The trial against Formula One's former chairman Gerhard Gribkowsky is in full swing in Munich. Gribkowsky has been charged with receiving a $44m bribe in return for agreeing to sell the 47.2% stake in F1 owned by his former employer, German bank BayernLB, to current owner, private equity firm CVC, in 2006.
So far the witnesses have not said much new and have consisted of German bankers. They have taken up so much time that the appearance of a key witness who, as Pitpass reported, was due to give evidence this week, has been postponed until December. Tomorrow, another banker, BayernLB's former chairman Werner Schmidt will give evidence so we are in for more of the same. That doesn't mean to say there is no real news out there about the case though and an article in today's Telegraph by Pitpass' business editor Christian Sylt is testimony to this.
By now Pitpass readers will be familiar with the fact that F1's boss Bernie Ecclestone has admitted to paying Gribkowsky but says he did so after the banker threatened that he would make unfounded allegations to the UK tax authority that he controlled his family trust Babino. However, whilst this has been reported by media worldwide since Sylt broke the news in July, what has never come out is when these threats are believed to have begun.
According to the report in the Telegraph, the threats allegedly stretch back to 2004 when Gribkowsky spearheaded a lawsuit by BayernLB against Bambino. The lawsuit was launched because the bank claimed it controlled a key F1 holding company by having more than its agreed allotment of board directors, including Ecclestone.
Although the bank won, Ecclestone was not found to be a Bambino representative. He says that, despite this, after the case, Gribkowsky "said to me 'I could have gone much farther and deeper but I didn't and, you know, I wondered if it ever happened again what would I say.'"
He adds that Gribkowsky later threatened to tell the UK's tax authority that he was running Bambino. However, Ecclestone does not believe he was blackmailed because he says he was happy to pay Gribkowsky and the banker never directly said he would contact the tax authority if he was not paid. "He left me with the fact that could he do it or not," he says.
Ecclestone and Bambino paid Gribkowsky and it has ultimately led to the court case currently taking place in Munich. It shouldn't be too much of a surprise then that Ecclestone says his worst mistake was transferring his shares in F1 to set up the trust for his wife and children in the first place. However, in fact, Ecclestone's reason for saying that this was a mistake is nothing to do with the court case.
The trust was set up in Liechtenstein on 2 December 1997 and, at the time, Ecclestone was married to Slavica, a Croatian who is 28 years younger than him. Slavica had not lived in the UK for long enough to be domiciled there so if Ecclestone had died she would have had to pay 40% inheritance tax on money received from him. Transferring the shares to the trust swerved around this because it meant that his wife and children did not need to inherit from him. Since the trust is based offshore no tax had to be paid on the money in it.
Ecclestone turned 81 on Friday and during the late 1990s he suffered from heart problems which led to him having a triple bypass in 1999. This was the driving force behind Bambino's creation.
Ecclestone says he "was advised to give the shares because at the time Slavica was non-domiciled. You have to be here 18 years to be domiciled. Normally a wife could inherit money without paying tax but if I had died during that period she would have had to pay tax so the easy way to deal with it was give her the shares."
The money and assets in the trust are controlled by trustees and since Ecclestone is a UK taxpayer he was not allowed to be one of them. If he was found to be in control of the trust it would be declared a sham and tax would have to be paid on it. "I can not even speak to the trust. I was told quite clearly if you speak to the trust it's bad news for you revenue wise," he says.
The reason for this lies in a clause in the UK's Income and Corporation Taxes Act 1988, which has since been carried over to the Income Tax Act 2007. It states that if a UK resident transfers assets to a non-domicile and income becomes payable to the non-domicile, the transferor must not at any time have "the power to enjoy" that income otherwise it will be deemed to have been his own.
Ecclestone says "out of all the mistakes I have made in this world probably the worst was giving everything to my ex that she put in trust because the trustees are not business people so they sit on a pile of money. They could have bought lots of things cheap at the time. They bought nothing. That's the thing that really always upset me about the mistakes you make in life because I could have invested it."
He adds that he "never had control of Bambino," and although Gribkowsky was aware of this he allegedly tried to gain from the situation. If Gribkowsky had contacted the UK tax authority it could have had a huge impact since, according to the indictment against the banker, Ecclestone was already the subject of a tax investigation at the time.
"All he needed to do was to write a letter to the revenue in England saying he believed that this trust is a sham because Mr Ecclestone controls it all. That's all he had to do." Ecclestone adds that Gribkowsky asked for a loan so he could leave BayernLB and the F1 boss paid it in order to stop him from carrying out his threat.