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Formula One fiasco

October 26, 2011

Former BayernLB bank executive Gerhard Gribkowsky is on trial for allegedly accepting a bribe from Formula One boss Bernie Ecclestone. Prosecutors say he approved a deal that lost the bank tens of millions of euros.

Gerhard Gribkowsky
Gribkowsky is on trial for corruption, breach of trust and tax fraudImage: picture alliance/dpa

Gerhard Gribkowsky, a former member of the management board of state-owned bank BayernLB, has been in jail since January, when he was arrested for allegedly accepting $44 million (31.6 million euros) from Bernie Ecclestone, president and CEO of Formula One Management, to facilitate a massive sale of shares.

While Ecclestone's part in the deal is still under investigation by police, Gribkowsky's trial began on Monday, with his attorneys mounting a vehement defense for the former Chief Risk Officer of BayernLB. They claim the payment was a reasonable sum to pay for Gribkowsky's advisory role given the amount of money at stake in the Formula One motor racing series.

"It's a completely different world," said Rainer Brüssow, Gribkowsky's defense attorney, as the trial got underway.

Bernie Ecclestone
Ecclestone paid Gribkowsky $44 million for 'advice'Image: AP

Very expensive advice

Tom Cannon, sports finance expert and professor at the University of Liverpool Management School, says the world of Formula One does indeed seem very alien.

"The 'advisory fee' defense makes sense on one level, because the financing of Formula One is so opaque that almost any claim of this kind could be made by the defense, without any way of substantiating it," he told Deutsche Welle. "It is the norm in the sport, and given the global nature of the sport, it won't just be in Germany that concerns are expressed about it."

"You have an awful lot of public, or quasi-public money going into Formula One-related developments," Cannon added. "Very few states would condone a culture of bribery, to use the word the German authorities are using. If this is normal then I think an awful lot of people will want to look at it."

After the bankruptcy of media mogul Leo Kirch in 2002, BayernLB received his shares in Formula One, which it had funded, and put Gribkowsky on the F1 board.

According to German state prosecutors, Ecclestone then paid the bank manager the eight-figure sum through a bogus adviser's contract in 2005, so that he would facilitate the sale of the shares to his preferred investor. BayernLB says this surreptitious deal meant it missed out on a higher offer and lost $66.5 million.

BayernLB logo and building
BayernLB needed a hefty bailout to survive the 2008 subprime fiascoImage: AP

Cannon said the case is being closely watched by the Formula One scene: "I'm sure that it won't just be academics like me interested in the financing, but I think an awful lot of the teams will be interested too."

Consequences for Ecclestone

The state charges Gribkowsky with breach of trust, corruption and tax fraud, but the world is waiting to see whether Ecclestone will face charges too.

"BayernLB's ownership of the Formula One shares, as well as of various banks, was a thorn in Ecclestone's eye from the beginning," said prosecution lawyer Martin Bauer.

"At the moment a lot of the accusations center on Ecclestone's relationship with Gribkowsky," Cannon said. "If Gribkowsky is found guilty, there will inevitably be the implication that the accusations against Ecclestone have substance."

In a fraught opening exchange on Monday, Brüssow accused the investigators of envy, and of failing to mention key witnesses.

Brüssow added that the case against his client was "not sustainable and would collapse." He argued that Gribkowsky's actions had secured a good deal for the bank, which sold the shares for $839 million to CVC Capital Partners at a time when the value of the assets was threatened by a possible breakaway by F1 teams. "The fact is, our client defused a bomb," he said.

Formula One race
Formula One has grown into a huge business that often uses public moneyImage: AP

Loyalties divided on both sides

Gribkowsky began his banking career at Deutsche Bank before moving to the BayernLB management board in 2003. The bank sacked him in 2008, and is demanding damages from him not only in this case, but also for another loss-making deal from 2007.

The trial is set to stretch well into next year, with 40 witnesses being called over 20 days. "We are expecting the case against the defendant to succeed," a spokeswoman for the state said before the trial began.

Brüssow also claimed that the trial should be dropped because prosecutors represented the state of Bavaria, which owns BayernLB, and were therefore not impartial. But that is exactly the claim that could be made against Gribkowsky, even if the money he received from Ecclestone was a fee, and not a bribe.

"$44 million is an awful lot of money. The only way that the banker can justify his position would be to show an enormous amount of input, or a tremendous amount of influence," Cannon said. "The input is what you are looking at if it was an advisory role, and so you'd be asking, 'Is that amount of money justified by the time or the quality?'"

But equally important is Gribkowsky's relationship with BayernLB. He was not working as a free agent, but was working for the bank. "You've got at least divided loyalties, if not conflict of interest, there," said Cannon.

Gribkowsky, 53 faces a long jail-term if convicted.

Author: Ben Knight
Editor: Sam Edmonds

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