The managers of the nation's finances were kept at arm's length when the Kim Dotcom case required Kiwi taxpayers to underwrite a potential future legal suit from the internet entrepreneur, a new document shows.

Instead, then-police commissioner Peter Marshall signed the "undertaking in respect to costs and damages" - the agreement which would allow Dotcom to sue New Zealand if it emerged the FBI case against him was unfair and unfounded.

It was the first time that the Crown was required to give an "undertaking" in a case where the property of someone facing charges was seized and was because the charges were brought by a foreign agency.

Read more:
No grounds to extradite Kim Dotcom, says Harvard Law professor Lawrence Lessig

Advertisement

The need to provide an "undertaking of liability" emerged after police seized the tycoon's cash and property without notice. The law required Dotcom have the chance to challenge the seizure and be given formal notice of his right to sue the Crown.

The need to provide an undertaking in March and April 2012 surprised the Crown and the Herald sought details of the debate and consideration over the risk to which NZ was exposed through the Official Information Act in July 2012. Treasury refused to supply the information sought so the Ombudsman was called on to investigate.

After three years of deliberation, Chief Ombudsman Dame Beverley Wakeham found there was a "public interest" which would be met by releasing a summary, which Treasury sent to the Herald this month.

The summary showed there were meetings "to discuss the case and how to inform ministers" were held Crown Law, police, the Ministry of Foreign Affairs, Ministry of Justice and Treasury.

On March 22 2012 Finance minister Bill English was told he "did not have a role in approving or signing off this kind of undertaking". Instead, it was the Commissioner of Police's role under the Criminal Proceeds (Recovery) Act.

While Mr English was kept briefed - including a briefing from Mr Marshall and Attorney General Chris Finlayson - there was no process established through which he was able to be formally involved in the undertaking.

Under the Public Finance Act, Mr English is responsible for matters which might impact on Crown accounts. Dotcom has claimed the loss of Megaupload cost him more than $2 billion although others have argued the impact is far less.

The summary provided to the Herald said there had been a review of the mutual legal assistance framework of which Treasury was a part. It "intended to use the forum to recommend the establishment of a consultation process and set out criteria for issuing undertakings".

The requirement to give an undertaking to the court to meet any damages was a factor which put Sony off joining a civil case seeking to claim Dotcom's assets, emailed hacked and released last year revealed. Sony's top copyright lawyer, Aimee Wolfson, said it was "not at all unimaginable" Dotcom would avoid extradition or even successfully defend himself in the United States.

The studio is not a participant in a case in NZ courts with discussion in the emails showing potential exposure to a legal suit from Dotcom concerning executives.

The risk to which New Zealand is exposed was underscored by a legal opinion released today from Harvard University's professor of law Lawrence Lessig, one of the world's leading experts on copyright law. He said the FBI charges would not stand up in US courts and there was no basis in law for Dotcom to be extradited.