David Fisher: 10 years of Megaupload, 10 things we learned

On January 20, 2012, a high-profile dawn raid by armed police to arrest Megaupload founder Kim Dotcom and friends at his $30 million mansion. Herald senior writer David Fisher has covered the case since the beginning. On the 10th anniversary of the raid, he looks back at what we learned - and what we still don't know.

Ten years ago at dawn our police sent heavily-armed anti-terrorism specialists in a helicopter assault on a mansion in rural Auckland as part of a global FBI operation.

Their targets - some computer programmers and a guy from marketing.

That day, four men were arrested on copyright charges relating to the Megaupload website - founder Kim Dotcom, coders Mathias Ortmann and Bram van der Kolk, and marketing manager Finn Batato.

The Megaupload accused at the Auckland High Court - Bram van der Kolk, Kim Dotcom, Mathias Ortmann and Finn Batato. Photo / Sarah Ivey

This was the website that boasted consuming 4 per cent of the world's internet traffic through users uploading and sharing content, much of which was movies and music owned by others. The FBI's global operation to shut down Megaupload alleged it had cost copyright owners $500m in earnings.

Those accused argued that they did not breach copyright - that they were the postal service and not the people who sent the information.

A decade on, the Supreme Court has just finished the first stage of the extradition process. That's half of the court process done with.

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Stand by and keep standing by. Years will continue to flit by before this saga is complete. Three are left facing down the might of the US government - extradition against Batato was dropped after he developed a life-threatening medical condition.

So, here's 10 things we have learned - and a few that we haven't.

10 things we learned

Kim Dotcom in Auckland District Court where the initial extradition decision was made in 2015. Photo / Nick Reed

Our extradition process struggles

The case of the Megaupload Four (now Three) is not the only extradition case to drag on for a decade. Sure, there's a financial cost to this (about $50 million to the Crown and extradition targets) but the process of justice has suffered with a case that sometimes resembles three-dimensional Snakes and Ladders. In 2016, the Law Commission made a string of recommendations on modernising New Zealand's extradition laws. The Government responded with a serious-sounding statement about more work was need on the complex issue and how it "will need to be balanced alongside other competing Government priorities" - it sounded like, and was, the kiss of death to progress.

The world has moved on

A decade ago Dotcom described the finance and function of content streaming services when I visited him shortly after he was released from prison on bail. He spoke of the service Megaupload provided and how it flourished because it gave the consumer the best, easiest way to access the content they wanted. Watch, he said, and you will see the "invisible hand" of consumers push content providers into the space Megaupload occupied. At the time, we watched movies by ordering DVDs online to be posted to our homes. Now, we stream. We don't even need to move off the sofa. Payment methods have also simplified. The market has found the convenience the consumer was seeking. Copyright infringement has decreased massively. The problem the FBI sought to solve has diminished, massively.

Bram van der Kolk (left) and Mathias Ortmann (right) at the Supreme Court in 2019. Photo / Getty Images

Our spies were a mess

One of the big scandals of the raid was the unlawful involvement of the Government Communications Security Bureau. It spied on the Megaupload Four to assist police in its arrest but had bungled its interpretation of the law and spied on Dotcom and van der Kolk who should have been protected by virtue of New Zealand residency. A review of the GCSB found it was a shambles. Among other issues, it was operating off an operational "Bible" that misconstrued the law. This meant well-meaning intelligence staff were diligently following a legal guide that was wrong, meaning there were many other cases of unlawful access. The NZ Security Intelligence Service turned out to be in similarly poor shape. The extent of the issues at the NZSIS was never exposed quite like the GCSB's but they were clearly in a terrible state. Both agencies have had huge funding boosts and significant restructuring since. They are different organisations than they were a decade ago.

Dotcom could have been long gone

Dotcom came into New Zealand after investing $10m in exchange for residency in line with a visa scheme intended to attract wealth creators. At the time, few others had taken up the scheme so he would have been seen as a "win". His residency was granted in late 2010 with knowledge of his previous (historical) convictions and, astonishingly, with knowledge he was the target of an FBI investigation. Then Immigration Minister Jonathan Coleman was briefed but paid no heed to the warning signs. After residency was granted, Dotcom disclosed other charges in Hong Kong that should have been revealed, triggering an inquiry into cancelling residency. Coleman declined to do so. A few years later, the Herald revealed Dotcom also failed to disclose a driving conviction in New Zealand. A new inquiry was carried out then sent to the minister to decide on Dotcom's residency and possible deportation. That decision has yet to be made.

The Coatesville mansion where Kim Dotcom was living when arrested in 2012. Photo / Supplied

There was no big conspiracy

For a decade now Dotcom has pushed his claim there is a deep conspiracy behind the targeting of Megaupload.

He extends that to include New Zealand's decision to give him residency, apparently incredulous it did so and suggesting it was part of an elaborate honey trap to get him somewhere the FBI could pounce. No evidence has emerged to support this.

Some circumstantial evidence exists but there are better, more sensible, explanations - that Coleman was a new minister wanting success luring rich people here makes more sense than the honey trap angle. The only evidence to emerge was an email apparently supporting claims Prime Minister John Key was in bed with Hollywood. It was exposed (by the Herald) as a fake, confirmed by the SFO in a later investigation.

Money doesn't equal votes

Dotcom tackled extradition as a political problem that could be solved by brow-beating or convincing the right politicians. By the time 2014 rolled around, that didn't seem to have worked. He had gone head-to-head with the Prime Minister and John Key was still there.
So, he figured, it was time to get involved in politics. That election's union of Dotcom's Internet Party and Hone Harawira's Mana Party was one of the most bizarre mash-ups of our political history but it had a chance of working by exploiting the MMP system and bolting the new party onto an MP who held an existing seat. It relied on Harawira winning Te Tai Tokerau or the party getting 5 per cent or more of the vote. Dotcom put $3.5m into the party which pulled in about 1.5 per cent of the vote. Harawira lost his seat, falling about 10 per cent behind the winner. It was a failure which saw the end of Dotcom's public-facing charm offensive.

Megaupload founder Kim Dotcom.

Struggles in the big leagues

Since Dotcom and others were arrested, they signed on the best lawyers in town to handle their cases. There was a lot of money available to spend on the very best advice and representation. It saw the first two years of the Megaupload case unfold like an internet age Keystone Cops, from the GCSB bungle through to the Crown having to underwrite the Megaupload collapse when it wrongly seized the accuseds' assets without notice. The elite anti-terror team even lost Dotcom in his mansion after he retreated to a safe room, exposing their failure to check building plans before the raid. The Crown took a pounding in case after case, raising questions about how it would fare if every defendant had the benefit of the expertise they were able to afford. If nothing else, Dotcom and Co provided a stress test on the system.

Talent finds its true North

Dotcom is styled as an internet visionary. Ortmann and van der Kolk are world class coders. The three have gone on to find new start-up successes. Originally, it was through the Mega encrypted cloud storage site which was coded in the year after the raid. Dotcom sold out of that business and has since disappeared into the digital currency field and the development of "K.IM", a micro payments idea that has been germinating since before he was arrested.

From his sprawling home in Queenstown (and occasionally in Auckland), Dotcom is a featured across the internet as a mentor and visionary. Private planes and helicopters are again a regular feature of life. Ortmann and van der Kolk stuck with Mega and have developed into a highly regarded platform with 250 million users. It's a world class business based out of Auckland. Batato as a marketing whiz had talent less exclusive but still sought after. Working hard and raising a family while working to keep up with the case as the only defendant unable to afford a lawyer made for a busy enough life - and then he developed a life-threatening medical condition.

Bram Van der Kolk, left, and Mathias Ortmann are facing extradition to the US. Photo / Mike Scott

Charged together but no Happy Families

The Megaupload Four appeared everywhere together in the first few years. They arrived at court together, lined up in the dock together, attended public meetings and functions together. That was then - now is a different story. Dotcom's political efforts in 2014 drove a wedge between the four and that was around the time they went their separate ways.

Dotcom went his way and the coders went on their own journey. It was one quite separate from Dotcom - so much so that they haven't really spoken to him for seven years. Read more in this interview. Batato stays in touch with Dotcom. They've been friends since they were 18 and that continues - the pair and their families shared a week together at Dotcom's over the summer. He also stays in touch with Ortmann and van der Kolk.

There's been time enough for love

All four have partners and between them all are raising as many children born in New Zealand as those born elsewhere. Dotcom separated from wife Mona in 2014 and both are now in new relationships. In 2018, Dotcom married Elizabeth Donnelly, now known as Liz Dotcom. Van der Kolk and wife Asia are a constant. Their son was learning to walk at the time of the raid and is halfway to being a grown man. Ortmann - a private and solitary figure - is also in a relationship. Batato is in a long-term relationship, raising two boys from a previous relationship. He has recently become a father again.

Finn Batato, Megaupload's former marketing manager, is no longer facing extradition because of a life threatening medical condition. Photo / Supplied

And a few things we haven't learned…

Is the FBI right and are they criminals?

If they had breached copyright in New Zealand in the way alleged, they would not face jail time. The US is a different beast for a few reasons, one being the incredible power of the movie and music industry and the connections its lobby group has with the White House. No, this doesn't mean there was a conspiracy (see above). Those Hollywood connections, the content it produces and the value of that content means the US considered protecting IP - and copyright by extension - was an matter of national security. So, criminality and the degree of such is in some ways a matter of jurisdiction. In many jurisdictions, this would have simply have been the civil case they expected it to be.

Are they going and if so when?

We just don't know. The Supreme Court has found they are eligible to be extradited. The next stage is for the Minister of Justice - currently Kris Faafoi - to sign an extradition warrant if he considers it appropriate. Those facing deportation can submit their case and he is obliged to take that into consideration. Once his decision is made, if he supports extradition, then his decision is open to challenge in court. And then there will be appeals. Five years or so from now, when all of that is done with, don't be surprised to see other challenges to extradition crop up.

Kim and Liz Dotcom at their home near Queenstown. Photo / Supplied

Is it worth it?

It's a good question to ask and an impossible question to answer. We didn't get into this because of a crime committed against New Zealand interests, although there was Kiwi content discovered among movies and music trafficked across Megaupload. We got into it because we have a mutual assistance agreement with the US - we send them people they want and they do likewise for us.

We do so with respect to similar systems and shared respect for the law. Such agreements underpin relationships between countries and the US is an important country for us to get on with. We affirm those relationships by acting on the agreements which have a set process to follow. Unfortunately, our extradition "set process" is a bit like the Song That Doesn't End.