27/01/2014
NEWS STORY
Bernie Ecclestone has revealed he could be subject to a demand for hundreds of millions of Pounds from H.M. Revenue & Customs as a result of lawsuits against him according to an article in the Daily Telegraph by Christian Sylt.
There aren't many times that this kind of a situation would be useful but right now it is independent proof of a point which Ecclestone has been making for a long time. Before explaining how this is possible, let's start with a quick recap of his legal situation.
In April Ecclestone is due to be put on trial in Munich for allegedly paying a $44m bribe with his Bambino family trust to Gerhard Gribkowsky, former chief risk officer of German bank BayernLB. Prosecutors believe that the money was paid so that Gribkowsky would steer the sale of BayernLB's 47.2% stake in F1 to the private equity firm CVC. It bought F1 in 2006 and had agreed to retain Ecclestone as boss of the sport which is why the prosecutors believe that it was his preferred buyer.
Ecclestone denies paying a bribe and claims that Gribkowsky threatened he would tell HMRC that he controlled Bambino if the $44m was not paid. Bambino is based offshore but Ecclestone is a UK resident so he would be liable to pay tax on the billions in the trust if he was found to be in control of it which he strongly denies.
He says that Bambino's former lawyer Stephen Mullens suggested paying the $44m to Gribkowsky, even though his threat was unfounded, because if it had been followed through it could have triggered a costly investigation. If there had been an investigation, the onus would have been on Ecclestone to provide evidence that he was not in control. This would have raised the barrier as proving a negative (that something did not happen) is always harder to do than proving that something did happen.
In a nutshell, the argument against Ecclestone is that he bribed Gribkowsky to sell F1 to CVC. Ecclestone's defence is that he paid Gribkowsky to stop him making unfounded claims to HMRC as this could have proved to be very costly for him.
Ecclestone's defence is of course in the public domain now and has been since Pitpass <b>revealed</b> it in July 2011. Last year he even <b>revealed</b> to Pitpass the specific details of Gribkowsky's threat which he says centred on the Paul Ricard circuit in France. The track is owned by Bambino but Ecclestone says Gribkowsky accused him of being in control of it and insinuated that he could tell this to HMRC.
Ecclestone repeated this explanation in London's High Court in November last year so it is no secret. It is therefore no surprise that HMRC has heard about these allegations now and if they could really have been as troublesome as Ecclestone says, you would expect that something would have come of them. In fact, this is precisely what has happened.
"Stephen said you need to get rid of this bloody guy because if he had written a letter and said Ecclestone runs the thing, which I didn't and don't, they would have had to assess me which is what they might do now," says Ecclestone adding "Then you have got the problem of proving a negative. They could still come after me now. It is 100% a real risk." He isn't exaggerating as the prospectus for the stalled flotation of F1 reveals that HMRC is already investigating Ecclestone to see if his tax payments have been sufficient.
It states that "Mr Ecclestone was notified in March 2012 that HMRC in the UK is currently investigating his tax affairs focusing primarily on his connections directly and indirectly to offshore trusts. HMRC has informed Mr Ecclestone that the investigation is being conducted in accordance with Code of Practice 8. This is applied in cases where there is no suspicion of tax evasion, but instead HMRC wishes to investigate if any tax planning undertaken by a taxpayer is effective to achieve its intended effect. The purpose of the investigation is to identify if there are any amounts of underpaid tax."
HMRC's investigation now is not likely to have as much impact as it would have done had Gribkowsky followed through with his alleged threat in 2006. This is because at that time HMRC had not yet given the all-clear to the structure of Bambino as it has now. It makes it much less likely that HMRC would have any success despite the onus still being on Ecclestone to prove a negative.
Nevertheless, this won't necessarily stop HMRC from trying and Ecclestone says that the focus on his financial affairs in the court cases could spark a demand from them. "It is logic. They will see money. They will see the fact that if they do have a go at me I have got the money to pay if they can prove something. Imagine if they could prove that I run the trust it would be fantastic for them."
In November Ecclestone spent four days giving evidence in the High Court after he was sued by German media rights firm Constantin Medien. It is demanding $140.4m in damages and judgement is due over the coming weeks. Constantin claims that Ecclestone conspired to undervalue F1 because if it had not been sold to CVC a higher bidder would have bought it.
One potential buyer was American investment fund Bluewaters. It said that the cover letter of its offer stated it would pay 10% more than CVC and it sued Ecclestone in the New York Supreme Court for $650m in damages. However, as Pitpass <b>revealed</b> last week, its case was dismissed last week and Eileen Bransten, Justice of the Supreme Court ruled that "no party has submitted a copy of this alleged cover letter."
As Pitpass pointed out, this is a potentially crucial development as Bluewaters is the only bidder which has claimed that it offered more than CVC. If its claim can not be validated then that leaves CVC as the highest bidder. If this is the case then it raises the question of how Constantin could have lost out through the sale to CVC.
BayernLB is understood to be considering suing Ecclestone for undervaluing its F1 stake through the sale to CVC but if there is no proof of any higher bidders this too could face a serious obstacle. Likewise, although the bribery case against Ecclestone in Germany is not directly connected to the sale price, in order to prove that the payment of $44m was a bribe, the prosecutors need to demonstrate that Gribkowsky breached his duties by agreeing to sell to CVC. If he rejected a higher bidder, such as Bluewaters, that could help the prosecutors' case but if they can't prove that it offered more then it is hard to see how that argument holds water.
Like the news about the HMRC investigation, the verdict in the Bluewaters case has consequences which could affect the outcome of the cases in the UK and Germany. It is only when looking at the bigger picture that you get an idea of what is really going on.
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