28/12/2011
NEWS STORY
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It may be Christmas but there is one story in Formula One which won't stop for the holidays and that is the case against the sport's former chairman Gerhard Gribkowsky. He is on trial in Munich for the criminal offence of allegedly receiving a £27.5m bribe from F1's boss Bernie Ecclestone and his Bambino family trust in connection with the sale of the sport to its current owner, private equity firm CVC, in 2006. He is also facing proceedings in the UK which aren't criminal and it is this which has been in the news recently.
Before even talking about the latest reports it is essential to be completely clear about both the difference between the two legal cases and the connection they share. Some media outlets have failed to explain this which is far from sensible. One of the cases is criminal, whilst the other is not, so the last thing which should be done is to confuse them.
The case in Germany is purely against Gribkowsky and he is accused of receiving £27.5m from Ecclestone and Bambino in return for agreeing to sell F1 to CVC. In addition to being F1's chairman, Gribkowsky was also chief risk officer of German bank BayernLB, which owned a 47.2% stake in F1. He was responsible for making the decision of selling the stake and the indictment against him charges him with receiving the money in return for agreeing to sell to CVC.
Prosecutors came up with a number of reasons explaining why Ecclestone would have specifically wanted CVC to buy F1 but, as Pitpass has reported, they don't seem to hold water.
The UK case claims that F1 was in fact worth far more than the total of £1.1bn ($1.7bn) which CVC paid. So because Gribkowsky allegedly received a bribe for agreeing to sell F1 to CVC the sport ended up being sold for less than it was worth. Three other parties have been accused in this case alongside Gribkowsky. They are: Ecclestone and Bambino, because they allegedly paid the money to get Gribkowsky to sell to CVC, and the trust's former lawyer Stephen Mullens, who was consulted about the payment.
The UK case has been brought by former F1 owner German media firm Constantin Medien (previously known as EM.TV) which sold its stake in the sport to BayernLB for just €8.5m in 2003. It did this on condition that when BayernLB sold the stake Constantin would get a 10% share of any proceeds above £628m ($1bn). Since BayernLB owned a 47.2% stake in F1 it received £527m ($839m) from CVC and as this was below the $1bn threshold, Constantin did not get its 10% share.
Constantin claims that it lost out because CVC paid far less than F1 was worth and since a bribe was allegedly paid to get BayernLB to sell to CVC, anyone involved with it is to blame for the loss.
Pitpass' business editor Christian Sylt has written extensively in UK newspapers about the many reasons why Constantin's case appears to have no merit, not least of which being the fact that the German courts acknowledge that CVC was the highest of many bidders. This alone seems to make a mockery of the idea that F1 was worth far more than it was sold for.
Indeed, just last month Sylt revealed that, unsurprisingly, Ecclestone has already had offers from Constantin shareholder and board member Dieter Hahn to settle the case. As Pitpass has reported, Constantin's lawyer Keith Oliver, of the firm Peters and Peters, is familiar with this strategy. A case brought against F1's parent company SLEC and Bambino in 2006 by one of Oliver's previous F1-related clients, a shadowy Swiss firm called Kamos, was also settled, though it isn't clear which side instigated that settlement. It doesn't look like that will happen this time despite any desire Hahn may have to do so.
Ecclestone told Sylt that his defence to Constantin's suit is so strong that he refuses to settle. So the case seems certain to go ahead and that's not the only certainty. The other one is that it looks like there is no chance any damages will be coming from Gribkowsky despite recent media reports seeming to indicate otherwise.
On Tuesday last week Jonathan Russell, a journalist at the Daily Telegraph, wrote that judgement has been made against Gribkowsky in the UK case and there is a very simple reason for this. Russell is a good all-round reporter but does not have a background in reporting on the complex matter of the business of F1 and that is crucial in this case.
As Russell wrote, a default judgement was made against Gribkowsky. This was made because he had not responded to the claim made against him by Constantin - in a nutshell he was in default. It's understandable that judgement has been made against Gribkowsky given that he didn't even bother to file a defence. It may seem surprising that he did this but, in reality, it is far from it.
Gribkowsky's fortune, including the £27.5m he received from Ecclestone and Bambino, has been frozen pending the result of the trial in Germany. If he loses the German case then not only will he face a jail term of many years but he will lose the money paid to him by Ecclestone and Bambino. In short, if Gribkowsky is found to have received a bribe in connection with the sale of F1 then he will most probably not have two pennies left to rub together. In fact, if he loses the case it would not at all be surprising if he declares himself bankrupt.
So if Gribkowsky loses the German case he would most probably be in a position where he doesn't have enough money to pay Constantin and accordingly it wouldn't matter to him if the company tried to get damages from him. Constantin could try to get money from Gribkowsky but if he is forced to declare himself bankrupt there would seem to be absolutely no point in it doing so.
Likewise, if Gribkowsky wins the German case and it is ruled that he did not receive a bribe from Ecclestone then Constantin's case in the UK would presumably collapse. Constantin claims it lost out financially because Ecclestone paid a bribe to Gribkowsky which led to F1 being sold to CVC. However, if it is ruled in court that a bribe was never paid then that would challenge the core of Constantin's argument. So, if Gribkowsky wins the case in Germany it seems that Constantin would stand little chance of getting money from him.
Keith Oliver has been quoted in the Telegraph saying that Constantin "will be pressing on with the determination of damages against Gribkowsky and in the continuing proceedings against Ecclestone and Mullens, and Bambino Holdings." However, it seems that the ability to get damages from Gribkowsky has been taken out of Constantin's hands by the case in Germany. Indeed, the importance of the German case to Gribkowsky explains why he didn't bother filing a defence to the UK legal action. If he wins in Germany then Constantin's case is dealt a deadly blow and if he loses, he will most probably end up with no money for Constantin to claim in damages.
Since the German case is the key to Gribkowsky's future it makes sense that he focuses all of his attention on it instead of preparing defences to a case which depends on its outcome. The same certainly doesn't apply to Ecclestone who is simply a witness in the German case and gave his testimony in court last month.
Ecclestone lodged his defence to the UK case some time before jetting off for Christmas to Gstaad in Switzerland where he owns a hotel with Marco Piccinini, former deputy president for sport at F1's governing body the FIA. To anyone in the know, the details surrounding Ecclestone's defence are not surprising but it is still easy to confuse them.
As Sylt revealed in a world exclusive in the Telegraph in July, Ecclestone says he paid Gribkowsky because he threatened to tell the Inland Revenue that he was running Bambino. Ecclestone is a UK resident but the trust is offshore so if he was found to be in control of it this could make him liable to pay tax on the £2.5bn it has made from F1. Bambino paid its share of the money to Gribkowsky to put an end to his threat and because, as Sylt reported last month in the Independent, he was doing consultancy for it.
When the default judgement against Gribkowsky was issued, Mr Justice Vos was told that although Ecclestone has admitted making the payments they do not amount to a bribe because he was subjected to a subtle "shakedown" by the banker. Russell quoted Mr Justice Vos saying in response "isn't that a bribe?" This appeared in an article entitled 'Payments by F1's Ecclestone were a bribe, judge says' which claimed in its opening line that "multi-million pound payments made by Formula 1 boss Bernie Ecclestone relating to the sale of the sport in 2005 amount to a "bribe" according to a High Court judge."
It is an open question whether Ecclestone bribed Gribkowsky to prevent him making false claims to the Inland Revenue or whether Gribkowsky blackmailed Ecclestone (something which the F1 boss denies). However, one thing that's for sure is that paying Gribkowsky to stop him making false claims to the Inland Revenue is absolutely nothing to do with the sale of the sport. This is what Mr Justice Vos was responding to so it doesn't seem to justify the claim that "payments... relating to the sale of the sport... amount to a "bribe" according to a High Court judge." That's not all.
Three days later Russell wrote a follow up article specifically about Ecclestone's defence to the UK case. It was entitled 'Bernie Ecclestone admits £27m secret payments' and the first line reported that "Formula 1 chief Bernie Ecclestone helped conceal multi-million pound payments at the heart of bribery allegations gripping English and German courts." This gives the impression that Ecclestone is only now admitting that he helped conceal the payments to Gribkowsky but, as regular readers know, this is not the case.
Back in July Sylt quoted Ecclestone in the very same newspaper revealing not only that he made the payments through offshore countries but he did this because Gribkowsky "wanted to be paid so it didn't look like it came from me and didn't look like it had come from England.".
Say what you want about Ecclestone's explanation for the payments to Gribkowsky but one thing that's hard to criticise is the fact that he has stuck to the same story. It isn't a new admission that the money was transferred through offshore countries in order to make it look like it didn't come from him. This isn't something Ecclestone has come up with as a result of the unfolding events in the UK and German cases. However, presenting it as news, without mentioning that Ecclestone said the same in July, gives the false impression that it is indeed a new development.
This of course has nothing to do with whether a judge will agree with Ecclestone's explanation. The outcome of the UK case will become much clearer when judgement is given in the German case. In a nutshell, if it is found that Gribkowsky did not receive a bribe then Constantin's claim that he was bribed to sell to CVC falls to pieces. Witnesses will be appearing in the German case until March so a decision is expected after that.
It is hard to call which direction the decision in Germany will go. Sylt says he is absolutely convinced about the validity of Ecclestone's claim that Gribkowsky was paid as a result of him threatening to make claims about his tax affairs. This isn't some new-founded support by Sylt but instead it is based on evidence stretching back seven years to when BayernLB sued Bambino about it exerting more control over F1 than it was allowed.
At the heart of the 2004 case was the question of whether Ecclestone was connected to Bambino in his position as an F1 director. The bank said he was and this meant that Bambino had too many directors. Ecclestone denied it and although the judge ruled that he had been nominated by Bambino, he added that he was not necessarily its representative.
Gribkowsky turned up the heat on Ecclestone in 2005 after the F1 boss personally ascribed himself a share in the sport's then operating company Formula One Administration (FOA). At a time when Ecclestone and Bambino were under the spotlight this was one way to prove he was acting in his own interests and not those of the trust. However, this wrested even more control from BayernLB so the bank sued Ecclestone personally and then something astonishing happened.
In March 2005 Ecclestone and Bambino caved in to BayernLB and settled out of court. The bank issued a press release saying that Bambino and Ecclestone "have demonstrated prudence in backing down on all of the points under legal dispute in terms of content." Ecclestone is not known for giving in and this was one of very few cases where he has settled a case against him personally.
Sylt says that before the 2005 settlement was announced he received a text message from a very senior manager, who was close to the dispute, and this said that Gribkowsky had what he believed to be a "silver bullet" to ensure victory in court for BayernLB. This fits perfectly with Ecclestone's comments to Sylt in the Telegraph in October this year, and reported in greater detail by Pitpass, that Gribkowsky's threats began around the time of the 2004 court case.
This explains why Sylt is absolutely certain that Ecclestone paid Gribkowsky because he threatened to make allegations connecting the F1 boss to Bambino. However, that doesn't mean to say the German court will come to this conclusion.
It has been reported that a Bambino representative has told the German court that Gribkowsky was paid even though the trust didn't look in detail into whether there was substance behind his threat. Likewise, it has been reported that the German court has heard no explanation from Bambino of why it specifically paid £19.5m with £8m coming from Ecclestone.
What may be hardest for the German court to accept is that Gribkowsky was paid despite the fact that he never made a direct threat saying he would go to the Inland Revenue if he didn't get the money. It is the lack of a direct threat which drives Ecclestone's belief that he was not blackmailed. If he had been blackmailed then it most certainly should have been a matter for the police.
The question is whether the German court will believe that £27.5m landed in Gribkowsky's account without him making any direct threat to demand it. Sylt says that over the decade that he has been reporting on the business of F1 he has not just seen this kind of thing happening before but he has noticed that it is common. As the only journalist worldwide who regularly reports on the business of F1 for national newspapers he is well-placed to come across this kind of activity. However, the German court doesn't have this background so it may simply find the explanation too hard to believe.
We are into the realm of speculation here but if the German court refuses to accept Ecclestone's explanation for the payment then it may be forced to instead conclude that its own version of events is true and the money must have been paid to get Gribkowsky to sell to CVC. If the German court were to come to this conclusion it wouldn't necessarily be bad news for Ecclestone. The German prosecutors aren't so much concerned with whether Ecclestone paid a bribe as with the damage they believe it caused BayernLB.
As Sylt reported in July, Ecclestone was paid a 5% commission (coming to £26m) on the sale to CVC because he gave guarantees which BayernLB would not provide.
In addition, £15.7m of the sale proceeds was used to repay Bambino a loan it had given to SLEC in 1998 (when the money was needed as a bonus to give to several F1 teams after they committed to racing in the sport until 2008). Together with the payment to Ecclestone, this came to £41.7m being paid out by BayernLB from the proceeds of the sale to CVC. The German prosecutors believe the reasons for the payments were contrived to cover the alleged bribe paid by Bambino and Ecclestone to Gribkowsky. Their argument seems to be strengthened by the claim that Gribkowsky told BayernLB's board that the payments to Bambino and Ecclestone were deal-breakers.
However, it would seem to be extraordinarily difficult for the court to prove that the payments to Bambino and Ecclestone were to cover a bribe to Gribkowsky. Presumably to do this the court would need evidence that this is the reason Ecclestone and Bambino requested the payments. The paperwork showing the outstanding loan stands against this theory and it has been lodged with the court. Likewise, BayernLB acknowledges it had an agreement to pay Ecclestone 5% and an external accountancy firm has validated the legitimacy of this.
So unless the court can come up with for example a witness who testifies that they heard Ecclestone or Bambino asking Gribkowsky for the payments to cover a bribe it would seem that this allegation will fall flat on its face.
If this is the case, it would mean that Ecclestone had caused BayernLB no damage so presumably the court would have little further interest in him. However, the court doesn't have to believe his explanation about why the £27.5m was paid to Gribkowsky. If it concludes that the £27.5m must have been paid to convince Gribkowsky to sell F1 to CVC the court may be able to keep the money and lock up Gribkowsky for receiving a bribe.
A judgement that Gribkowsky received a bribe to sell to CVC would of course give fuel for Constantin's UK case. Indeed, it could then be in a win-win situation as even if it lost its UK case, the German court would have the money it believes it is due a share of.
Absolutely everything in the cases in both countries turns on whether the prosecutors in Germany actually have any evidence directly proving that a bribe was paid to Gribkowsky to get him to sell to CVC. Presumably it isn't enough for the prosecutors to say that the other explanation (that the money was paid because of a subtle threat by Gribkowsky) is unbelievable. So far, the court has heard no evidence supporting this claim they need to prove. In short, this race is far from over.