A multi-millionaire businessman granted New Zealand citizenship in controversial circumstances was seen by police "singing and drinking" with an underworld crime boss.
William Yan - also known as Bill Liu, Liu Yang and Yong Ming Yang - was found not guilty of making false declarations on immigration and citizenship papers despite a High Court judge declaring the case to be "highly suspicious".
The Auditor-General is now conducting an investigation into how Mr Yan was granted citizenship against official advice, including why former Labour Minister Shane Jones ignored Internal Affairs' advice he did not meet character requirements.
Among the reasons officials gave for opposing Mr Yan's citizenship were that they did not know his true identity as he had two names, two passports and two birthdates, and was said by Chinese authorities to be wanted over an alleged fraud in China.
The Herald can now reveal police saw Mr Yan socialising with the head of a major methamphetamine syndicate in a private karaoke room. Feng Chih Hsu was arrested a few months later.
The 36-year-old from Taiwan, also called Daniel Hsu, was arrested in Operation Acacia when police found a cache of high-powered weapons - including sniper rifles in suitcases - and $5.5 million of methamphetamine in his North Shore home.
He was sentenced to 17 years and three months in prison this year after guilty pleas arising from what police called New Zealand's biggest drug bust.
Police also seized nearly $1 million in cash in a suitcase from his home.
Documents from Operation Acacia supplied to defence lawyers during the pre-trial disclosure process record reveal police had recorded Hsu and Mr Yan socialising together.
Constable Amaninder Sandhu saw Mr Yan "singing and drinking" with Hsu in a private room at a bar in downtown Auckland, according to the police job sheet dated October 2009.
The police officer was conducting a liquor licence check at karaoke bar Party World and recognised Mr Yan from a previous bail check at his penthouse apartment in the Metropolis tower. He was on bail for the immigration charges at the time.
The constable asked Mr Yan for identification, to which he said: "I don't have any photo ID, look at my face, I am old man."
Mr Yan then provided his New Zealand driver's licence, which the police officer checked with the police communications centre. He was told an intelligence report was needed for police files. The police then obtained the details of three people with Mr Yan in the private room, including Daniel Hsu, who was photographed "wearing cap and stripe shirt".
The karaoke bar meeting happened four months after Mr Yan was arrested at Auckland International Airport in June 2009 after trying to leave the country with a New Zealand passport in the name of William Yan.
Other documents released under the Official Information Act by the Department of Internal Affairs show Mr Yan "is spending literally millions of dollars at the casino and associating with known criminals".
He stood trial in the High Court at Auckland in May after pleading not guilty to five charges relating to false declarations on immigration and citizenship papers. Justice Timothy Brewer found Mr Yan not guilty despite saying the evidence put before him "proves a situation that is highly suspicious".
Most of the documents were false but were filled out by others on Mr Yan's behalf. "In the absence of firm evidence that the accused knew of the falsity ... there would need to be proof of dishonest intention in using the Liu Yang identity," the judge said.
"Such proof, of course, would have to come from admissible evidence. The Crown has not been able to put such evidence before me."
Mr Yan has been a resident in New Zealand since 2002. He was also known as Bill Liu. In May 2005, he applied for citizenship, which was opposed by the Department of Internal Affairs because his true identity was not known.
He was then granted citizenship by Cabinet minister Mr Jones against the advice of officials. His citizenship was conferred in a VIP ceremony in Wellington after lobbying from former Labour MP Dover Samuels, who regards him as a close friend. Other links to the Labour Party emerged during the trial.
Mr Jones has previously said he granted citizenship on humanitarian grounds because Mr Yan risked execution if he returned to China.
That decision is now going under the microscope of the Auditor-General.