Our electronic surveillance agency might have illegally spied on New Zealanders to a greater extent than previously revealed, Parliament has been told.

But the scale of any illegal surveillance by the Government Communications Security Bureau might remain hidden because documentation which detailed it was either not kept or is missing.

The few details of the GCSB's latest legal problem are revealed today in the annual report of the Inspector General of Intelligence and Security, Cheryl Gwyn.

The revelation opens the bureau again to allegations of sloppy handling of the world's most sophisticated surveillance technology which it uses through a partnership with the United States, the United Kingdom, Australia and Canada.


The issue emerged through an internal GCSB investigation, which is part of its obligation to ensure it is compliant with its own laws.

There is nothing in the annual report to reveal how the new issue emerged more than three years after then-Cabinet secretary Rebecca Kitteridge authored a report which revealed poor systems and illegal practice by the GCSB.

Her report revealed GCSB staff had been following a flawed manual which contained legal errors - one of the reasons for 88 indentified instances of illegal spying.

Gwyn's report said that the GCSB's compliance investigation which revealed the potential legal problem was one of four carried out during the past year.

"One investigation related to a potential error in reporting of historical unlawful intelligence-gathering, along the lines already identified in the Kitteridge Report. The compliance investigation determined that any further inquiry would be frustrated by poor past documentation and incomplete historical records.

Gwyn said the GCSB director told her "there was no credible reason to suspect that there was unlawful intelligence gathering further to that already identified".

She said: "On that basis there was no further audit or investigation."

She said the internal investigation included a recommendation to make sure the GCSB follows the law when it comes to retaining records of its activities.

Asked for further detail, Gwyn said she would make no further comment as "I'm still looking at whether to inquire further into that issue".

The revelation couldn't come at a worse time for the GCSB which has undergone a difficult rehabilitation after being caught illegally spying on internet mogul Kim Dotcom and programmer Bram van der Kolk, who were sought by the FBI on copyright breaches.

The Government is seeking a law change that would allow it to legally spy on New Zealanders under tight controls - a shift from the GCSB's current legal baseline which bans it from carrying out surveillance on citizens and residents.

A full-fledged inquiry by Gwyn would be awkward for the GCSB if further instances of illegal spying were revealed. If they occurred after Kitteridge's report, it happened at a time when the bureau should have known better. If it happened before then, it means the details were not supplied to Kitteridge, who is now NZ Security Intelligence Service director.