to I don't care who you sell to."
Gribkowsky's accusations have clearly rubbed Ecclestone up the wrong way as he says "we will see if I take action against him. It's early days, let's have a look." He adds "Gribkowsky shook me down and I was stupid enough to go along with it so he did a good job. You can't complain about him doing a good job. He did a good job and I was an idiot." Nevertheless, Ecclestone says he doesn't regret paying him since it would have caused more trouble if the tax authority had launched an investigation.
"It cost me a lot of money but had Gribkowsky upset everybody, the consequences would have been a lot more. Actually in reality it would have never been worse because the revenue could never have proved it but it would have been three years of my life gone and a lot of aggro and a lot of costs. I only regret the fact that I was shaken down because it is not in my nature."
Ecclestone says that Gribkowsky's biggest mistake was paying the money into Austria since this alerted the authorities there. If it had been paid offshore Gribkowsky could have raced off with the money which has now been seized by authorities. "What did he do wrong? He could have been paid anywhere he wanted. I really don't know why he did what he did. He might have been advised that it was all right," says Ecclestone. Going along with it will most probably be a decision Gribkowsky lives to regret.