David Fisher

David Fisher is a senior reporter for the NZ Herald.

Dotcom comes out fighting

Stung by the US-backed raid that ended his internet business a year ago, the German entrepreneur has plans for an online data haven to hide the world's secrets. David Fisher reports

Megaupload founder Kim Dotcom plans to mark the anniversary of the police raid on his home with a new internet venture using one-click encryption. Photo / Sarah Ivey
Megaupload founder Kim Dotcom plans to mark the anniversary of the police raid on his home with a new internet venture using one-click encryption. Photo / Sarah Ivey

Fortune stripped, company crushed and freedom denied - Kim Dotcom admits to being angry and says he is just getting started on getting even.

The anniversary of the police raid on his north Auckland mansion has almost arrived.

"We were just here," he says, waving a hand around the courtyard at the rear of the $30 million mansion.

"Just happy to be in New Zealand and enjoying summer. We were working on our IPO (initial public offering of shares). We had meetings with all the big accounting firms to prepare our books for the IPO."

The process would have seen shares in Megaupload listed publicly.

The new Megabox service was about to launch, allowing artists to sell music directly to users.

"We had a dozen of them lined up - really big names."

He says there were valuations for the company, at launch, of between US$2.6 billion ($3.09 billion) and US$5 billion.

The process would have seen accountants and lawyers crawling through the file-sharing company records for those interested in buying shares. "You don't do such a thing, open up all your books, if you have a mindset the company you are running is some sort of organised crime network."

The United States disagreed. The FBI had been investigating Megaupload since mid-2010. Almost a year ago, on January 20, they brought the operation to a close with a string of linked raids across the world.

In New Zealand, help came from the elite police team trained to deal with dangerous terrorists in a helicopter assault on the mansion. In Germany, a similar elite force, the SEK, cordoned off streets. Machinegun-toting officers confronted Dotcom's mother, taking the Mercedes he had bought her.

In Hong Kong, where Megaupload was based, police launched Operation Takedown, seizing an estimated $80 million. Dotcom says: "They had the objective and the mission to destroy my business and destroy me and worry about it later. There was one decision made at the top where they said 'this guy has to go'."

Almost a year ago, Megaupload was removed - it once commanded 4 per cent of the world's internet traffic and was so profitable court records show Dotcom's share of profits at US$50 million in 2010.

Dotcom and colleagues Finn Batato, Mathias Ortman and Bram van der Kolk - all arrested, charged with criminal copyright violation and jailed - are about to celebrate the anniversary of the raid with the launch of a new business.

It promises a revolution in online privacy with one-click encryption for every user, creating an online data haven for internet users.

Effectively a Swiss vault for information, it will lock secrets away from the prying eyes of the world.

Dotcom's view of the motivations for the raid which destroyed his company have hardened. He says it happened because the White House needed to placate a belligerent Hollywood distressed over filesharing. The initial plan was the Stop Online Piracy Act, a piece of legislation that was dead in the water but intended to give legislative backing to the US's expansionist approach to cyberspace.

Dotcom points to relationships between Chris Dodd from the Motion Picture Association of America and Vice-President Joe Biden, and Biden and prosecuting attorney Neil MacBride.

"I don't think you will see another raid like that. They did that for Hollywood,"he says.

"There is not a single day where I don't think about the raid. It is a very shocking and scary experience. What stays with me most is the (lack of) humanity - when I see my wife and she is separated from the kids, they wouldn't let me go to her, they wouldn't let me see the kids. At that moment, I felt really terrible. There wasn't anything I could do about it.

"The whole atmosphere after the raid ... you could feel a sense of excitement. (Police) were walking around the house smiling. They were looking around the house like it was some kind of tour.

"I'm in this amazingly stressful situation and they are asking me things like 'how fast does that car go?'. There was no humanity there. No one cared about the family. They were psyched about this job. It was like they were in an action movie."

The month in jail that followed was agony. Two slipped spinal discs were made worse by the thin mattress and extreme agony during trips to court. After one trip, he fell from the van to lie prone on the ground. "I was screaming. I couldn't move." He was given painkillers, muscle relaxants and eventually returned by wheelchair to his cell.

He says he lay there and worried about wife Mona, pregnant with twins, and their family, which at the time of the raid consisted of three children aged under 5, Kim and Mona Dotcom and Mona's two adolescent brothers. The twins expanded the household to seven. Bank accounts were frozen, cash, credit cards and the family's cars had all been seized.

"It is the worst feeling. You have your whole family to worry about, you have young kids. You can worry so much you are heartbroken, sick to your stomach. I couldn't keep food in. I felt so sick about the whole situation and so worried I wasn't able to keep any food in or sleep or anything."

There were early signs not all was well with the New Zealand handling of the case. It emerged Dotcom's assets in New Zealand - his car collection, $10 million in government bonds - were seized unlawfully with the wrong paperwork. It was then revealed this was known and the decision to go ahead regardless means the Government is now underwriting the US case with taxpayer money.

Over the course of the year, it also emerged the FBI had taken cloned evidence from the police's secure electronic crime lab, against the instructions of the court.

Then the search warrants used in the raid were declared invalid, and the search illegal. Then came the admission the Government Communications Security Bureau had illegally spied on Dotcom, prompting an apology from Prime Minister John Key.

"You watch these movies, Bourne Identity, where governments are corrupt and spy agencies do illegal things and you think that's bull****, that it doesn't happen," says Dotcom. "Everything now that comes out is even more unbelievable."

Now, Dotcom talks about "if" the extradition case goes ahead.

"We knew the moment we saw the indictment this whole thing is crap. They have doctored that thing. It has been manipulated so later they can say we had probable cause so we had to shut them down."

Dotcom's legal successes were driven in court by barrister Paul Davison QC and Simpson Grierson senior litigator William Akel.

Behind the scenes Simpson Grierson partner Greg Towers "got to understand I am a person who wants to do everything right" over three years of handling Dotcom's legal business in New Zealand. Towers had previously dealt with immigration queries over Dotcom's convictions in Germany for hacking and insider trading, which are now officially wiped under that country's clean slate legislation.

The day of the raid, Towers met Dotcom in the North Shore Police Station and told him the firm was organising a criminal defence lawyer.

"They understand I am a guy who does everything 100 per cent clean. There wasn't even a discussion about money."

The cash came later, when the High Court released $3.6 million to cover legal bills.

Of the current case, Dotcom says the court success is "strengthening the rights of everybody in New Zealand". On the anniversary of the raid, the new business called Mega aims to strengthen rights across the world.

It has the potential to redefine the internet by giving users the ability to encrypt their online traffic by a single mouse click.

Dotcom says the architecture of the internet means every submarine cable passing through the US - as New Zealand's does - is "fully mirrored". "Once you understand that, you realise we are already living in this vision from (George) Orwell. There is no privacy anymore."

He points to questions raised about US companies and the back doors they build into technology that allow the Government access to personal data.

The US response to the 9/11 terror attacks saw interception stations established to hoover up internet traffic passing through the country's borders. The expansionist attitude towards the internet was underscored by the White House announcement in early 2010 that intellectual property, including copyright, was an issue of "national security".

Megaupload prosecutor Neil MacBride, a former member of Vice-President Biden's presidential campaign team, was recently asked about how the US was able to reach across the world and assert criminality. He replied: "I'm convinced that most emails in the world at some point transit through servers that sit somewhere in the Eastern District of Virginia, so that gives us venue." Venue, in the US, means jurisdiction. White-collar cases such as Megaupload "may start with what seems like a local connection, but ultimately we're chasing the bad guys across state borders or even national borders".

Dotcom: "I didn't realise until this happened how much surveillance is happening. My eyes are wide open now. I have such a wide horizon now about what is going on. Once I had an understanding of that I thought I have to create a product that gives privacy back to people. I want to create that under Mega and spin off this whole new encryption culture."

He says Mega's encryption engine will be open source so developers can create tools to "give privacy back" to internet users. "The years of experience and everything that happened to us combined has led to a really great invention I'm proud of. It is going to open the door to a whole new sector."

The case goes back to court shortly with the focus in the next few months on the GCSB and its involvement in the case. There will also be questions about the top-secret Echelon network.

In hindsight, Dotcom says there were signs of the spying. The internet connection to the mansion suffered latency issues during a tense period establishing himself as the world's best Modern Warfare 3 player. His iPhone displayed unusual battery problems.

"There were a lot of things where in hindsight you started to realise the extent of the surveillance operation. You quickly see there is a much bigger picture than what is already known."

He places little weight on the Prime Minister's apology over the illegal spying, which he says was a "strategic decision" to cut short further inquiries into GCSB activities.

"Of course it makes me angry," says Dotcom of the unfolding revelations in the case.

"We're just shaking our heads. What have we done to deserve this? It is so unfair I am in this situation where I can't live a normal life, I can't innovate, I can't be an entrepreneur, we can't travel anywhere, I don't have access to my funds, I'm being treated disrespectfully."

Key's suggestion Dotcom go to the US and prove himself innocent is outrageous, says the tycoon.

"He knows very well the moment I arrive in the US they're going to put chains on me and put me in prison. I'm not getting bail in the US. I will be separated from my family. What kind of suggestion is that?"

Dotcom takes issue with Key's account of how little he knew about the raid, which he claims is wrong and will be challenged in court. " I have facts I want to produce at my hearing. The decent thing to do for John Key and this Government is to give me my life back and to do what it takes to negotiate with the US to bring this mayhem to an end."

By Dotcom's estimate, Key has some time to make a decision. The extradition trial was recently postponed with August as the most recent scheduled date. With the multitude of appeals, the case is likely to be pushed well into the 2014 election year.

Before the raid, Dotcom talked about moving to New Zealand because it had the potential to be "a rare paradise on earth". In an interview at the time, he said it would be "one of the most desired countries to live in and its wealth could reach unexpected highs".

He has an accelerated fluency with New Zealand business and political life, despite having been granted residency just two years ago, and contacts to match.

His ambition is to remain in New Zealand once "this is over" but is worried about the case being a lightning rod for trouble. "Among the top executives of this Government, we are the most hated people. If I were to die tomorrow they would have a party.

"If I'm successful in my fight, my biggest fear is that they wouldn't just accept defeat. They would look for something else. If I stay here, I would be under a looking glass. I'm pretty confident we are going to win this and expose the case for what it is. But what comes after that? Will you be allowed to work in peace?

"Once you are messing with spies (and) all these cops in the highest level, all these people will still be there even if Labour wins the next election and they will always be branded and marked by this ridiculous event. Can you be in New Zealand and not have this ongoing persecution?"

Incredibly, the year began with public fascination over the raid but it ended with Dotcom being mooted as New Zealander of the Year.

"I can't even believe people would consider me for New Zealander of the Year. What for? I was raided, I'm being indicted, I was a month in jail. Is that something you become New Zealander of the Year for? I don't know?

"It doesn't make me happy or smile. It is bizarre. You get this kind of award for achieving something.

"If I win my case and Mega becomes a powerful business that creates thousands of jobs, I get involved in start ups and have contributed to the economy - then I want to be New Zealander of the Year."

- NZ Herald

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