Exclusive: Prosecutors claim Ecclestone paid 32m bribe to get F1 investors with motorsport knowledge

04/10/2011
NEWS STORY

It has been nine months since German banker Gerhard Gribkowsky was arrested on suspicion of receiving a 32.4m ($50m) bribe in connection with the sale in 2006 of his employer BayernLB's 47.2% stake in Formula One to current owner, private equity firm CVC. F1's boss Bernie Ecclestone was suspected from the very start as being the person who paid the money to Gribkowsky and in July he was formally accused of paying it. He later admitted to Pitpass' business editor Christian Sylt that he paid the money but strongly denied it was a bribe or that it had anything to do with the sale of the sport. It has been a long time coming but we now know the prosecutors' version of events.

Despite Ecclestone's admission, rumours and speculation abounded: some reports suggested he may have paid Gribkowsky so that he would sell to CVC because they would keep him as boss of the sport. Others suggested Ecclestone paid Gribkowsky to stop legal action which the German had brought against him in 2005. Now we finally know exactly why the prosecutors believe Gribkowsky demanded the money and it is hard to fathom… to say the least. Sylt has got hold of the Munich public prosecutor's indictment against Gribkowsky and, for the first time, here are the details.

When Gribkowsky was arrested in January the prosecutors claimed that he received 32.4m in return for not carrying out a valuation of BayernLB's F1 shares at the time of the sale to CVC. The implication of this was that Gribkowsky was paid a bribe to arrange the sale of the F1 shares on the cheap. The indictment refines the prosecutors' allegations against Gribkowsky but what has not changed is their suggestion that he received a 32.4m bribe from the sale of BayernLB's F1 shares and this money should be returned to the bank. This is precisely why Gribkowsky has been charged with receiving a bribe.

It is worth pointing out here that Ecclestone says the reason he paid Gribkowsky is that the German had threatened he would otherwise report to the British tax authority false allegations that the F1 boss' controlled his family's Bambino Trust.

The trust was set up on 2 December 1997 in Liechtenstein for the benefit of Ecclestone's children and ex-wife Slavica. She was not domiciled in the UK and so, if Ecclestone had died, she would have had to pay 40% inheritance tax on the money raised by selling the shares he owned in F1. He owned 100% of F1 and, to prevent an unfairly huge tax bill being due on his death, he transferred the shares offshore to the trust so that his wife and children owned them and did not need to inherit them if he died. Given that he had heart problems, which led to a triple bypass in 1999, this was not out of the question at the time.

The one catch was that, as a UK taxpayer, Ecclestone was not allowed any control over the offshore trust otherwise it would be declared a sham and the tax would have to be paid on the money in its account. There is no evidence that Ecclestone controlled the trust but Gribkowsky still apparently saw an opportunity to gain from it.

According to the indictment, Gribkowsky's threats came just as the British tax authority was investigating Ecclestone and his wife so it would have been the worst possible time for the German to report the allegations. Ecclestone says that even though the allegations were false, the tax authority would have still had to look into them and, given that it was already carrying out an investigation, this could have derailed the trust.

By 2005, when Gribkowsky is believed to have started making his threats to tell the tax authorities that Bambino was controlled by Ecclestone, the trust had sold 75% of F1 with only a 25% stake under its ownership. F1 was run then by a business called SLEC with 75% of it held in a company called Speed Investments, which was owned by BayernLB along with two other banks - JP Morgan and Lehman Brothers - whilst the remaining 25% was in the hands of the trust's investment vehicle Bambino Holdings. The trust had raised $3.9bn (2.4bn) so the 40% inheritance tax payment would have come to a cool $1.6bn (1bn) and it would have been completely unnecessary. Accordingly, it is easy to see why Ecclestone was advised to pay Gribkowsky and, as he told Sylt, "the difference between that and a few billion is quite a big amount."

Obviously, saying that Ecclestone paid Gribkowsky 32.4m to stop him making false allegations about his family's trust, and saying that Ecclestone bribed him in connection with the sale of F1, are two very different things. So why on earth do the prosecutors believe that Gribkowsky received a 32.4m bribe, paid by Ecclestone, in connection with the sale of the sport? Ecclestone says that even he has puzzled over this one.

"There's normally a reason for things happening. I can't find out what the reason was for me to pay him," he says. For Gribkowsky to have received a bribe he would have to have done something for which he was paid in return and although the indictment clears up what this was, it doesn't seem to make much sense.

The indictment is 16 pages but the allegation of bribery boils down to the following six points.

1. It claims that Gribkowsky (referred to as 'the suspect') "had long-term plans to leave BayernLB and build a new professional life for himself as Ecclestone's successor or as an independent consultant. That is why the suspect made at the time repeated proposals of business ideas or investment possibilities to Ecclestone. Since Ecclestone agreed with none of these proposals, the suspect tried to further his plans by making numerous insinuations during the course of 2005 regarding Ecclestone and Bambino, that Ecclestone himself, and not his wife at the time Slavica, was the Settlor of the so-called Bambino Trust and because of that he made the decisions on the trust."

2. It claims that on 9 August 2006 CVC's managing partner Donald Mackenzie was introduced to Ecclestone "and turned out to be interested in a majority share in Formula 1. CVC was already invested in Dorna, a sport management and marketing business, that is the owner of the commercial and television rights of the motorcycle world championship, and from that, had experience with motorsport. CVC was aware of the paramount importance of Ecclestone to Formula 1. Therefore, a condition of its interest was that Ecclestone would stay CEO of Formula 1 after a sale."

3. It claims that "during the course of 2005 several offers, or rather expressions of interest in the Speed shares, were received by BayernLB. However, none of these offers were regarded as being suitable, especially for reasons of price. After carrying out several audits, CVC, on the other hand, made a first written offer to BayernLB on 09.09.2005 and a second on 19.09.2005 to purchase all of BayernLB's Speed shares as well as all of Bambino's SLEC shares for a price altogether of USD1.5bn. On 14.10.2005 a further party, the investment business Bluewater LP, expressed, to the suspect and the representatives of the US banks, interest in purchasing all of the shares in Speed, though for a lower price than CVC."

4. It claims that Ecclestone "saw the opportunity here to get rid of BayernLB and the suspect as shareholders, in return to get CVC, an investor with motorsport experience who was set on continuity with Ecclestone as CEO, and at the same time, to sell Bambino's 25% stake in SLEC for his wife."

5. It claims that Gribkowsky "was aware that a sale of the shares would, at the same time, mean the end of him as an important shareholder representative and 'player' in the Formula 1 circus. In order to offset such a loss of importance, the suspect saw the possibility of putting into action his professional plans through a share sale to CVC. In the middle of October at the latest he connected his willingness to bring about an affirmative decision in the bank for a sale of the shares to CVC with the demand towards Ecclestone of USD50m, which was supposed to be couched in a 'consultancy contract'."

6. It claims that Ecclestone "continued to see no need for joint business or consultation work from the suspect. On the other hand, agreeing to the payment of the money in the form of an apparent engagement of the suspect as a consultant offered the possibility, in this case through the promised sale of the shares, of getting rid of him and at the same time, in regard to the investigations of the British tax authority, putting an end to his dangerous insinuations of connections with the Bambino Trust."

So there it is. Ecclestone, of course, has told the prosecutors that he paid Gribkowsky to prevent him talking to the British tax authority and that in itself is nothing to do with the sale of F1 - it certainly doesn't show a bribe was paid in connection with the sale of the sport. Instead, according to the prosecutors, Gribkowsky linked his willingness to convince BayernLB to sell its F1 shares to CVC "with the demand towards Ecclestone of USD50m."

In short, Gribkowsky demanded 32.4m from Ecclestone in order to sell to CVC. And why did Ecclestone pay the money? Well, of course he was happy to do so because it was a good way to pay Gribkowsky off and stop him talking to the tax authority but, as we have said, this is not a bribe connected to the sale of F1. Instead, the prosecutors believe that Ecclestone wanted to sell to CVC because it enabled him "to get rid of BayernLB and the suspect as shareholders, in return to get CVC, an investor with motorsport experience who was set on continuity with Ecclestone as CEO, and at the same time, to sell Bambino's 25% stake in SLEC for his wife."

So, let's digest this. The prosecutors are saying that Ecclestone was faced with a demand from Gribkowsky for 32.4m so he could get the green light for the sale to CVC and Ecclestone wanted to sell to CVC for three reasons: because they had motorsport experience, they would keep him as CEO and it would allow Bambino to sell its 25% stake in F1.

It first needs to be stated that any sale of all the F1 shares would have to involve Bambino's shares being sold so there seems to be nothing particular about that aspect of the sale to CVC. Indeed, as The Business newspaper reported on 4 September 2005, "six separate groups are making approaches to buy all or part of the motor-racing business." This deals with the first alleged reason why the prosecutors claim Ecclestone wanted to sell to CVC.

The second alleged reason, that CVC would keep him as CEO, also may be flawed. In an article written by Sylt in the Independent on Sunday, Ecclestone is quoted saying "I had a contract with BayernLB so they couldn't have fired me. [CVC] bought the contract so they had to take me as well." If Ecclestone had to be retained as CEO by any buyer, due to his contract with BayernLB, this would mean that there was nothing particular about that aspect of the sale to CVC either. This deals with the second alleged reason why the prosecutors claim Ecclestone wanted to sell to CVC.

It leaves just the third alleged reason: that Ecclestone wanted to sell to CVC because it enabled him to replace BayernLB with "an investor with motorsport experience." It is extremely hard to believe that Ecclestone would pay 32.4m to get investors who have motorsport experience - something which he hardly lacks himself.

Indeed, historically, Ecclestone seems to have favoured F1 investors with little or no motorsport experience such as the German media companies Kirch and EM.TV and investment firm Hellman & Friedman. The more motorsport experience the owners have, the more likely they are to interfere with Ecclestone's plans. It is for this reason that it is highly unlikely (to say the very least) that he paid 32.4m to sell to CVC because of its motorsport experience. Likewise, it may be no coincidence that CVC is not actively involved with the day-to-day management of F1 now.

The reality is that only one reason offered the kind of financial gain commensurate with a 32.4m payment. This reason is that Ecclestone paid the money to stop Gribkowsky talking to the tax authority which could have led to a loss of as much as $1.6bn (1bn) for Bambino. This reason of course is nothing to do with the sale of F1 and if it is concluded that this is why the money was paid and demanded then it blows the bribery allegation right out of the water.

It is worth pointing out that if the prosecutors really do have evidence (and there is no suggestion that they do not) to prove that Gribkowsky "connected his willingness to... a sale of the shares to CVC with the demand towards Ecclestone of USD50m," then one wonders why he has not been charged with extortion.

The indictment states that none of the other offers, except for CVC's, "were regarded as being suitable, especially for reasons of price." Accordingly, as BayernLB's representative, Gribkowsky had a duty to act in the bank's best interest and surely accept the highest offer. So Gribkowsky should have sold to CVC anyway but instead, perhaps preying on the knowledge that Ecclestone has the best interests of his family's trust at heart, he demanded 32.4m for doing so. If that is really what happened, as the prosecutors allege, it would seem to be extortion.

Then again, it seems that the indictment may not be invulnerable to criticisms of fact. For example, it says Gribkowsky claimed "that Ecclestone himself, and not his wife at the time Slavica, was the Settlor of the so-called Bambino Trust and because of that he made the decisions on the trust." As far as Sylt understands it, Ecclestone is indeed the settlor of the Bambino Trust so it would have been rather pointless for Gribkowsky to have included it amongst his allegations. More to the point, being the settlor of the trust does not mean that Ecclestone "made the decisions on the trust."

There are typically three parties to a trust - the settlor, the trustee and the beneficiary. The settlor is someone who transfers rights to and possession of his property into a trust for the benefit of other. The trustee "holds and manages the property on behalf of the beneficiaries of the trust." Then there is the beneficiary - the person who benefits from the trust.

In this case Ecclestone was the settlor of the trust since it was set up by his shares in F1 being transferred to it. Contrary to the indictment, this does not mean "that he made the decisions on the trust." That management responsibility belongs to the trustees and it is understood that Gribkowsky implied Ecclestone was a shadow-trustee which, if it had been true, would have meant that the trust was a sham due to its tax status.

So it would seem that the indictment may not be infallible and, as has already been explained, the bribery charge described in it looks to be dead in the water. Nevertheless, the prosecutors don't just allege that Ecclestone paid Gribkowsky a bribe in connection with the sale of F1, they claim that this was covered by a payment to him from BayernLB.

Ecclestone was paid 5% commission (a total of 26.8m) for arranging the sale to CVC and providing guarantees about F1 required by its new owners. "I was the only person who could have sold the company, nobody else," he says adding "they are saying that if they hadn't paid me a commission that money would have been in their hands. But if they hadn't have paid me a commission they would still have the company. It wouldn't have been sold."

A spokesman for BayernLB says "if there was a circle that Bernie paid the fee and gave it over tax havens to Gribkowsky then that's fraud and this money should go to BayernLB. If the prosecutors don't have any facts for this at the end then there can't be any damage." He adds "if Gribkowsky got money connected to this deal, which he did for BayernLB, then the money has to go to BayernLB. If the state prosecutor finds this out then there is a damage. If not then not." As explained above, the bribery charge seems to fall flat on its face so, on the basis of the indictment, it doesn't at all look like the money Gribkowsky got was connected to the deal.

The BayernLB spokesman explains that the bank's internal investigations, as well as external checks by auditors, revealed that the sale process was acceptable, "the price was in a fixed range and that was OK," and "to pay such a fee [to Ecclestone] is a normal thing in such a selling process." He adds "the fee to Ecclestone was agreed [by BayernLB] and Gribkowsky showed this to the other board members when he paid it."

That's not all. By the time that F1 was sold to CVC, Bambino was owed $25m (16.2m) to settle an outstanding loan (initially for 25.9m but 9.7m had been repaid) it had given to SLEC to pay money to four teams. Bambino was paid this money from the sale proceeds to settle the debt but, strangely, the prosecutors also claim that BayernLB should not have had to pay it. Their reason for this is that the bank would allegedly not have agreed to the loan repayment to Bambino, or Ecclestone's 5% commission payment, if it had known that Gribkowsky had received the 32.4m (with roughly half coming from Bambino). This argument seems completely absurd.

If Bambino can prove that it loaned the 25.9m to SLEC then it was entitled to that money back. It is extremely hard to see why SLEC's former majority owner BayernLB should think it is fair to not repay this money because of a different issue - the payment to Gribkowsky. This does not look like a good advertisement for the bank.

Surely what should have happened is that BayernLB should have repaid the loan to Bambino (as it did) and then take any necessary action against it/Gribkowsky over the payment to him. Surely it should never have crossed the bank's mind to refuse to repay anyone's loan purely because of a different payment that person made to someone else.

It should be noted here that BayernLB has not taken action against Bambino or Gribkowsky over this. Likewise, neither CVC nor Ecclestone has been charged with anything by the prosecutors. The F1 boss is going to Munich to give evidence in the trial against Gribkowsky next month but, after reading the indictment, it is hard to see why on earth this is necessary.

Article from Pitpass (http://www.pitpass.com):

Published: 04/10/2011
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