America's Cups are famed for scandal and incident. There has probably never been anything quite like this though, once the dust settles, it's likely to be revealed as misadventure rather than anything to do with misappropriation.
After talking to sources close to Emirates Team NZ, the complex events involving millions of dollars, ETNZ, the America's Cup Event company (ACE), the Ministry of Business, Innovation and Employment (MBIE) and contractors are disconcerting – but don't seem to be anything more than that.
At the heart of the matter is money – as always with the America's Cup. There are two distinct sums – the first, $3 million paid to ETNZ by ACE for work done by ETNZ team members on the event itself (as opposed to ETNZ's design and development of its boat).
The demarcation is always confusing to outsiders. The defender is always (or is always supposed to be) separate from the event company. One entity races, the other stages the race – though the two roles have been blurred at more than one Cup regatta.
The second sum is not known but is believed to be significant, close to $1m. That is the transaction that ended up in a Hungarian bank account belonging to scammers. It's understood hackers somehow got into the email system of a contractor in Europe – the company responsible for TV and race management production at next year's Cup regatta.
An invoice was sent to ETNZ head Grant Dalton – but with a tiny, hardly noticeable change in the email address that instead diverted information to the hackers. When the invoice was processed for payment, it went through the various hands required to sign off on such payment, including an accountant who worked for the contractors involved. But the European contractor didn't receive their fee – it had gone instead to the hackers' Hungarian bank account.
ETNZ called the police in, informed MBIE and say ACE still had enough money to deliver the event. The fraud is an embarrassment to ETNZ but they are by no means alone.
Netsafe's figures to the year ended June 19, 2019, suggest about $23m was lost to this and similar scams by New Zealand companies.
Those figures are the tiny tip of a big iceberg because most companies do not report their embarrassment. Netsafe have said in the past the real figure is more like $400m-$500m and, in the US, it rolls along at an average of about $700m a month. Scamming is big business and some big names have been burned.
While the fraud got the headline, the contents of the MBIE letter published in the Herald today made it seem the $3m "loan" had been "reclassified" in a way that meant public money (part of the Government's $40m injection of funds designed to help stage the event) was going somewhere it shouldn't.
ETNZ have roundly rejected that – saying it wasn't a loan but an agreed payment for work done for ACE. They say they were actually owed $6m but decided only to charge $3m for work done by ETNZ team members helping ACE to stage the event. Designers and other team members have put in many hours for ACE which the two parties had agreed would be reimbursed.
What isn't clear is why the accounting for those hours was done after the fact. There does not appear to be a system of time sheets or software to record the demarcation. If that is so, it could be concluded that ETNZ have been pretty loose in their accounting procedures.
"Loose" isn't deliberate wrongdoing. It's a mistake, mismanagement perhaps. But the way this has rolled out has made it look like someone thought someone was fiddling the books even if that does not turn out to be the case.
Stuff like this sticks. There will be people – here and all round the world – nodding their heads knowingly and making snide suggestions about "rich man's sport" and "hands in the till".
MBIE need to quickly conclude their review and then make their findings transparent - so taxpayers, ratepayers, sports fans and others are in no doubt what happened. If there are changes to be made to ETNZ and their systems, let us know.
While they're at it, maybe MBIE can tell us if the rumours are true that someone secretly taped ETNZ meetings, gaining information? Why was Dalton personally targeted – the report about his race car being funded has been discredited but why/how did that arise?
Did the whistleblowers raise their concerns internally – with chairman Sir Stephen Tindall – or did they go directly to MBIE?
Who knows what MBIE will decide? One option is apparently for them to take over the running of the Cup event themselves. However, these regattas are beasts of things with a lot of moving parts and MBIE would be well advised to stay away. They may, however, decide to impose changes in ETNZ procedures – and maybe even at management and board levels so the public can see their investment is being protected.
But until then, let's be careful making up our minds until we know what is really going on.