23/09/2013
NEWS STORY
For almost three years Pitpass has been saying that there is no substance behind the bribery charges against Bernie Ecclestone. It looks like we now have proof.
Prosecutors in Germany claim that Ecclestone - seen here in the Singapore paddock - and his offshore Bambino family trust paid £27.5m ($44m) to German banker Gerhard Gribkowsky so that he would sell F1 in 2006 to current owner the investment firm CVC. Gribkowsky was in charge of the sale of a 47.2% stake in F1 owned by German bank BayernLB and prosecutors believe that CVC was Ecclestone's preferred buyer as it had agreed to retain him as chief executive of the sport.
In July 2011 Ecclestone revealed to Pitpass' business editor Christian Sylt that he did indeed pay his share of the money, which came to £13.9m ($22.3m), but it wasn't a bribe. Ecclestone said that Gribkowsky had threatened to tell the UK's tax authorities that he controlled Bambino if the money was not paid. As Ecclestone is a UK resident he would be liable to pay tax on the estimated £2.5bn ($4bn) in the trust if he was found to be in control of it which he strongly denies. He says he paid Gribkowsky because his false allegations would have triggered a lengthy and costly investigation.
Crucially, Ecclestone stressed that the payment was not made in connection with the sale of F1. It is a crucial point but a fine one which is easily misunderstood by those not familiar with the business of F1 as demonstrated by a recent article in the Financial Times. It stated that "the F1 chief said he had given the former banker $23m in connection with the sale by BayernLB, the Bavarian bank, of its F1 stake to CVC but he had done so because he was being "shaken down" by the former banker."
Earlier this year Ecclestone even revealed the details of the threat Gribkowsky allegedly made. Ecclestone said it centred on Paul Ricard, the French circuit which is owned by Bambino and was renovated under his supervision – a process which could come across as him being in control of the trust's funds even though he says that was not the case.
Gribkowsky was found guilty last year of receiving the alleged bribe and when he was on trial in November 2011 Ecclestone appeared as a witness confirming the details that Sylt had reported. He explained why the money was paid, which was at the heart of the matter at hand, and he responded to questions from the judge about this. However, Ecclestone didn't discuss the reasons why the payment could not have been a bribe. There was no reason to do this because Ecclestone was not the one on trial.
However, things changed on 10 May this year when the German prosecutors charged Ecclestone with paying the alleged bribe. As Pitpass has explained, a judge will now decide whether to bring the case to trial and key to this decision is evidence from Ecclestone's lawyer about why the payment could not have been a bribe. The evidence was delivered to the court earlier this month and we discovered on Friday that the prosecutors have decided to delay until next year a decision on whether to bring Ecclestone to trial. What evidence in Ecclestone's defence could have possibly brought them to this conclusion?
An insight into Ecclestone's defence comes from an article written by Sylt in the Sunday Telegraph. It is based on an interview with Max Mosley, former president of the FIA. He reveals that Ecclestone's position as Formula One's boss was protected and the consequence of this is seismic. In a nutshell it shows that it is nonsense to conclude that Ecclestone paid a bribe to ensure that he stayed in his job.
Mosley concurs and says that Ecclestone would not have needed to pay a bribe to ensure that he stayed in his job because he knew that if F1 had been sold to an owner which wanted to remove him, the deal would have been blocked by the FIA.
F1's commercial rights are granted to it by the FIA and the contracts give the governing body a veto over a change of control of the sport's operating company Formula One Management (FOM) and a change of its chief executive. This is revealed on page 26 of the prospectus for the stalled flotation of F1 on the Singapore stock exchange. Pitpass can reveal (right) the relevant section which states that "our rights... can be terminated by the FIA if we... undergo an unpermitted change of control."
The FIA's veto was originally inserted into a contract known as the 'Formula One Agreement' between the FIA and Ecclestone's private company F.O.C.A. Administration which has since changed its name to Formula One Management (FOM). The agreement was dated 19 December 1995, took full effect on 1 January 1997 and was effective until 2010. Under this agreement the FIA granted to FOM all of the commercial rights to F1 including the right to allow television stations to broadcast the sport and to allow countries to host races.
This agreement was replaced by a longer contract with the FIA which was signed in April 2001 and grants FOM's ultimate parent company the commercial rights to the sport for 100 years from 1 January 2011 until 31 December 2110. The contracts governing this are known as the 100-Year Agreements with the overarching one being the Umbrella Agreement.
The 100 year commercial rights deal resulted the creation on 28 February 2001 of a UK company called Formula One Asset Management which directly holds the FIA's right to veto as confirmed in its accounts. The latest set are for 2011 and the relevant section, which can be viewed (left), states that "the 'B' Ordinary shares confer no right to income and no right to vote at a general meeting of the company. However, they do confer rights of veto over certain operating and financial policies."
At the time that BayernLB was selling its stake in F1 Mosley was president of the FIA and chairman of its World Motor Sport Council (WMSC) which had the power to exercise the veto. Mosley had the casting vote on the WMSC which Ecclestone himself also sat on along with 24 other motorsport managers.
"The decision would have been for the WMSC where, as everyone knows, Bernie has many friends and supporters after all these years, so he would have had strong backing quite apart from anything I might have thought. He would have been very confident he could not be removed by a new purchaser had there ever been any question of this," says Mosley.
Giving further explanation, Mosley exclusively told Pitpass that "in practice, this meant his position was protected." He added that "it would have been very difficult for a purchaser to get rid of him."
Spelling out the situation, a source explained to Sylt that the FIA has "almost a complete veto because if there were a dispute as to whether the FIA were being reasonable or not, it would have had to go to arbitration. This would have meant a delay of 12 to 18 months with no certainty of outcome. In real life, a purchaser, confronted with this would almost certainly have walked away."
It gave the FIA the final say over retaining or removing Ecclestone and Mosley says that Ecclestone was well aware that it would support him. Accordingly, this makes it nonsense to assume that he paid a bribe to achieve the same aim. But how could Ecclestone know the WMSC would support him? Well, it doesn't take a genius to answer that question because he was on the WMSC himself so it is not unreasonable to assume that he had discussed this matter with his counterparts. Indeed, it is far more unreasonable to assume that Ecclestone decided to shell out £27.5m of his own money to protect his job rather than asking the WMSC members whether they would do this for free.
Playing devil's advocate, what if Ecclestone did in fact ask the WMSC and they didn't guarantee that they would support him? Mosley is adamant that this would not have happened and there is good reason for that. He explains that the very reason the FIA inserted the veto clause into its contracts was to ensure stability when F1 was sold. "The WMSC would have wanted to keep what we knew and not go into the unknown. Also, the FIA would have got no benefit from a deal (part of the arrangement with the EU) so we had no incentive to help a purchaser," Mosley told Pitpass.
Mosley is of course talking from direct experience as he had the casting vote on the WMSC. It would be very easy to prove in court whether the remaining 24 members of the WMSC would have voted to support Ecclestone. All it would take is asking them to appear as witnesses or they could submit sworn statements which would mean that the court would not even need to waste its time. In fact, it would be no great surprise to find these sworn statements in the defence which was recently submitted by Ecclestone's lawyer. There is little doubt that written or verbal testimony from members of the WMSC would be more credible than that from Gribkowsky, who is now a convicted criminal.
Anyone who thinks that it would not be reasonable to ask the WMSC members now whether they would have vetoed a sale in 2006 then think again. These kind of sworn statements are central to the case. The best examples of them is the evidence in Gribkowsky's trial from former BayernLB managers who confirmed that they thought the sale to CVC was at a "surprisingly high" price and was "very attractive." Likewise, accountancy firm Deloitte was asked in 2011 to value the sale of F1 in 2006 (and it found that the price paid by CVC was indeed reasonable).
The conclusion is that if BayernLB had agreed to sell its stake in F1 to a buyer who did not want to keep Ecclestone then the FIA would have blocked it. The sceptics out there may say that getting the FIA to block a buyer who wanted to sack Ecclestone is not the same as getting F1 sold to a buyer who would keep him. Not so and this is another of the stunning revelations in the Telegraph article.
It reveals that, according to German court documents, even if F1 hadn't been sold, Ecclestone's position was protected through his family trust. The documents state that an agreement dated 28 August 2005 granted "a right of veto for Bambino regarding removal of the Accused from his position as CEO."
So, in summary, not only did Ecclestone know that the FIA would have blocked the sale of F1 to a buyer who wanted to remove him, but his family trust had a veto over his removal as F1's boss. And we are expected to believe that he paid £27.5m as a bribe to ensure that F1 was sold to a buyer which would not remove him. It seems very hard to believe that.
The evidence from Mosley doesn't just put one heck of a question mark over the charges against Ecclestone in Germany, it has the same effect on the related cases in the UK and US. The case in the US has been brought by investment firm Bluewaters which was bidding to buy F1 from BayernLB and claims that it agreed to pay 10% more than anyone else. It is suing Ecclestone in the New York Supreme Court as it believes that it was rebuffed by Gribkowsky as he had been bribed. Clearly, if Ecclestone didn't pay a bribe to Gribkowsky then it puts the brakes on this case.
The case in the UK has been filed against Ecclestone, Gribkowsky and others 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 £625m ($1bn). However, in the end, BayernLB got £508.7m ($814m) from the sale to CVC so Constantin Medien did not get a share of the money.
Paragraph 58 of Constantin's lawsuit states that "the unlawful conduct caused a loss to Constantin because, had it not taken place, analysis and investigations would have been conducted to ensure that the BayernLB Holding was sold only at full value." Clearly, if it can be easily proven that there was no " unlawful conduct" then this case too would collapse. Regardless, Sylt says that if the Constantin case does indeed go ahead he has seen evidence of some stunning revelations which will come out about one of the protagonists and his misadventures with the law.
Bearing all this in mind, one wonders why during his trial last year Gribkowsky claimed that he did receive a bribe from Ecclestone to sell F1 to CVC. Gribkowsky was sentenced to eight and a half years in prison and Pitpass understands that the majority of this was for tax evasion. Gribkowsky did not disclose the £27.5m payment to his bosses at BayernLB and if it had been paid into an account in Germany it could have come to their attention, particularly since it was received by a senior banker.
Instead, Gribkowsky paid the money into an account in Austria which was the source of the tax evasion charge against him. He had very little defence to this charge and around the time of his supposed admission in court it was said he thought that by pleading guilty on the count of bribery it would show contrition and reduce his sentence. It leaves the prosecutors with a convicted felon as their main witness against Ecclestone. In contrast, Mosley says that submission of the relevant contracts is sufficient to prove the points he raises.
This may all come across as being new evidence but in fact, it will sound familiar to Pitpass readers who have a good memory. That is because in 2005 and 2006, when F1 was being sold by BayernLB, all the talk was whether the FIA would give clearance to a deal. CVC's press release about its acquisition made this clear when it stated that "closing is conditional on EC merger clearance and FIA consent."
Back then you would have been laughed out of the room for suggesting that Ecclestone would bribe BayernLB to stop F1 from being sold to a buyer who wanted to sack him. It would have been pointed out that that would be like cracking a nut with a sledgehammer because the FIA would veto a deal which Ecclestone did not approve of. It would have meant that Ecclestone had paid £27.5m for something he already had for free. To Ecclestone, that is what would be criminal.