28/06/2012
NEWS STORY
Yesterday's verdict in the trial of Formula One's former chairman Gerhard Gribkowsky came as little surprise after the German banker testified last week that he had received a £27.5m bribe to wave through the sale of the sport to current owner, private equity firm CVC, in 2006. As Pitpass reported yesterday, there was a question mark over whether Gribkowsky would be found guilty of bribery or breach of trust but after incriminating himself there was no chance of him being found innocent. In the end he was found guilty of bribery, tax evasion and breach of trust and sentenced to eight and a half years. The big question is where this leaves F1's boss Bernie Ecclestone.
No charges have been brought against Ecclestone and he has not been accused of any wrongdoing. He has admitted that he paid Gribkowsky but said he did this after the banker threatened to make false allegations about his tax affairs to the UK's Inland Revenue. The court in Munich rejected this version of events and in his closing statements prosecutor Christoph Rodler said "Ecclestone was not a victim of blackmail, but a fellow participant in bribery." However, the court hasn't done anything about this and it doesn't look like it will.
Ecclestone's lawyer Sven Thomas says that we are "far away" from Ecclestone being charged with paying the bribe and there are several reasons for this. At the top of the list is the lack of a financial need to press charges against Ecclestone.
To recap, Gribkowsky was in charge of selling the 47.2% stake in F1 held by state-owned German bank BayernLB. It was sold to CVC in 2006 and over the following two years Gribkowsky was paid £27.5m by Ecclestone and his Bambino family trust. Ecclestone brought CVC to Gribkowsky and it offered to pay £527m ($839m) - more than any other bidder. Ecclestone says he was given £25.9m by BayernLB in return for brokering the deal and since CVC demanded an indemnity "that all the accounts were in good order because the bank would not give it."
The court believes that, in fact, this money was paid to Ecclestone to cover the bribe he paid to Gribkowsky and the reason he wanted F1 to be sold to CVC was that it would retain him as the sport's boss. The court argues that since the alleged bribe should not have been paid, the commission BayernLB paid to Ecclestone to cover it should also not have been paid and therefore the bank lost out to the tune of at least £25.9m.
When Gribkowsky was arrested in January last year all of his assets, including the £27.5m he received from Ecclestone and Bambino, were frozen by the German authorities pending the result of the trial. Now that Gribkowsky has been found guilty, the authorities are free to distribute the £27.5m which he was given. As the court ruled that Gribkowsky received a bribe and Ecclestone covered it through the commission he was paid by BayernLB, this makes it highly likely that the money will be transferred to the bank since it allegedly lost out. In contrast, if the court had ruled that Gribkowsky had been paid because he threatened Ecclestone, it may have returned the money to the F1 boss.
Paying the money to BayernLB covers the damage which the court believes was done to the bank by the commission being paid to Ecclestone. Accordingly, there seems to be no financial need to press charges against Ecclestone. If Ecclestone was charged and found guilty of paying a bribe and covering it with the commission then his money would have to be returned to BayernLB. However, as it seems likely that BayernLB will get the £27.5m from Gribkowsky then getting back the £25.9m from Ecclestone as well would give the bank around double its money back which does not seem to be necessary.
So, there seems to be no financial need to press charges against Ecclestone and, in fact, it could carry significant risk. As Pitpass recently revealed, the result and evidence from the Gribkowsky trial could not simply be carried over to a case against Ecclestone - it would have to be tested from scratch.
Naturally Ecclestone is in possession of a great deal of evidence connected to the case since he made the payment to Gribkowsky and he demanded and received the payment from BayernLB. His commission was agreed by the BayernLB board and has been given a seal of approval from the accountancy firm Deloitte. By proving that his work on the deal justified his commission the case against Ecclestone falls to pieces. If he can also prove that Gribkowsky threatened him, then the banker could demand a re-trial of his case. If that succeeded then BayernLB could be forced to repay the £27.5m to Gribkowsky and the court would end up with egg on its face so there a lot is at stake by pressing charges against Ecclestone.
In contrast, to Gribkowsky Ecclestone has extremely deep pockets and if charges are brought against him, the ensuing case could be extremely expensive for the court. This is a further reason why it seems unlikely to proceed in addition to the lack of a financial need and the risk that the case would not succeed.
You may be wondering how on earth the German courts could reconcile not pressing charges against Ecclestone for paying a bribe after they have found someone guilty of receiving it. Surprisingly, this isn't as unusual as it may seem.
As a director of a state-owned bank Gribkowsky had the status in Germany of a public official and during their employment they are forbidden from receiving payments which are not connected to their work. So even if Gribkowsky had not been influenced by Ecclestone, the court could still say that he had received a bribe.
However, according to the Wall Street Journal, Ecclestone "neither knew, nor could he have known, that Mr. Gribkowsky was acting as a public official at the time of the dealings." One wonders why this even matters. Many public officials, such as politicians, council staff and politicians, are forbidden from receiving money from members of the public but it doesn't seem to follow that anyone who pays them has also done something wrong. For example, imagine that you are walking through the streets of a city and your wallet falls out of your jacket. If an eagle-eyed policeman notices what has happened and runs after you to give you back your wallet he may be doing something wrong by accepting £10 you offer him in thanks but it would seem totally unreasonable if you should be punished for giving the money.
The consequences for Ecclestone of the court judgement are not only restricted to the possibility of charges being pressed against him. According to the German media, the statutes of Mercedes' parent Daimler state that the company "does not tolerate the immoral or corrupt practices of its employees or its business partners." Daimler has to be careful because in 2010 it agreed to pay a total of £116m ($185m) to settle criminal and civil charges that between 1998 and 2008 it made at least £35m ($56m) in improper payments to obtain government contracts for its vehicles.
Laurenz Schmitt, a corporate lawyer for Linklaters in Munich, confirmed that "Ecclestone's bribery payments would fall under this company guideline." It gives Mercedes a neat reason to exit F1 which is something it has reportedly been considering anyway due to it being unhappy with the terms of the new contract offered to the teams for 2013 onwards. However, Ecclestone has not even been formally accused of any wrongdoing so there is no proof that Mercedes is dealing with anyone corrupt. In line with this, a Mercedes spokesperson said to Germany's Bild newspaper "we welcome the evaluation of the recent allegations in Formula One and now await the clarification of the authorities."
Ecclestone is already dealing with another consequence of the court case as he told Reuters that the Inland Revenue had written to him within the past two or three months to say they were looking into his tax affairs. "After all this, I'd have been surprised if they didn't contact me," he said, adding he would cooperate with the inquiry. It all revolves around the Bambino trust.
Bambino is based in Liechtenstein and its beneficiaries include Ecclestone's two daughters Tamara and Petra. On 6 February 1996 Ecclestone transferred his 100% stake in F1's parent, F.O.C.A. Administration, to a company called Petara which eventually became owned by Bambino. Since the trust is located offshore, no tax has been paid on the estimated £2.4bn ($3.9bn) which it has generated by selling stakes in F1 and securing loans on it. However, Ecclestone is a UK resident and pays tax in the country. Under UK law if he was found to be controlling the application of the money in the offshore trust it would be classed as being his and so tax would have to be paid on it.
Gribkowsky threatened to tell the Inland Revenue that Ecclestone controlled Bambino and although the allegation was unfounded, it would have led to years of investigations at a time when the trust had not yet been given the green light by the tax authority. Gribkowsky's very suggestion that Ecclestone was in control could have made the Inland Revenue nervous about letting the trust go ahead and the F1 boss said the tax risk of this to him "would have exceeded £2bn."
Gribkowsky was paid to prevent this from happening but now, as a result of the trial, the Inland Revenue is looking into Ecclestone's tax affairs.
The prosecutors claim that Ecclestone paid £14.2m to Gribkowsky with the remaining £13.3m coming from Bambino. The trust had just as much reason as Ecclestone to pay Gribkowsky because if the banker had carried out his threat it could have jeopardised Bambino's very existence. They also claim that the real reason Ecclestone demanded the £25.9m commission from BayernLB was to cover the money paid to Gribkowsky.
The prosecutors' theory links Ecclestone to Bambino because although they shared the payment to Gribkowsky, BayernLB only paid the commission to Ecclestone. However, in reality, Ecclestone and Bambino are completely separate and the proof that it is flawed to conclude they are linked is that, as stated earlier, the commission was authorised by the BayernLB board and the accountancy firm Deloitte also gave its seal of approval. Therefore, the commission was obviously not paid to cover the money paid by Bambino and Ecclestone.
There is no way that Deloitte would have approved the commission if Ecclestone had done nothing to justify getting it and it was simply paid to cover the money to Gribkowsky. In addition, Ecclestone is clearly wealthy enough that he didn't need to get money in because he had paid Gribkowsky. As he says "I didn't need money to cover the payment to Gribkowsky." Since he was not a party to the recent court case he didn't have an opportunity to present evidence to support his case so it makes sense that the Inland Revenue might want to contact him and get it now.
Ecclestone says that the recent events will not stop him attending the German Grand Prix next month and he adds that the German prosecutors "have not asked me anything yet." Indeed, although Gribkowsky has been found guilty he could still appeal so it remains to be seen whether this case really is on its final lap.