In this week's post, Nelvin Tam discusses the latest on Formula One president Bernie Ecclestone's bribery scandal, and the implications for the corruption and fraud risk management industry.

'If you think compliance is expensive, try noncompliance.'

As the former US Deputy Attorney General Paul McNulty succinctly put it, many companies are reluctant to implement a compliance framework due to its perceived high costs. However, the cost of not complying with the rules and regulations could potentially be even more - see, for example, the USD 1.3 billion Siemens settlement in 2008.

Bernie Ecclestone (widely known as the boss of Formula One) would know this cost in first person. He was charged in Germany with bribing former Bayern LB Chief Risk Officer Gerhard Gribkowsky USD 44 million to facilitate a sale of the bank's 47% stake in Formula One to parties favourable to Mr Ecclestone in 2006. Despite Mr Gribkowsky being convicted of taking a bribe and sentenced to an 8.5 year prison term, Mr Ecclestone was approached by the German authorities with an offer to settle the case. He negotiated a USD 100 million settlement with no convictions recorded. Of the USD 100 million settlement amount, USD 99 million went to the courts and USD 1 million to a German child hospice foundation. It's the highest amount ever paid in such circumstances in Germany. However, this could be seen as small change compared to Mr Ecclestone's estimated net worth of USD 4.2 billion.

The German Code of Criminal Procedure allows prosecutors to drop a case in exchange for a payment or community work, so long as the gravity of the offence does not outweigh proceeds. Some would say this would seem to defeat the purpose of a criminal proceeding. (And is particularly ironic in dealing with allegations of bribery!) In comparison, here in Australia there is no way a person can write out a cheque to settle a criminal proceeding.

Mr Ecclestone has a track record of controversies with his money – In 1997, he donated GBP1 million to the UK Labour Party, which subsequently delayed the banning of tobacco advertising for Formula One. Both the Labour Party and Ecclestone denied that the decision was related to the donation (of course!), but Labour did return the money after the donation came to light in the press. So in that case, Mr Ecclestone got the decision he wanted and his money back - not a bad deal I must say.

In normal circumstances, people do not have the funds to survive a USD 144 million cost and certainly would not still be in their job. But for Mr Ecclestone, the amount is relatively small and with the payment comes a substantial reward that he gets to stay in control of F1, the business that he has devoted his life to.

To reiterate, there is no way that such a deal would have been made in Australia. So, did the German Courts negotiate an appropriate settlement amount when there was a chance they may not have achieved a criminal conviction? Or was this a case where bribery did pay?

Nelvin Tam is an Executive Analyst at KordaMentha Forensic. Since joining the firm in 2010, he has worked on a range of matters including fraud and corruption investigations, forensic accounting dispute work and data analytics consulting.

Sources / further reading:

www.businessweek.com/stories/2008-12-15/siemens-settlement-relief-but-is-it-over-businessweek-business-news-stock-market-and-financial-advice

www.online.wsj.com/articles/german-court-drops-criminal-case-against-f1s-bernie-ecclestone-1407241889

www.theguardian.com/sport/2014/aug/05/f1-boss-bernie-ecclestone-offers-60m-settlement-bribery-trial

www.abc.net.au/news/2013-07-17/ecclestone-charged-with-bribery-in-germany/4827018

www.forbes.com/profile/bernard-ecclestone/

www.transparency.org/cpi2013/results