HERALD EXCLUSIVE

Team New Zealand and America's Cup organisers are at the centre of an inquiry commissioned by the Crown over the spending of public money, including allegations of a "reclassified" $3 million loan and claims of fraud involving a Hungarian bank account.

Team NZ boss Grant Dalton said today that the organisation had been defrauded by scammers, with money being paid into a Hungarian bank account. He denied there had been any $3 million loan to Team NZ.

A confidential June 22 letter written by MBIE and the Auckland Council - and obtained by the Herald - reveals allegations around the handling of public money; the operation of the Cup itself and worries about public safety; and it lifts the lid on officials' concerns that the event organisers, America's Cup Events (ACE) and Team NZ, are in breach of obligations.

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The letter - written by council chief executive Stephen Town and Ministry of Business, Innovation and Employment (MBIE) chief executive Carolyn Tremain and sent to ACE and Team NZ - outlines "serious matters" raised by a financial investigation firm commissioned by the Crown to look into the financial management of next year's America's Cup in Auckland.

Economic Development Minister Phil Twyford's office confirmed to the Herald on Tuesday evening that the minister was aware of fraud allegations. Earlier this week, Team NZ denied any impropriety and described the allegations, made by former contractors now acting as informants, as baseless.

Grant Dalton told Newstalk ZB's Mike Hosking today that he had seen the MBIE-council letter - the allegations were treated seriously, and he looked "forward to knocking them off one by one... a lot of them have already [been] knocked off".

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He said no public money had been misused.

"There are some pretty good, inflammatory and sensational words in there, like fraud and Hungarian bank accounts - your eye just goes straight to those. Let's talk about that one.

"One of the informants was in charge of the accounts of the event. Some time ago I approved an invoice for a large contractor in Europe... and, no, I did not check the noughts and the ones on the bank account. It was the correct invoice as per the contract and the money was sent to Hungary.

"Is that fraud? Yes, it is insomuch we were basically defrauded. Is it fraud in the sense it's portrayed in the paper this morning? Absolutely not. More importantly, instantly we rang MBIE, told them what had happened, told them it wasn't government money because it wasn't, and we got straight into the fraud police... and we've recovered some of the money.

"There was fraud insomuch that we were defrauded to an incorrect bank account. We haven't got all of the money back, we have got some of the money back.

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"We were defrauded by scammers. Police don't know yet and probably will never know [who they are]. Some of the money is back. In the end... the ultimate noughts, ones, whatever, numbers on the bank account... weren't checked."

The council and MBIE say in their letter they are "extremely concerned" about how taxpayer money paid by MBIE has been used - the letter also claims "certain personnel" from ACE and Team NZ have suggested they will no longer cooperate with the financial investigation firm, Beattie Varley.

Dalton confirmed some people had shut down about six weeks ago, during the Covid period, after they found the questioning "unusual".

Emirates Team New Zealand training on the Waitemata Harbour. Photo / Michael Craig
Emirates Team New Zealand training on the Waitemata Harbour. Photo / Michael Craig

"We suggested that to answer a lot of the questions we weren't prepared to put it in writing, it was simply they should look over our shoulders in the office."

As an example, a number of Team NZ staff worked across the event - such as in legal, logistics, and on and off the water. "We weren't prepared to give the salaries to back-engineer those percentages out during Covid for reasons that are now pretty obvious and suggested they look over our shoulder on the screen and check them themselves."

The MBIE-council letter says they are also "extremely concerned about the ability of ACE to deliver [a] safe and successful" Challenger series and America's Cup finals series.

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Among the concerns and allegations raised in the MBIE-council letter:

• "ACE has used part of the Event Investment for costs that have arisen but which are not in relation to the management and delivery of the Events";

• "This includes the $3,000,000 loan to ETNZ which was subsequently reclassified and the payment that was made to the Hungarian bank account through fraud";

• "Lack of record-keeping and unwillingness to provide the information that has been requested";

• "Material relationships with third parties that are not documented and which can be terminated ... upon 30 days' notice";

• "Poor governance including suggestions that records should be retrospectively amended".

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Dalton told Hosking there was no $3 million loan to the team. "And secondly the amount to the Hungarian defrauded bank account wasn't that figure. There's a tie-in of three things which don't relate to each other. There's never been a loan to Team New Zealand from the event, never."

On Monday night, Team NZ issued a press statement, saying "highly defamatory and inaccurate allegations regarding financial and structural matters" had been levelled against ACE, ETNZ and its personnel. They said the claims were baseless.

At the same time, MBIE said it was working with the council, ACE and Team NZ following the claims.

A spokeswoman for Twyford confirmed he had been made aware of fraud allegations concerning Auckland's hosting of the America's Cup. MBIE had been "regularly updating him" on the matter.

"He isn't able to go into any specifics about this dispute because there are contractual and commercial sensitivities."

Asked if he had confidence that public money has been used appropriately in relation to money paid towards the America's Cup, Twyford said that was the purpose of MBIE's review.

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He indicated the Cup would go ahead as planned.

"MBIE has advised today that Cup planning is continuing along original timelines."

However, one source told the Herald the "whistleblowers have tapes", saying the Government and MBIE were worried about the impact of the allegations on the Cup.

Public funding

The America's Cup kicks off with the challengers' Prada Cup in January and February, with the Cup final regatta in March.

The council-MBIE letter says they - as 'hosts' - "are extremely concerned about the ability of ACE (America's Cup Events Ltd) to deliver safe and successful Events".

The Crown appointed financial investigators Beattie Varley to have access to ACE and Team NZ personnel and relevant records "in order to verify that ACE and ETNZ have complied with their respective obligations".

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An interim report has been compiled by Beattie Varley and Town and Tremain's letter says the matters raised are "individually and cumulatively material adverse events in relation to the management and delivery of the [Cup]".

Stephen Town, chief executive of Auckland Council. Photo / Supplied
Stephen Town, chief executive of Auckland Council. Photo / Supplied

The council and the Government have poured $250m into hosting the 36th America's Cup - and the council is planning to spend a further $20m to support the regatta and other events next year.

The council's share of the $250m is $113m. The Government is spending $136.5m, including a host fee of $40m. On top of this, the council has been spending about $100m to spruce up the waterfront in time for the Cup and other events in 2021.

In their letter, Town and Tremain said it was MBIE's assessment that ACE was in breach of rules that it would use event investment solely for costs of the management and delivery of the events.

On-water safety concerns

The letter also raises operational and safety concerns around the Cup, including police and harbourmaster concerns around the use of on-water marshals.

It says a suggestion by ACE to renegotiate the on-water crowd management plan to provide for "fewer marshal boats is not acceptable and if this is undertaken, the Harbourmaster might not issue the relevant permits for the Events".

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"The delivery of a safe and successful event requires proper management of all on-water aspects and a revised plan with fewer marshal boats and stake boats would mean that there is a serious risk to the health and safety of members of the public."

Dalton told Hosking today that these issues were "possibly the most important thing".

He got involved in the on-water issues a couple of months ago. "It didn't feel right. What I found was 45 chase boats - 45. Some of which would be anchored, a lot which would be moving around in the crowd, manned by well-meaning volunteers with clipboards and fluoro-jackets. I think that's a hazard in itself.

"We suggested back that it should be significantly less volunteer chase-boat numbers... that it should be boosted by people in authority - police - on the water. We saw that as a better combination.

"Do we have a dispute on that? We absolutely do. This is not our first rodeo. I watched the restart of the Volvo Race here a couple of years ago. It was an absolute shambles. That was a health and safety issue. We treat health and safety very very importantly."

The MBIE-council letter also says an event investment dashboard that was presented on May 31 showing total spend is "materially different" to that presented earlier.

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The letter reveals a suggestion "certain personnel" from ACE and Team NZ might no longer cooperate with the financial investigation.

"It is critical that ACE and ETNZ cooperate with Beattie Varley in a timely manner so that Beattie Varley can complete the process and issue its final report".

Further allegations

In their June 22 letter, Town and Tremain say a legal letter has also been received from MinterEllisonRuddWatts "in the last few days", and shared with Auckland Council. The allegations in that letter, they said, had not been investigated (as at June 22) but that Beattie Varley had been asked to extend their investigation.

"These matters may provide the hosts with confirmation that there have been other breaches of the [host venue agreement]."

Town and Tremain do not say who MinterEllisonRuddWatts is representing.

The hosts say the allegations and concerns are enough to issue an escalation notice and they sought a meeting with ACE and Team NZ on Monday this week. It is understood that meeting went ahead.

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"The hosts consider that each of the [health and safety] concerns, reporting of the event investment [Beattie Varley] report matters, Breach of Warranty and Breach of Commitment are individually and collectively material adverse events in relation to the management and delivery of the events," said Town and Tremain in their letter.

The hosts say they are also concerned event cancellation insurance has not been taken out and, as such, they were not obliged to pay the next instalment of public funding.

MBIE, Phil Goff, Team NZ statements

Iain Cossar, general manager of tourism at MBIE, said on Tuesday evening that the ministry, along with Auckland Council, "have been made aware of some claims relating to the organisation of the event".

Cossar would not say what the claims involved beyond being "structural and financial" matters.

"The claims made require careful and thorough consideration. We are working with America's Cup Events (ACE) Ltd, and Emirates Team New Zealand in relation to the claims made."

In a similar statement on Monday night, Cossar said the organisation and Auckland Council, as co-hosts of the 36th America's Cup, had been made aware of some claims relating to the organisation of the event.

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"We are working with America's Cup Events (ACE) Ltd, and Emirates Team New Zealand in relation to the claims made," he said.

"As there are contractual agreements in place, we're unable to go into further detail at this time due to commercial sensitivity, but we will provide a full update once more information is available.

"We are motivated to make AC36 a successful event that highlights the pinnacle of sailing and showcases Auckland and New Zealand to the world."

In a statement on Tuesday, Goff said he was made aware of an investigation by Government into allegations relating to structural and financial matters.

"These relate to funds from Government and they are undertaking an investigation into these allegations. Until the investigation is complete, it is not appropriate for further comment at this point," Goff said.

The mayor did not say if anyone from council or Auckland Tourism, Events and Economic Development attended Monday's meeting.

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Stephen Town said he ended his term as chief executive at council on Friday and had not been to any AC36 meetings this week.

"I'm sure you will understand that I cannot comment," he said.

Team New Zealand boss Grant Dalton. Photo / Michael Craig
Team New Zealand boss Grant Dalton. Photo / Michael Craig

Team NZ, in an earlier statement on Monday evening, said the claims included allegations around structural and financial matters.

It said ETNZ had ended a contract and claimed "spies" were caught leaking confidential information and spreading "inaccurate allegations".

ETNZ bosses said the team and ACE became suspicious they had informants in the event organisation about six months ago.

They said those suspicions were confirmed when sensitive information recently came back to the organisations from Europe.

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"The motives of the informants, who had access to the Emirates Team New Zealand base, can only be guessed at, at this stage," Team NZ bosses said in the statement.

"In addition, these people have made highly defamatory and inaccurate allegations regarding financial and structural matters against ACE, ETNZ and its personnel.

"Although these allegations are baseless, MBIE have no choice but to investigate despite our belief that the motives of the informants are extremely suspect. We are working with MBIE to close out the remaining issues with them quickly," ETNZ said.

"Emirates Team New Zealand and ACE will not let this set us back in our America's Cup defence or hosting of a great event this summer."

In an earlier interview with Hosking on Tuesday, Dalton said: "The bottom line is it's solved, we've done it, we've sorted it. We've had nothing but help from the Government. They've been brilliant through this, through the process. We've just got to finish that process off and get some new people and get on with it."