25/10/2012
NEWS STORY
The saga of Formula One's former chairman Gerhard Gribkowsky is turning out to be one of the longest-running scandals in the history of the sport and that is saying something. Gribkowsky was arrested in January last year on suspicion of receiving a bribe, breach of trust and tax evasion. He was charged with this in July 2011 and four months ago he was convicted by a court in Munich. At every step of the way new allegations have surfaced and although Gribkowsky's fate has been sealed, now is no exception. Reports are still emerging about the impact the case could have on F1 and its stakeholders.
The latest reports are perhaps the hardest to give credence to because, from behind the prison walls, Gribkowsky has given testimony which seems to put F1's controlling shareholder, the private equity firm CVC, in the thick of the action. One often wonders why anyone would want to use evidence from convicted criminals because by very virtue of their situation they may not be the most trustworthy of witnesses. Whilst it remains to be seen whether Gribkowsky's latest allegations hold any water, they seem to be some of the most fanciful of the case so far. Before we look at how they seem to bring CVC into the fray it is worth doing a quick recap of the twisting and turning events so far.
Gribkowsky became F1's chairman by virtue of his position as chief risk officer for German bank BayernLB which, until 2006, owned a 47.2% stake in the sport's former parent company SLEC. Gribkowsky was responsible for selling the bank's shares in F1 and in 2006 CVC paid it £527m ($839m) for them. Gribkowsky didn't tell his bosses that during the two years following the sale he personally received a total of £27.5m from F1's chief executive Bernie Ecclestone and his family's Bambino trust.
The money was paid into accounts in Austria where it was taxed at a lower rate than in it would in Germany where it should have been declared since Gribkowsky is resident there. This is why Gribkowsky was charged with tax evasion and he was also accused of breach of trust because he kept the payment secret from his bosses. However, it is the bribery charge which could have the most significant implications for F1. As Pitpass revealed last year, this charge was driven by the Munich prosecutors' belief that Gribkowsky received the money in return for him agreeing to sell to CVC which was allegedly Ecclestone's preferred choice because they wanted to retain him as F1's boss.
Ecclestone has disputed this version of events and last year revealed to Christian Sylt "I had a contract with BayernLB so they couldn't have fired me. [CVC] bought the contract so they had to take me as well." He has not denied paying the money but last year also revealed to Sylt that Bambino paid its share because Gribkowsky was doing property consultancy for the trust. Ecclestone says he paid his share of the money because Gribkowsky threatened that if this was not done he would tell the UK's tax authority that the F1 boss controlled Bambino.
There is no evidence that Ecclestone controlled Bambino, and he stresses that there was no substance behind this allegation, however he adds that he would have had to spend years in court defending it if Gribkowsky had tipped off the tax authority. At the time, the trust had not been given the green light by the UK tax authority and in the event that a court decision had gone against Ecclestone it would have been costly. Bambino has made around £2.4bn from F1 but no tax has been paid on the money as it is based in Liechtenstein. Ecclestone is a UK taxpayer so if he was found to be in control of the trust it could be declared a sham meaning that he would have to pay tax on the money which would leave him with a bill of around £1bn.
In June Gribkowsky testified in court that, after reflecting on the situation, he agreed he had been bribed. This led to his conviction for bribery but Gribkowsky's motives have been questioned because he was previously told that if he confessed his punishment would be more lenient and in the end he was sentenced to eight and a half years rather than up to 15.
To summarise, the prosecutors believed that Gribkowsky was bribed so that he would wave through the sale of F1 to CVC whereas Ecclestone says that there was no bribe as in fact he paid Gribkowsky to stop him making false allegations about his tax affairs. In the end Gribkowsky was convicted of receiving a bribe because he confessed to it. However, this confession is not proof that Ecclestone's version of events is inaccurate. Ecclestone has not been charged with any wrongdoing and was not a party in the recent trial so he has not had a chance to defend himself against Gribkowsky's confession.
It has been rumoured that Ecclestone would have to be charged with paying a bribe now that the prosecutors have convicted Gribkowsky of receiving it. However, in fact, the opposite may well be the case.
Gribkowsky's confession sealed his fate but precious little other evidence came to light in court proving that he received the money to wave through the sale to CVC. Indeed, plenty of evidence seems to contradict this theory. If the prosecutors charge Ecclestone then this evidence will have to be heard in great detail. Not only would the prosecutors have to face the full force of Ecclestone's legal might but they would also have to bear in mind that if he is found innocent of paying a bribe then it would call into question their conviction of Gribkowsky for receiving one.
Then comes the question of why they would charge Ecclestone now when they have had ample opportunity to do so earlier. Soon after the prosecutors discovered that Gribkowsky had received the money, and had not paid enough tax on it, they arrested him for fear that he would flee to a country which had no extradition treaty with Germany.
Way back then, in January 2011, the prosecutors had evidence that the money came from Ecclestone and they believed it was a bribe (initially they thought it had been paid in return for Gribkowsky undervaluing F1). So, why did the prosecutors not arrest Ecclestone with paying a bribe when they arrested Gribkowsky on suspicion of receiving one? Likewise, why did the prosecutors not charge Ecclestone with paying a bribe when they charged Gribkowsky with receiving one? And again, why did they not charge Ecclestone with paying a bribe when Gribkowsky was found guilty of receiving one? It has now been four months since Gribkowsky was found guilty so what are the prosecutors waiting for? How long do we have to wait before we realise that they aren't going to charge Ecclestone?
Clearly, Ecclestone has even more resources than Gribkowsky to be able to flee to a country which has no extradition treaty with Germany (it is well known that he will be going to several over the next few months when Grands Prix are held there). So, if the prosecutors really do think that Ecclestone paid a bribe to Gribkowsky then one could argue that it is not responsible to have left it nearly two years without charging him.
Last week Ecclestone told Sylt that the case is far from closed since "the judge is making some sort of a report on why they locked him up so we will see what it says." Although the prosecutors could still charge Ecclestone, as outlined above it seems hard to imagine that they will do this. Nevertheless, that doesn't mean to say that he won't be charged by anyone. "I don't see how it can come to an end really," Ecclestone told Sylt last week and one of the reasons for this is that the prosecutors aren't the only ones who could charge the F1 boss.
In addition to the £27.5m payment from Ecclestone and Bambino to Gribkowsky, there was another payment from BayernLB to Ecclestone. The origin of this is that in order to buy BayernLB's F1 shares CVC required an indemnity that F1's accounts were in good order and that the sport would not collapse. There was a real risk of F1 collapsing at the time that CVC invested because the teams were threatening to set up a rival series due to a pay dispute with Ecclestone. BayernLB refused to provide this indemnity so Ecclestone gave it personally. Last week, writing in the Telegraph, Sylt revealed that the indemnity required by CVC came to £62.3m ($100m) and, in return for providing it, BayernLB paid Ecclestone £25.8m ($41.4m).
"I had to indemnify CVC that all the books were straight and there was nothing wrong and it wasn't even my bloody company," says Ecclestone adding "I indemnified them for $100m and got $41.4m as a commission. When I look at it now I think what a bloody idiot I was."
However, Ecclestone now faces the possibility that he may be sued by BayernLB to return the commission it paid him. In his court testimony Gribkowsky suggested that Ecclestone did not need to be paid by BayernLB. "It was bribery and...I should have said no to his demands," he said. Gribkowsky is understood to have elaborated on this during private testimony since he was convicted and Ecclestone says he "has apparently now said they shouldn't have given me any commission for the sale. Can you believe that?" BayernLB has admitted that CVC was the highest bidder and Ecclestone adds that if he had not given his consent, "they couldn't have sold to anybody."
F1's governing body has a veto over a change in ownership of the sport and Ecclestone says that he personally recommended that they should agree to the sale to CVC. He gave this recommendation after his counterpart at Dorna, the Spanish company which runs the MotoGP motorcycle championship, gave CVC a good reference. CVC owned Dorna from 1998 to 2006 and Ecclestone says "I asked Dorna, 'what are these people like to deal with?' and they said 'all right.' If Dorna had said they are third rate people I would have never recommended the sale."
Given that Ecclestone could have prevented the sale from going ahead it seems perfectly justifiable that he got paid an amount which came to just 5% of BayernLB's proceeds. However, it has been suggested that the real reason he wanted the money from BayernLB was to cover the alleged bribe he paid and if the bank had known about the money received by Gribkowsky it would not have agreed to pay Ecclestone his commission. Ecclestone is known for being a fierce penny-pincher, which is what drives this theory, however as he told Sylt last year, he certainly didn't need BayernLB to cover the money he paid to Gribkowsky. Not only did the BayernLB board agree to paying the commission to Ecclestone but the consultancy firm Deloitte has also verified that the contract, transaction and fee were all reasonable.
Nevertheless, if Gribkowsky is prepared to testify that the commission did not need to be paid then BayernLB could use it as evidence in a case against Ecclestone to try to get the money back. The question is, under what circumstances could it be said that the money did not need to be paid? This is where Gribkowsky seems to be dragging CVC into the frame.
There is absolutely no reason to doubt Ecclestone's claim that CVC required a £62.3m indemnity in order for it to agree to buying F1. Likewise, there is no reason to doubt that BayernLB refused to provide the indemnity and so Ecclestone had to provide it himself which is why he asked the bank to pay him £25.8m in return. The upshot of this is that if CVC did not really need to ask for an indemnity then Ecclestone did not really need to be paid the commission so, as Gribkowsky puts it, he "should have said no to his demands." If what Gribkowsky is suggesting is accurate then CVC helped Ecclestone get the £25.8m commission which should not have been paid out by BayernLB.
This would put CVC right in the thick of this scandal but, as we said right at the start of this piece, you have got to wonder why anyone would want to use evidence from a convicted criminal. It seems incredibly hard to believe that CVC would not need to ask for an indemnity on a deal like this and only did so in order to help Ecclestone extract a commission from BayernLB. In fact, one would imagine that CVC would insist on getting an indemnity in this kind of deal which makes Gribkowsky's claim seem even harder to believe.
The icing on the cake is that last year law firm Freshfields and accountants Ernst & Young carried out an investigation into the circumstances surrounding CVC's takeover of F1. Regular Pitpass readers may remember that Sky News blogger Mark Kleinman revealed that the investigation was taking place and the channel broadcast repeated news items about it as well as trumpeting the story on its on-screen ticker. Kleinman missed out the crucial fact that both Freshfields and Ernst & Young are retained by the F1 Group. Accordingly, he concluded that F1 "faces being thrown into turmoil," by the investigation but of course this never came to pass.
In fact, Ecclestone told Sylt that Freshfields and Ernst & Young "haven't found anything" so CVC got endorsement from them too. Indeed, CVC and James Olley, its external spokesman at public relations company Brunswick Group, have always denied that the private equity firm had anything to do with any improper payments which may have been made in connection with the acquisition of F1.
So, the bottom line is that even if CVC gets dragged in to legal action based on Gribkowsky's testimony it should easily be able to shrug it off. Of course this only becomes relevant if legal action goes ahead and this doesn't look likely as Ecclestone says "Bayern have told our lawyers they don't [want to sue]. Bayern got a bloody good price for their shares."
BayernLB has an alternative method at its disposal to get back the sum of money paid to Ecclestone as a commission. This route doesn't involve suing Ecclestone so is much less controversial and is already in process.
When Gribkowsky was charged, the court froze his assets including the £27.5m which, by his own admission, was the proceed of a crime. BayernLB now has control of the money and a spokesman for the bank says "we are in talks with Gribkowsky and he cooperates with BayernLB and tries to help to get the money and repair the damage." Gribkowsky's fortune is believed to come to £24.3m and includes expensive watches, 900 bottles of vintage wine and property such as a £4.9m villa in Munich.
However, the spokesman explains that "one part of the value from Gribkowsky's assets goes to the tax authority so I don't think that we can get the whole." He adds that if it could be proved that the commission paid to Ecclestone was unnecessary BayernLB could take legal action against him to try to recover the full amount. Nevertheless, he stresses that this depends on whether the prosecutors decide to sue him.
The spokesman confirms that BayernLB has made a formal request to see the records of Gribkowsky's private testimony but since Ecclestone's lawyers have filed an appeal about this "another court has to decide if we can see the documents."
"Firstly we have to get the documents then we have to check the contents. Then the second step is perhaps to sue Ecclestone but let's look at what the prosecutors do...We are not under pressure and in my view the first step has to do with the prosecutors, the first legal act against Ecclestone. We can follow the prosecutors."
So, as ever, Ecclestone appears to be right and there is still no end in sight to this sorry saga.