22/07/2011
NEWS STORY
For the past seven months one of F1's biggest scandals has been brewing behind the scenes following the arrest in January of the sport's former chairman Gerhard Gribkowsky.
He represented German bank BayernLB which in 2005 sold a 47.2% stake in F1's parent company SLEC to current owner, private equity firm CVC. Gribkowsky was thrown into prison after German authorities discovered that his company in Austria had received £27m from businesses in Mauritius and the British Virgin Islands. Both are tax havens so it was hard to trace the money. Prosecutors claimed that Gribkowsky was paid for undervaluing BayernLB's SLEC stake and this led to rampant rumours about who paid the money. For the first time we now have a direct admission from the payer and it comes courtesy of an article in today's Telegraph by Pitpass' business editor Christian Sylt.
Gribkowsky was charged on Tuesday with breach of trust, tax evasion and having been in receipt of corrupt payments. Since then, F1 reporters from all the top UK papers have tried to get comments on this subject from F1's boss Bernie Ecclestone. The response was always the same - as the Financial Times reports today, Ecclestone said "he was unable to discuss details of the case." It is a different story with Sylt.
Ecclestone has known Sylt for around a decade and there is good reason why they are still in regular contact. Sylt and his colleague Caroline Reid are the only journalists worldwide who regularly cover the business of F1 for national media so they have in-depth knowledge of all the key financial issues in the sport. The Gribkowsky case is one of the most high profile at the moment and Sylt has been investigating it since its origins in 2005. Ecclestone didn't just open up to Sylt, he revealed his precise involvement.
On Tuesday the prosecutors claimed that Gribkowsky received £27m from someone they named as "Bernard E" and a company owned by Ecclestone's offshore Bambino family trust. Ecclestone doesn't deny it; instead he revealed to Sylt that he did indeed pay Gribkowsky. As Pitpass suggested back in April, Ecclestone says he paid Gribkowsky after the German made false allegations about his relationship with Bambino and threatened to report them to the UK tax authorities. Gribkowsky "threatened that he was going to say that I was running the trust," says Ecclestone. Flying in the face of all the theories, if this is proved to be true it would make Ecclestone a victim.
Before we get to the nitty gritty of Ecclestone's explanation of why he paid the money, it is worth considering the claims which the prosecutors' case is based on. On Tuesday they released a statement which described the £27m payment to Gribkowsky as "bribery money, whose payment was disguised through two fake consulting contracts with [companies] in Mauritius and the British Virgin Islands."
In short, it is understood that the prosecutors are still claiming that Ecclestone paid the £27m to Gribkowsky as a bribe for allegedly undervaluing BayernLB's SLEC stake. As Pitpass has pointed out in detail, it is incredibly hard to imagine that the SLEC stake was undervalued. Without going in to all the reasons again, we can recap by saying that CVC paid more than the book value BayernLB attributed to its stake, CVC offered to pay more than other bidders, CVC paid BayernLB more than it paid the other two banks which were SLEC shareholders and, finally, the consultancy firm Deloitte has reportedly concluded that the BayernLB stake was not undervalued.
Whilst Pitpass is not in a position to pass judgement, it does seem unlikely that the shares were undervalued and therefore unlikely that Ecclestone paid Gribkowsky to undervalue them. Ecclestone says he paid the money to Gribkowsky due to the threat he made. We do not know of evidence which contradicts this and, more to the point, it is hard to imagine why Ecclestone would fabricate such a story.
The prosecutors' claims don't stop there. They add that to compensate for what they claim was a bribe paid to Gribkowsky, the German agreed to pay £25.4m to Ecclestone on behalf of BayernLB, as well as £15.3m to Bambino. "These payments would not have been asked for were it not for the bribes to be paid to the accused," said prosecutors adding that BayernLB "incurred damages of almost £40.8m through the conduct of the accused."
Ecclestone disputes this and says "I never bribed anybody or paid any money to anybody in connection with the company." He explains that the payment by BayernLB to him was not to compensate for the £27m which was transferred to Gribkowsky but was in fact commission he received for arranging the sale to CVC.
"I got 5% for the sale of the company. Bayerische Landesbank approved the sale and approved the commission, which was cheap. I should have got more because for that sort of deal a bank would have charged a lot more. But they approved that, the bank approved that. There were no secrets."
Ecclestone adds that not only did he facilitate the sale to CVC but he also gave BayernLB "an indemnity for an awful lot of money that all the accounts were in good order because the bank would not give them." At the time of the sale to CVC F1 was in a state of disarray with teams threatening to leave the sport but Ecclestone says he vouched for its health and this is also why he got the payment from BayernLB.
It is believed that the money was paid to Bambino by BayernLB as a premium for it being an early seller to CVC. This gave CVC a majority stake (since BayernLB alone had below 50%) which put it in a stronger bargaining position with the two other banks which owned stakes in SLEC. This would explain a premium being paid to Bambino from the proceeds received by BayernLB.
However, if the payment to Ecclestone was, as he says, approved by BayernLB then the board of the bank would presumably be to blame if this was somehow connected to a bribe. If that is the case then why haven't other board members also been charged? Likewise, given that the payment by BayernLB to Ecclestone was made five years ago, one would have thought that the bank would have taken action over it long before now if it was indeed untoward.
So the prosecutors' claims seem hard to follow. Ecclestone's explanation of why he paid Gribkowsky is more straightforward. Ecclestone says that at the same time that F1 was being sold to CVC, the UK tax authorities were in the process of approving the creation of the Bambino trust which was established for the benefit of his family. Ecclestone says that he has "never had anything to do with the trust in any shape or form," but this didn't stop Gribkowsky claiming he was running it.
So what is this Bambino trust then? Well, it all started in 1996 when Ecclestone transferred his 100% stake in F1 to Bambino. It led to F1 being owned by SLEC which in turn was owned by Bambino. Ecclestone transferred the shares to Bambino to plan for his future. He had suffered heart problems and if he had died, his Croatian ex-wife Slavica would have had to pay tax on her inheritance because she had not yet lived in the UK long enough to be domiciled here.
"I was advised to give the shares because at the time Slavica was non-domiciled because you have to be here 18 years to be domiciled. If I had died during that period, normally a wife could inherit money without paying tax but in that case she would have had to pay tax so the easy way to deal with it was give her the shares."
Ecclestone adds that "the [Inland] Revenue obviously had to check everything. It took five years going through that. I didn't deal with it. The trust had to show it was correct." If Gribkowsky had followed through with his threat it could have derailed this process. This was in full swing in 2005 since the trust got its first windfall on 31 December 1999 when 12.5% of SLEC was sold to investment firm Morgan Grenfell.
"The taxation people in England at the time were in the middle of settling everything with the trust and the last thing you need is for them to start thinking something different," says Ecclestone adding that Gribkowsky "was shaking me down and I didn't want to take a risk. Nothing was wrong with the trust. Nothing at all."
Ecclestone does not believe that Gribkowsky blackmailed him because "he never said to me if you don't give me this I will say that." Ecclestone says that Gribkowsky asked to borrow the money from him and implied that otherwise he would link him to Bambino. Ecclestone even told his lawyers about the threat and got their advice.
Ecclestone says "what he did with me, he left me with the fact that could he do it or not." He adds that he asked his lawyers at the time "if this guy was to do that what would happen? They said, I tell you what would happen, the revenue would assess you and you would have to defend it, because you could defend it, and you would be three years in court and it would cost you a fortune. Better pay." And that is what he did.
The £27m payment to Gribkowsky only represented a tiny fraction of Ecclestone's £2.4bn estimated net worth. He says it was made through companies based in Mauritius and the British Virgin Islands 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."
A spokesman for BayernLB and Gribkowsky's legal representative declined to comment on the claims. Ecclestone says he has given all these details to the prosecutors in person and expects to be cleared of wrongdoing. Until now he had denied making the payment and says he did this because "the prosecutor had asked me not to say anything." The German court must now decide whether to open the case against Gribkowsky but it is one step closer to being resolved.