27/04/2014
NEWS STORY
The bribery trial of Bernie Ecclestone got underway on Thursday and although it yielded no major news, the scale of the challenge facing the Formula One boss has come to light. In a startling development, prosecutors have revealed that they believe Ecclestone was blackmailed by former banker Gerhard Gribkowsky according to an article in Forbes magazine by Christian Sylt.
The revelation is surprising because it reflects Ecclestone's defence to charges from the same prosecutors that he bribed Gribkowsky. If Ecclestone loses he could face up to ten years in prison so the latest news may initially sound like it plays right into his hands. However, it remains to be seen how significant a matter the prosecutors believe it to be. Although they believe that Gribkowsky has committed blackmail, which is of course a criminal offence, it does not appear that he has been charged for this.
First let's have a quick recap. Ecclestone has been charged with paying part of a £26.2m bribe to Gribkowsky to steer the sale of a 47.2% stake in F1 to the sport's current controlling shareholder, the private equity firm CVC.
CVC bought F1 in 2006 from Bambino, Ecclestone's family's trust, which owned 25% with the remaining 75% held by a consortium of three banks. They were JP Morgan, Lehman Brothers and state-owned German lender BayernLB which had the 47.2% stake in F1 making it the single-biggest shareholder.
Gribkowsky was the chief risk officer of BayernLB and was in charge of the sale of its F1 shares. Over the two years following the sale Bambino and Ecclestone paid Gribkowsky £26m which he did not declare to BayernLB. German prosecutors believe that it was a bribe for selling F1 to CVC as it had agreed to retain Ecclestone as the sport's boss.
In June 2012 the regional court in Munich ruled that the payment was a bribe and sentenced Gribkowsky to eight and a half years in prison for receiving it. This spurred the prosecutors to come after Ecclestone and they claim that he had good reason to bribe Gribkowsky.
When the banks were shareholders in F1 they had, at times, a turbulent relationship with Bambino and Ecclestone. In 2004 the banks sued Bambino in London's High Court and claimed that although it was a minority shareholder, it had hijacked the board of several key F1 companies. The first was Formula One Holdings (FOH) and the banks won the lawsuit over control of it. In 2005 they filed a related lawsuit against Ecclestone personally over control of Formula One Administration (FOA) which he settled soon afterwards.
The legal action from the banks was the last straw for Ecclestone according to the indictment against him in Germany. "In view of these circumstances, the Accused decided to win over the since convicted Dr. Gribkowsky by offering him the prospect of personal gain in order to end Dr. Gribkowsky's confrontational course and dispense with BayernLB as a Formula One shareholder as quickly as possible."
Ecclestone denies paying a bribe and says that Gribkowsky threatened to tell H.M. Revenue & Customs (HMRC) that he controlled Bambino if the £26m was not paid.
The reason that this is a threat is that Bambino is based in in the tax haven of Liechtenstein whereas Ecclestone is a UK taxpayer so is not allowed to control the trust. If he was found to be in control of it he would have to pay tax on the £2.4bn in its accounts which it has raised from selling stakes in F1.
Ecclestone strongly denies that he has ever controlled Bambino and in 2011 he revealed to Pitpass that Gribkowsky's threat of informing HMRC came in the "very early days when they were dealing with the trust before it was set up." HMRC was looking into the proposed structure for Bambino at the time and Ecclestone says he paid Gribkowsky because if the unfounded allegations had been reported the tax authority would have extended its investigation thereby incurring huge costs for him.
Surprisingly, although the German prosecutors do not believe that Ecclestone paid the money because he was being blackmailed about his connection to Bambino, they do believe that Gribkowsky blackmailed him about this on a previous occasion. It is fascinating that the prosecutors not only believe Gribkowsky was capable of blackmailing Ecclestone but this is something he had actually done.
The indictment acknowledges that when the banks were suing Ecclestone "Gribkowsky endeavoured to create pressure in connection with the FOA Litigation against Bambino and the Accused by repeatedly insinuating to the Accused and Bambino at the beginning of 2005 that the Accused himself and not Slavica, his wife at that time, was the so-called settlor of the Bambino Trust and was therefore effectively in charge of the trust which - if this were true - would have had negative implications for the Accused and also for the Bambino Trust in view of the tax audits underway at that time. The insinuations made by Dr. Gribkowsky constituted a nuisance for the Accused since the tax investigations could take longer in the face of such information."
It seems to be a text book example of blackmail which is defined in English law by section 21(1) of the Theft Act 1968 which states that "a person is guilty of blackmail if, with a view to gain for himself or another or with intent to cause loss to another, he makes any unwarranted demand with menaces."
The unwarranted demand and related gain in this case was getting Ecclestone to settle the lawsuit in favour of the banks which is exactly what happened. The menace in question was the pressure created by the repeated insinuations and the prosecutors acknowledge that if they had been reported to HMRC its tax investigations could have taken longer.
The indictment acknowledges that Gribkowsky's insinuations "did not however present a real threat for separate tax treatment of the Accused and the Bambino Trust on the part of the British tax authorities, since Dr. Gribkowsky and BayernLB had no specific proof of any such connection." Of course this does not diminish the threat of the tax investigations taking longer as a result of Gribkowsky's insinuations, regardless of whether there was any substance to them.
This reflects Ecclestone's defence that if Mr Gribkowsky had reported his unfounded allegations HMRC could have extended its investigation thereby incurring huge costs for him. Ecclestone agrees that there was no substance to Gribkowsky's insinuations as he denies being in charge of Bambino. He said last year that "ever since I first met Gribkowsky, from comments and insinuations he had made, it seemed that he assumed that I ran the trust which had been settled by my wife although I never said or did anything to give him that impression." Ecclestone added that Gribkowsky threatened to contact HMRC regardless and it would have had to investigate due to his status as an F1 insider.
Ironically, as Pitpass revealed last year, Gribkowsky's lawyer Daniel Amelung has already lent weight tor Ecclestone's argument. In December Amelung told the BBC "it's an open secret that Mr Ecclestone is the deciding man behind Bambino." If he has no proof for this statement then it could corroborate Ecclestone's defence that Gribkowsky was threatening to make these kind of unfounded allegations. If Amelung does have proof for his statement then it could contradict the claim in the indictment that "Dr. Gribkowsky... had no specific proof of any such connection" between Ecclestone and Bambino.
This seems to be strong evidence in favour of Ecclestone's defence but it may not be enough for him. He doesn't just have to show that Gribkowsky was blackmailing him but also that this was such a threat that he paid £26m to stop it.
It remains to be seen whether the prosecutors believe that the alleged blackmail was such a significant matter that it could have yielded £26m for Gribkowsky. They do not seem to have taken a hard line stance against it so far as they acknowledge that Ecclestone was blackmailed to settle the 2005 court case yet they do not seem to have brought charges against Gribkowsky for doing this. Given that blackmail is a criminal offence this seems strange in itself.
The stakes aren't just high for Ecclestone but for the court too. If it rules that he did not pay a bribe then it calls into question why it locked Gribkowsky up for receiving it. In turn it could raise questions over other decisions which the court has made. We are some way off that happening as the trial has only just got under way.
The next witnesses are the prosecutors' representative from the Gribkowsky trial, and Hildegard Baumler-Hosl, the public prosecutor who questioned Ecclestone and charged Gribkowsky. They are hardly house-hold names and we won't even hear from them for a while. As Pitpass recently revealed, the trial will only take place one day each week for the next few weeks which reduces the momentum. Given what is at stake it would perhaps be better if it it was over and done with a lot sooner.