USD 100 Million to Stay on the Racing Track — Munich Court Shows That German Anti-Corruption Laws Have Teeth

August 7, 2014

This week’s landmark decision taken by the Munich regional court (Landgericht München I) in the bribery trial against Bernie Ecclestone not only marked the end of a three-year-long investigation but also delivered a new USD 100 million record settlement in an individual criminal proceeding. The trial and the settlement present themselves as excellent showcases to shed some light on the inner workings of the otherwise dry procedural aspects of German white collar matters.

I.   Background of the Case

Ecclestone’s trial began this April before the Munich regional court over allegations that he bribed the former chief risk officer (and board member) of the Bavarian State Bank (Bayern LB) in April 2006 when paying USD 44 million to ease the sale of the bank’s F1-shares to a purchaser of Ecclestone’s preference. Already in 2012, the chief risk officer of the bank, Gerhard Gribkowsky, was handed an eight-and-a-half-year prison sentence, inter alia, for accepting the money. As the bank is state-owned, Gribkowsky legally qualified as a public official, which considerably increased his sanction.

II.   Specifics of the USD 100 Million Settlement

The stunning amount of USD 100 million is payable by Mr. Ecclestone within seven days to meet the conditions for the preliminary resolution of the Munich court to become final and thereby abandoning the case. This resolution has created heated discussion about the legal mechanics, a potential privilege of the rich and mighty, and the size of the penalty itself.

          A.   Section 153a German Criminal Procedural Code Strafprozessordnung – StPO)

Section 153a provides that in the course of the investigation and up to the final hearing of a criminal trial, the hearing court, with the consent of the prosecutor and the accused, may abandon a trial (Einstellung) subject to conditions (Auflagen) to be fulfilled by the accused. The conditions must be appropriately directed towards resolving the public interest in a prosecution.  The trial can only be abandoned, if (i) the gravity of the wrongdoing is outweighed by the burden put upon the accused through the conditions, and (ii) if the subject matter heard after diligent review of the facts at hand would only constitute a misdemeanor (Vergehen). Strictly speaking, an abandoning of the case through Section 153a is not considered a "settlement", but a resolution (Beschluss) rendered through the decision of the court. The court resolution is not subject to appeal.

          B.   Why Settle If an Acquittal Would Be in Reach?

Mr. Ecclestone was quoted after the end of the trial as declaring himself "a bit of an idiot" for paying such a high amount, because, again with Mr. Ecclestone’s words: "The judge more or less said I was acquitted."[1]

The question whether to put finality on a case or await a final judgment that may lead to an acquittal of the accused is one of the most sensitive strategic decisions in the white collar space. A number of considerations come to bear when making this call:

(i)   In case of an abandoning of the trial through Section 153a, the presumed innocence of the accused (Unschuldsvermutung) stays intact, or, quoting Mr. Ecclestone: "It’s done and finished, so it’s all right". [2]

(ii)   The abandoning of the trial does not lead to a final judgment (Endurteil) on the merits of the case. The substance of the allegation and the key evidence at hand will be reflected in the resolution and to this extent charges in a new criminal or administrative procedure will be barred. However, the facts presented in the resolution are not considered proven by a due court hearing and can therefore not be referred to in other civil and administrative proceedings against the accused (fehlende Bindungswirkung). This is an important aspect in case of accused licensed professionals who otherwise would risk that the facts established in the case will be used in an administrative proceeding for disbarment. It is also a relevant consideration in the case of Mr. Ecclestone, who also faces civil claims by Bayern LB for his conduct in the matter.

(iii)   The resolution puts an immediate end to the criminal trial, which releases the accused from the obligation to personally appear before the court, in Mr. Ecclestone’s case two days per week since April. In particular, in cases where members of management or licensed professionals are represented, this is an important factor in lengthy trials, because the mere obligation to spend several days per week in court may put them de facto out of business.

(iv)   Finally, the resolution is not subject to appeal. In contested matters or matters with large publicity, as the Ecclestone case, this is another major benefit. An acquittal in a contested or politically charged matter would often be appealed by the prosecutor’s office. Therefore, an acquittal can create uncertainty for another few years in which the matter is reviewed upon appeal of the prosecutor’s office by the higher instances. The abandoning of the case by way of Sec. 153a puts this issue to rest.

C.   Is USD 100 Million Too Much?

The payment to be made by Mr. Ecclestone is the largest payment by an individual in German court history (if not of the world) to allow severe individual corruption charges to be abandoned. There is a heated debate whether the amount was excessive. One argument often heard in the debate is that the amount was either unreasonable, or — if it was reasonable to resolve the public’s interest for prosecution — the court should have proceeded with a conviction of the accused. However, the reality of criminal proceedings in white collar matters is less simplistic.

Indeed, a deeper analysis of the specific circumstances of this case reveals several interesting aspects that are fundamental to a consented abandoning of a trial under Section 153a:

(i)   As described above, the subject matter must have been thoroughly investigated and — while not all aspects of the case may yet have been heard in court — the decision to abandon the case will specify the allegations and evidence supporting these. Therefore, the abandoning of the case marks the end of the investigation process (in the Ecclestone case a three-and-one-half-year-long investigation conducted by the Munich prosecutor). It is, therefore, not a "deal", but its character is closer to a resolution of the case by way of a court judgment.

(ii)   The court must strike a balance between the conditions to be met by the accused and the public interest for prosecution of the specific case. Consequently, each case will require an individual analysis to assess the conditions (in the case at hand, the monetary payments) that will satisfy that test.

In the Ecclestone case, the accused admitted that he had paid USD 44 million to Mr. Gribkowsky, who at the time qualified as a public official at BayernLB. Even after lengthy investigations, including an incoherent witness statement by Gribkowsky, the court apparently was not convinced that Mr. Ecclestone knew that Mr. Gribkowsky, a member of the bank’s board with corresponding demeanor, was a public official. This made the outcome of the case presented to the court uncertain: The court would have had to acquit Mr. Ecclestone from the public corruption charges had it had any doubts at the end of the last hearing that the accused acted with scienter regarding Gribkowsky’s role as public official. Also, prospects of convicting the accused for commercial bribery were far from certain.

(iii)   Mr. Ecclestone’s defendants offered the USD 100 million payment in order to address various factors that are specific to the case:

• The payment of USD 44 million that was undoubtedly made by Mr. Ecclestone to Mr. Gribkowsky was in itself an  exceptionally high amount and Mr. Gribkowsky was already convicted for accepting these payments (and related charges) to a long-term conviction. The amount to abandon the trial is a little more than twice the improper payment, which does not seem excessive in light of the facts that were already at hand.
• While there were some uncertainties about the possible conviction of Mr. Ecclestone, given the circumstances and evidence at hand, a conviction — at least for the knowledgeable observer – appeared to be not unlikely.
• Any conviction of Mr. Ecclestone for the alleged conduct would have significantly exposed him in parallel civil claim made by Bayern LB for damages in the amount of EUR 400 million. As explained above, the abandoning of the trial avoids that any factual evidence established in the trial can be used without re-hearing all aspects in the civil claim. The prospects for Bayern LB having now to litigate for several years on facts otherwise readily established by a criminal conviction, dramatically increased Ecclestone’s chances to get the civil claims settled, as well.
• Needless to say that a conviction would have catapulted Mr. Ecclestone out of his job as F1 CEO, a prospect that is not an option for the 83-year-old (quoted "I’m not going anywhere")[3], despite growing concerns by the shareholder in light of the current performance of the F1 business.
• Finally, the abandoning of the matter under Section 153a puts finality under the criminal trial, while any acquittal would have been likely subject to appeal by the prosecutor leading to a further extension of an already lengthy procedural journey.

Having these considerations in mind and taking into account the toll taken on the 83-year-old accused by appearing an additional two days per week in court on top of his day job to run the F1 circus, the amount offered — while nominally unbelievably high -  appears to be somewhat reasonable for a person of Mr. Ecclestone’s caliber.

III.   Is This a Sea-Change in the Approach Taken by German Criminal Courts?

Indeed, the USD 100 million Ecclestone settlement opens a new chapter in German criminal law enforcement, in particular in the anti-corruption arena. While prior OECD working groups had noted that "that the level of sanctions applied to both legal and natural persons may not always be fully effective, proportionate and dissuasive"[4], this case is a shining example of how the German court’s attitude has changed over the last few years. USD 100 million — by all global standards — is an exceptional amount for an individual to get discharged from allegations of corrupt conduct.

While the specifics of the case described herein make it unlikely that there will be a similar follow-on case any time soon, the USD 100 million mark stands as a bright sign that German prosecutors and courts will vigorously go after offenders in corruption-related matters. Nothing seems to be stopping them from bringing corruption charges against individuals, neither the former President of the country for an alleged improper acceptance of an invitation worth approx. EUR 770 (who — however — was fully acquitted), nor the chief of the F1.

Finally, the Bavarian State will appreciate the USD 99 million check that goes right into the state coffers to allow more investments into the City of Munich and other areas of Bavaria to continue to shine (USD 1 million will go to a charity).

   [1]   Quoted by: The Guardian, Tuesday August 5, 2014.

   [2]   Quoted by: The Guardian, Tuesday August 5, 2014.

   [3]   Quoted by: The Guardian, Tuesday August 5, 2014.

   [4]   See  "Compilation of Recommendations Made in the Phase 3 Reports" by the Directorate for Financial and Enterprise Affairs Working Group on Bribery in International business transactions of the OECD of March 4, 2014, page 32, DAF/WGB(2013)12.