08/09/2013
NEWS STORY
At the moment three key legal cases involving Bernie Ecclestone are in progress and one of the consequences of this is that arguments in some can be used in others. They can of course be used both in defence or opposition depending on the situation. As none of the cases has yet gone to trial this process has yet to begin in earnest but the filing of key documents gives an insight into what could be in store.
The best place to start is with a brief overview of the three cases. The first and most widely-reported is in Germany where Ecclestone has been charged with paying a bribe to former banker Gerhard Gribkowsky. German prosecutors believe that Ecclestone and his family trust paid $44m to Gribkowsky so that he would agree to sell a 47.2% stake in F1 to the sport's current owner, the private equity firm CVC. The stake was owned by German bank BayernLB and although it employed Gribkowsky he didn't tell his bosses that he had received the $44m.
What BayernLB did know was that under the terms of the deal, Ecclestone received 5% of the sale proceeds as a commission. As Pitpass' business editor Christian Sylt has revealed, BayernLB agreed to give this 5% to Ecclestone in return for him providing a personal guarantee of $100m that F1 would not collapse. F1 was sold to CVC in 2006 and at that time there was a risk that the car manufacturers involved with the sport would leave due to a pay dispute. CVC asked for the guarantee and BayernLB refused to provide it which is why Ecclestone stepped in. The 5% came to $41m and the German prosecutors believe that this money was used to cover Eccletone's share of the alleged bribe to Gribkowsky.
The prosecutors claim that Ecclestone wanted to ensure that F1 was sold to CVC because it had agreed to retain him as the boss of the sport. He denies this and in July 2011 revealed to Sylt that Gribkowsky threatened to make false allegations about his tax affairs if the money was not paid. In June 2012 Gribkowsky was sentenced to eight and a half years in prison for receiving the alleged bribe and in May this year the prosecutors charged Ecclestone with paying it. A German judge will soon decide whether to bring the case against him to trial.
The second legal case which was put in motion is based on some of the claims which came to light during the German investigation into Gribkowsky. Unlike the criminal charges against Ecclestone in Germany, this is a civil case in the UK and the lawsuit against him has been filed by media company Constantin Medien. It had an agreement with BayernLB that it would get a share of the money if the bank's F1 stake was sold for more than $1bn. However, in the end, BayernLB got $814m from the sale to CVC so Constantin Medien did not get a share of the money.
In its lawsuit, Constantin claims that if Ecclestone had not bribed Gribkowsky to sell BayernLB's stake in F1 to CVC it "would have been sold to CVC or another purchaser for full value in or about January 2006. Alternatively, if the BayernLB Holding had not been sold in or about January 2006, it would have been sold for at least $2.8 billion prior to 1 January 2008." Constantin gives no evidence that there was a bidder which would have made an offer of $2.8bn and had the money in place to do so. In fact, although there were multiple bidders, none of them made an offer which was higher than the amount paid by CVC. Nevertheless, the lawsuit claims that if BayernLB's stake had been sold for $2.8bn "Constantin would have received at least $171 million" and this is the amount it is claiming in damages.
The third case is going ahead in the New York Supreme Court and has been brought by investment firm Bluewaters against BayernLB, CVC, Ecclestone and Gribkowsky amongst others. Bluewaters was one of the other bidders for F1 and its offer came to $1bn, which was less than the amount paid by CVC. However, its lawsuit claims that Bluewaters sent a letter to Gribkowsky stating that it was "prepared to pay 10 percent... above any genuine bona-fide offer put forward by any other accredited buyer." Bluewaters claims that its offer was ignored by Gribkowsky because he had been bribed by Ecclestone to sell to CVC. It then makes the leap that CVC's profits from F1 therefore "rightfully belong to Bluewaters and its financial backers." This is the basis for its claim of $650m in damages.
Bluewaters is suing Ecclestone for paying the alleged bribe, Gribkowsky for receiving it, CVC because it provided the money which was used and BayernLB for allegedly knowing about the bribe. This case has not yet come to trial either but there have already been several hearings about it in New York. One of the judge's key concerns is a point which has been used by several of the defendants to explain why the case should not go ahead. In a nutshell, it concerns the question of why the case should be heard in New York when the alleged bribe took place in Europe where both Ecclestone and Gribkowsky are based.
In a nutshell, Bluewaters claims that the case should be heard in New York because the alleged bribe was paid in Dollars and the vast majority of payments in that currency have to go through banks in the Big Apple. On 17 July this year Bluewaters' legal representative Kent Yalowitz said in court that "the clearing house interbank payment system network handles 95 percent of the international transfers made in dollars transferring an average of $750 billion dollars per day, 95 percent of the international transfers. These funds are transferred through participating banks located in New York."
The $44m was paid to Gribkowsky by bank transfer rather than cash so it would be incredibly difficult to prove that this money specifically went through banks in New York. Bluewaters' argument is that it is highly likely that the $44m went through New York because 95% of international Dollar transactions do. It argues that the case should therefore go ahead in New York. BayernLB disagrees that the case should go ahead in New York and said in its defence that "this litigation is more suited for Europe."
However, it seems that a very similar argument to the one which could land BayernLB in court in New York is being used over in the German case to ultimately benefit the bank.
The indictment against Ecclestone in Germany states that "the payments to Dr. Gribkowsky were financed largely out of the commission of USD 41 million already paid to the Accused and consequently by BayernLB, without its decision-making bodies being aware of this due to misrepresentation of the facts on the part of Dr. Gribkowsky." In summary, the German prosecutors' claim is that the $41m commission paid by BayernLB to Ecclestone was used to pay the alleged bribe to Gribkowsky meaning that the bank is due this money in damages since it was used for an illegal purpose.
Just as it would be incredibly difficult to prove whether the money received by Gribkowsky specifically went through New York, it would be incredibly difficult to prove that the $41m received by Ecclestone was the same money which was used to finance his share of the $44m alleged bribe. The prosecutors allege that it is incredibly likely that the same money was used and, likewise, Bluewaters claims it is incredibly likely that the payment to Gribkowsky went through New York because it was paid in Dollars. Let's look at this in some more detail.
Ecclestone received $41m from BayernLB and this money landed in his bank account along with the other millions (or even billions) which were already in there. So how could the German prosecutors prove their allegation that this specific $41m was later paid by Ecclestone to Gribkowsky?
If the payment had been made in cash the serial numbers on the banknotes could be used to prove that the same money received by Ecclestone from BayernLB was then paid to Gribkowsky. However, the money was paid to Gribkowsky by bank transfer so it rules that out.
Another possibility would be if Ecclestone had no other money in his bank account as it would therefore have to be the same amount which was then paid to Gribkowky. This of course doesn't apply to Ecclestone and, as he told Sylt in July 2011 " I had enough money to pay Gribkowsky. I didn't need any money from BayernLB. One thing's got nothing to do with the other."
So what other proof could there be to show that money landing in someone's bank account was later used to pay someone else? Well, you couldn't get much better than a verbal or written record stating that the money from BayernLB was being used to finance the payment to Gribkowsky. Good as it would be for the prosecutors, there is certainly no evidence that any such thing exists. The evidence seems to be contributory such as dates when the payments were made and testimony from the Gribkowsky who could be considered to be unreliable as he is in prison.
If contributory evidence is relied on then, theoretically, BayernLB could end up being awarded the $41m in damages. However, if the judge in the United States also relies on the supporting evidence that the payment to Gribkowsky must have gone through New York then BayernLB could theoretically end up on trial there.
Proving that money landing in a bank account is later used for a specific purpose is incredibly difficult at the best of times. It requires rock solid evidence and if the prosecutors in Germany don't have that then where does it leave us?
Showing that the commission was used to fund the alleged bribe gives proof of damage incurred by BayernLB which is useful for the prosecutors. However, if the connection between the two payments cannot be proven then the conclusion is that the payments between Ecclestone and Gribkowsky and BayernLB and Ecclestone are separate. The prosecutors could still say that Ecclestone's payment to Gribkowsky was a bribe but how could they prove that any damage had been done as a result?
The prosecutors could try to claim that BayernLB's F1 stake had been undervalued as a result of being sold to CVC rather than another bidder which may have paid more. However, that seems speculative at the very best. This is because no other bidder offered a higher amount than CVC and there seems to be no evidence that Bluewaters had enough finance to fund a bid which was 10% higher than that from CVC.
Indeed, the German court has already heard a wealth of evidence indicating that BayernLB's F1 stake was not undervalued at all. During Gribkowsky's trial Kurt Faltlhauser, who headed BayernLB's administrative board from July 2002 until July 2005, said "the price we were offered by CVC was surprisingly high and it came as a great relief." Former BayernLB management board member Dieter Burgmer added that "BayernLB's management board regarded the net proceeds from the sale of the Formula One stake to CVC as very attractive." Reflecting this, BayernLB announced a valuation yield of €328m in its 2006 results and stated that the sale of the F1 shares "decisively contributed to the positive result."
That still leaves us with the question of what damage would have been done if the German prosecutors' conclusion is that Ecclestone's payment to Gribkowsky and BayernLB's payment to Ecclestone were completely separate. There is no doubt that Gribkowsky should have told his bosses at BayernLB that he was receiving $44m but this is a problem for him not Ecclestone.
The German prosecutors claim that because BayernLB is state-owned Ecclestone bribed a public official by paying Gribkowsky and this is a crime in its own right. If this could be proven then it would perhaps not matter whether any connection can be shown with the payment Ecclestone received from BayernLB. However, proving for certain that Ecclestone knew Gribkowsky was a public official could be the hardest task of all.
There is no indication that any verbal or written records prove this which leaves us with hearsay. Standing against that is the common-sense view that Gribkowsky was first and foremost a banker and also, by virtue of BayernLB's shareholding, a director of F1. Accordingly, it seems more likely that he will have been treated in these capacities rather than as a public official. Not only that but how could it be demonstrated that Ecclestone was aware that under German law, Gribkowsky was a public official through being a director of a state-owned bank?
To wrap this up, we can say that one of the most crucial but so-far overlooked points in the cases against Ecclestone could well be whether it is possible to prove that "the payments to Dr. Gribkowsky were financed largely out of the commission of USD 41 million." If the German court relies on contributory evidence to demonstrate this then it may spur Bluewaters to point out to the judge in the US that the same method should be used to demonstrate that the $41m paid to Gribkowsky went through New York. That could lead to BayernLB ending up on trial in New York so it makes one wonder whether the bank agrees with prosecutors on the point of whether "the payments to Dr. Gribkowsky were financed largely out of the commission of USD 41 million."
As we said at the outset of this piece, this is just a taster of how arguments in one case can be used in another or even to start a new one. In fact, Pitpass understands that if the Constantin Medien case goes to trial the consequences could be even more spectacular.