Prime Minister Helen Clark negotiated the best possible solution to a political crisis today when Winston Peters stood aside as foreign minister while the Serious Fraud Office investigates donations to his New Zealand First Party.
Mr Peters' future now rests on the outcome of the inquiry, and before he met Miss Clark in Auckland he angrily rejected the allegations that led to it.
He vowed to present her with evidence that would prove false the "vile, malevolent, malicious and wrong" claims that have been laid about undeclared donations and whether the money was used for the purpose the donors intended.
But after an hour of talks at a secret location, Miss Clark calmly announced Mr Peters had offered to stand aside and had asked her to take over his foreign affairs, racing and associate senior citizens portfolios.
"Mr Peters has been thinking very carefully about this," she told reporters.
"It's been clear to me this would be the appropriate course of action but there hasn't had to be a lengthy argument about it at all."
Miss Clark said Mr Peters would be reinstated if the SFO cleared NZ First, and he would co-operate fully with the inquiry.
The first meeting between the SFO and Mr Peters' lawyers, led by Peter Williams QC, would take place tomorrow, Miss Clark said.
If there had been a confrontation at today's meeting, or if Mr Peters had refused to stand down without a fight, the consequences for the Government and NZ First would have been severe.
The National Party has been demanding action for weeks, and after Miss Clark's announcement party leader John Key said she had taken too long to deal with the crisis.
"It's now up to the prime minister to answer questions ... she is implicated in this," he said.
Act Party leader Rodney Hide, whose complaint led to the SFO inquiry, said the stand down was not good enough.
"Miss Clark hasn't been prepared to do what's right - sack a minister who has misled her and the country and who is under investigation by the Serious Fraud Office," he said.
Mr Hide said Miss Clark was treating Mr Peters' behaviour as "some temporary aberration" and voters would judge her.
Miss Clark described Mr Peters as "hurt but calm" after their meeting.
"In politics, each of us has a reputation and obviously Mr Peters is very keen, as any of us would be, to defend his reputation," she said.
Asked whether she thought the controversy reflected on her, Miss Clark said as prime minister she had to deal with difficult issues.
"You don't ask for them to come along but you have to deal with them and I am endeavouring to deal with this in a way which is fair and has some dignity about it," she said.
"As someone who has been in politics a long time I know how precious a reputation is, and how hurt people get when there's a serious assault on their reputation."
The SFO will investigate whether a $25,000 donation to NZ First by Sir Robert Jones was used for the purposes he intended, and whether cheques from the wealthy Vela family reached their intended destination.
SFO director Grant Liddell said he had enough information to suspect the investigation might reveal "serious and complex" fraud.
He also said it was possible the inquiry would find there was no basis for the allegations.
Parliament's privileges committee is holding a separate inquiry into a $100,000 donation from expatriate billionaire Owen Glenn, which was not declared.
Click here for a full timeline of the events leading to the investigation of donations to NZ First
The week in brief:
* On Tuesday ACT leader Rodney Hide alleges that New Zealand First was paid money by Simunovich Fisheries after Winston Peters had made corruption claims against it.
* On Wednesday morning, the privileges committee releases letters from Mr Peters and billionaire Owen Glenn. Mr Glenn says Mr Peters solicited a $100,000 donation from him and then thanked him for it in 2006. Mr Peters denies this, saying he thanked Mr Glenn in July 2008 after being told of the donation by his lawyer.
* On Wednesday afternoon, National Party leader John Key says unless Mr Peters could provide a credible explanation for the discrepancies of evidence, he would be he would be unacceptable in a National Government.
* On Thursday morning, Prime Minister Helen Clark reveals that Mr Glenn had told her his version of events on February 21 but that Mr Peters had assured her that New Zealand First had not received a donation from the businessman.
* On Thursday evening, the Serious Fraud Office announces it has sufficient information to launch an investigation into the fate of donations to New Zealand First.
For a month, the SFO has been looking into allegations surrounding donations property magnate Sir Robert Jones and the wealthy Vela family made to NZ First.
SFO director Grant Liddell said last night he had been satisfied that the threshold had been met for commencing an investigation into allegations the money did not reach its intended destination.
"I have sufficient information that gives me reason to suspect that an investigation may reveal serious and complex fraud," he said. "I want to emphasise that it is entirely possible that there are innocent and honest explanations."
Mr Peters issued a statement last night that said nobody from the SFO had spoken to him about any of the matters it had allegedly been making inquiries about.
If staff had had the courtesy to talk to him, the matter "would have been cleared up in a few minutes", the minister said.
The SFO's announcement came late on a day of fast-moving events in the ongoing political donations scandal surrounding Mr Peters.
They included a bombshell revelation from the Prime Minister that expatriate billionaire Owen Glenn told her as long ago as February that he had given money to Mr Peters.
She said she was told about the donation by Mr Glenn - who gave $100,000 to a legal fund for Mr Peters - during a private meeting at Auckland University on February 21.
Mr Peters maintains he knew nothing about the donation to the legal costs of his challenging the Tauranga electoral result until his lawyer, Brian Henry, told him about it on July 18.
Helen Clark said she immediately phoned Mr Peters in South Africa to ask what the situation was and he insisted he knew nothing of any such donation.
She took his word for it, and just days later Mr Peters hosted his now-famous press conference at which he held up a 'NO' sign in response to questions about whether he had received money from Mr Glenn.
Although doubt was cast on that statement several weeks ago, Helen Clark never revealed what Mr Glenn had told her until directly asked yesterday by reporters.
"No one asked," she said in response to questions about why she hadn't disclosed the information earlier.
"Probably all media think now, 'Why did we not ask what was discussed?'"
Helen Clark's disclosure now puts her centre-stage of the ongoing scandal surrounding the Glenn donation and appears to increase the possibility Labour could get caught up in the political fallout.
National leader John Key yesterday called Helen Clark's admission "stunning" and his party accused the Prime Minister of not saying anything in order to protect her own political interests.
"Helen Clark has got a lot of explaining to do to the New Zealand public," Mr Key said.
Mr Key had earlier effectively ruled out having Winston Peters in any government he led.
"Mr Peters will be unacceptable as a minister in a government led by me unless he can provide a credible explanation."
Winston Peters' political career
1975 National candidate for Northern Maori in 1975 against Matiu Rata.
1979 Elected National MP for Hunua after taking electoral petition against Labour candidate Malcom Douglas. Loses Hunua in 1981.
1984 Won Tauranga
1990 Maori Affairs Minister
1991 Sacked as minister for criticising leadership.
1992 Expelled from National Party caucus.
1993 Feb Won byelection in Tauranga as independent. Launched NZ First in July. In the election, Peters won Tauranga again and Tau Henare won Northern Maori.
1996 Party took 17 seats in first MMP election. Nine got ministerial posts in coalition with National. Peters became Treasurer and Deputy Prime Minister.
1998 Coalition ended when National PM Jenny Shipley sacked Peters from cabinet. Eight NZ First MPs defected from NZ First, allowing National to govern without Peters.
1999 Election NZ First came in under threshold with 4.3 per cent of party vote in election but Peters kept Tauranga by 63 votes. The party survived with five MPs.
2002 Election: Party rebounded with 13 seats and 10.4 per cent of party vote.
2005 Election: Peters lost Tauranga but party scraped in with 5.7 per cent of the vote and seven MPs. Peters made Foreign Minister outside Government in confidence and supply agreement with Labour.
- NZPA, NZ HERALD STAFF