Corruption in New Zealand

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Corruption manifests in different arenas of life in different ways, and can affect the corporate sector, public sector, individual politicians, political parties and governments. Transparency International generally defines corruption as "the abuse of entrusted power for private gain"[1] usually through bribery or kickbacks. A broader definition of corruption encompasses undue influence over public policies, institutions, laws and regulations by vested private interests at the expense of the public interest.[2] Corruption is often associated with fraud, which generally involves the deceitful use of documents or information for financial gain. However, fraud can occur at any level of an organisation and does not necessarily require the abuse of power.

Transparency International uses a Corruption Perceptions Index (CPI) to compare levels of economic crime in different countries and has consistently ranked New Zealand as one of the least corrupt countries in the world. However the rankings are primarily based on opinion surveys rather than empirical evidence – and Transparency acknowledges that corruption is "to a great extent a hidden activity that is difficult to measure".[3] Notwithstanding the subjectivity of its corruption scale, it has ranked New Zealand as one of the least corrupt out of 183 countries since 2003.[4]

Agency perspectives[edit]

The SFO view[edit]

Staff at the Serious Fraud Office work at the corporate coalface and see how fraud and corruption manifest in New Zealand. In the past 12 months, the SFO has successfully pursued charges or convictions against eight finance companies and targeted $2.2 billion worth of fraud. They achieved a 100% conviction rate.[5]

Based on his experience, SFO chief Adam Feeley says: “Crime, fraud, corruption, call it what you will, is a growing part of organisational reality. We are socially, ethnically and financially – in terms of rich and poor in our society – a very different country than we were a few years ago and, particularly since the global financial crisis.”[6] Feeley believes that most company boards ignore what he sees as a growing problem in New Zealand in the mistaken belief that their internal auditing processes will deal with it. In reality, internal audits pick up only 2% of fraud cases in New Zealand[7] and, in the past five years, were unable to prevent 13 cases of staff theft at Work and Income totalling more than $180,000.[8]

Adam Feeley points out that only 44% of the top 50 NZX companies even have formal policies prohibiting bribery. By comparison, in Britain 72% of the top 100 companies have such policies. In Europe the figure is 57% and in the US 69%. Only 16% of NZX companies have a code of ethics that is rated 'Advanced' by Corporate Analysis Enhanced Responsibility (CAER), the Australia-based centre for ethical research.

Feeley says there are fundamental misconceptions about New Zealand's ranking as one of the world's least corrupt countries. And that 'incorrect' perception is part of the reason directors feel so smug about resisting formalised anti-corruption and values-based corporate policies.[6] He dismisses the significance of Transparency International's Corruption Perceptions Index that ranks New Zealand as the world's least corrupt nation. “All that survey tells us is how people feel about life here. How they feel and what is actually happening are quite different things. The CPI is nothing more than a perception.” Feeley points to the results of a more recent survey conducted by the SFO which found only 37% of New Zealanders think we are 'largely free' of serious fraud and corruption. And 60% think those who commit financial crime are not held to account.[6]

Nick Paterson, general manager of the fraud and corruption unit at the Serious Fraud Office, also believes there is a gap between New Zealanders perceptions of corruption and the reality. Paterson says there is a particular potential for corruption around tender processes and general procurement of services – citing the case of sacked Accident Compensation Corporation property manager Malcolm David Mason. The SFO began an investigation into Mason when former ACC Minister Nick Smith questioned a lease ACC signed for a new office in Nelson costing $346,320 a year – two and half times more than what the corporation was previously paying. Mason subsequently pleaded guilty to three charges of bribery and corruption after admitting he took a bribe of $160,000, and a $9000 Singapore holiday for disclosing confidential government information to a businessman who profited from it.[9]

One of the difficulties in measuring the extent of procurement bribery is in defining what behaviour crosses the line – especially in the private sector. In the public sector there are usually guidelines and codes of conduct. Paterson says: "It's where you draw that line and it varies from organisation to organisation in the private sector... In the public sector there is zero tolerance and taking it to prosecution is required."[10] Although fraud cases generally go to court, Paterson says there has been a lack of bribery and corruption cases before the courts, and thinks that may be because the issue has not been taken seriously. He points out that New Zealand is a party to the OECD's Anti-Bribery Convention – but an OECD review in 2010 noted we had no nominated lead agency to head the battle against corruption and bribery.[10]

International auditor's views[edit]

In 2009 PricewaterhouseCooper (PwC) conducted a survey on Global Economic Crime. It revealed that "42% of New Zealand organisations (public and private) have suffered from an economic crime in the previous 12 months, with an average loss of almost $492,000."[11] In 2011, another PwC survey found the figure had risen to almost 50%.[12] PwC says this is a particularly high proportion and is significantly above the global average of 34%.[13] It gives New Zealand the fourth highest level of fraud out of the 78 countries surveyed. In 2011, 4% of New Zealanders also admitted to paying a bribe – which is twice as high as the rate in Australia and four times the United Kingdom's rate.[14]

Accountancy firm Deloittes is more concerned about the potential for fraud for the growing number of New Zealand and Australian companies with offshore operations. It notes that in 1970, nearly all of New Zealand's export trade was with countries like the UK, US and Australia all of which have low levels of corruption. However in 2011, less than 50% of trade went to these countries, as more and more goes to countries with high levels of corruption in both business and government.[15] In 2012 Deloittes conducted a Bribery and Corruption Survey which found almost half of organisations with offshore operations have never conducted a corruption risk assessment and that 80% do not regard foreign bribery and corruption as a significant risk to their business.[16] It concluded that exposure to bribery and corruption is on the rise in New Zealand but the risks are not being addressed.[17]

Barry Jordan, head of the forensics team at Deloitte has never bought into the idea that New Zealand is free of corruption. He says many corporations are reluctant to report fraud or corruption for fear of damaging their brand and private sector cases often never make it into the media because such cases are settled internally.[10]

The Auditor General's view[edit]

In 2011 the Auditor General released the results of its own survey on fraud awareness in New Zealand's public sector. The survey confirmed a low level of fraud within the public sector, but nevertheless, the OAG acknowledges that "fraud is a fact of business life in New Zealand"[18] and that there had been "an unprecedented number of high profile requests for (the OAG) to inquire into" in 2011/12.[19] The Auditor General also found that the larger the organisation, the more likely fraud was to occur. For government entities with more than 2,000 staff, 61% of respondents were aware of at least one incident of fraud at their organisation in the preceding 12 months.[20]

In addition to an increase in fraud, the OAG's Annual Report for 2011 rated almost half of central government entities as "needing to improve" their management of information and controls.[21] This appears to relate to the high number of confidential information breaches by Government departments in 2012.[22] ACC sent out 7,000 confidential files to Bronwyn Pullar[23] and computer systems at Work and Income were found to be open to anyone using their public kiosks.[24] An independent report highlighted the risk with the kiosks in April 2011 and a beneficiary advocate had twice raised concerns. The warnings were ignored and Social Development Minister Paula Bennett acknowledged the privacy breach had exposed "atrocious" practices and that the ministry "woefully underestimated" the risk of hacking.[25]

Although information breaches do not automatically lead to fraud or corruption, they have the potential to. They demonstrate poor governance, inadequate protocols and undermine confidence in the institution of government[26] – as does corruption. State Services Commissioner Iain Rennie has formally asked the Government chief information officer Colin McDonald to carry out an urgent review of publicly accessible systems operated by State Services.

Public sector corruption[edit]

Given these differing views, the extent of corrupt practice in New Zealand is not entirely clear – even in the public sector. One especially blurred case involves the Corrections Department. In 2010 the Dominion Post reported that the Department failed to disclose to Parliament a huge contract it gave to one company by claiming that the company provides services and maintenance but "the contract is not to a contractor".[27] That company was Honeywell – a multinational technology and security firm which Corrections used to install cell phone blocking technology. Originally budgeted at $6 million, the cost of the service blew out to $11 million. Several former Honeywell employees work for Corrections, manage Corrections' contract with Honeywell and even approve payments to Honeywell.

The Dominion Post said the undisclosed contract was among hundreds of contracts worth tens of millions of dollars which Corrections has with consultants and contractors that were never tendered.[27] The editor of The Dominion Post was sufficiently concerned about the dubious nature of Corrections contracting arrangements to suggest there should be an independent inquiry.[28] A few questions were raised in Parliament about the Corrections Department's procurement processes but no inquiry was held.[citation needed]

A much clearer case was that of former Auditor General and ACC boss, Jeff Chapman, who in 1997 was convicted of 10 charges of fraudulently using documents totalling $54,594. He was sentenced to 18 months in prison.[29] One of the biggest public sector cases was that of Michael Swann who was chief information officer of the Otago District Health Board. He was convicted of defrauding the DHB of approximately $16.9 million between 2000 and 2006 and was sentenced to nine years six months in prison. On a smaller scale, tax department investigator Alex Song, was sentenced to three months' home detention in 2008 for soliciting $120,000 to make a tax investigation go away.[10]

The immigration section of the Department of Labour also has problems with fraud. It has a fraud unit which investigates the sale of fake degrees, sham marriages and bogus job offers to aid residency applications to New Zealand. In 2005, former head of the immigration unit, Mary Anne Thompson, told the New Zealand Herald: "We come across many cases every year where people have tried to provide forged documents for qualifications, marriages that are not’s pretty brazen and out there, and that’s a worry." National’s Asian affairs spokeswoman Pansy Wong said she had spent years complaining to officials about the scams, but nothing had been done.[30]

Ironically, Ms Thompson was forced to resign three years later after using her position to help three family members from Kiribati gain residency.[31] In 2012 she was found guilty of fraud after pleading guilty to three counts of using a document for pecuniary advantage. She claimed on her CV she held a PhD from the London School of Economics (LSE) – credentials she used when applying for New Zealand public service jobs in 1989, 1998 and 2004.[32] Another high-profile case involving a forged CV was that of Canadian John Davy who was appointed head of Maori TV after claiming he held a master of business administration degree. His case was taken much more seriously by the Courts; he was only in the job for three months but was sent to prison and then deported. According to one editorial, "he did no harm after dishonestly getting his job" while Ms Thompson benefited from her fraud for much longer but was simply told her offence was 'out of character'.[33]

Corporate fraud[edit]

The private sector in New Zealand has seen a significant increase in fraudulent activity in the last 30 years. Although there have been earlier company failures due to fraud – such as the collapse of Jeff Brother's Ltd (JBL) in 1972 – financial turmoil in New Zealand came to a head in the stockmarket crash of 1987. The crash followed a sharemarket boom in the early 1980s during which investment companies like Brierleys, Chase Corporation, Equiticorp, Robert Jones Investments, Renouf Corporation and Capital Market had huge increases in value by issuing shares to the public. The National Business Review suggested at the time that unsophisticated New Zealand investors were 'bedazzled by paper shuffling'.[34] Apparently little of the newly raised equity was going into real projects and financial commentator Brian Gaynor subsequently commented that "There were endless media comments about inside trading, creative accounting, poor disclosure and huge paper profits for IPO promoters."

As a result of the crash, many companies on the NZ stock exchange disappeared, wiping out millions in shareholders’ funds. In 1989 alone, almost 3,000 companies became insolvent – the collapse of the high-flying Equiticorp stood out as one of the largest. These turbulent events led to the establishment of the Serious Fraud Office to investigate complex cases of fraud including bribery and corruption.[35] Allan Hawkins, the founder of Equiticorp, was one of the first to be pursued by the SFO. He was convicted of conspiring to dishonestly use a system designed to disguise the source and disposition of money and four counts of defrauding his own company. He was sentenced to six years in prison while other Equiticorp directors were jailed for shorter terms.[36]

The stock market eventually settled down but fell in value from $45.5 billion before the crash to only $14 billion by 1991.[37] However, financial institutions in New Zealand continued to run close to the wind. In July 2007, Bridgecorp collapsed owing 14,500 people about $490 million. The five directors were convicted of making untrue statements in the company's offer documents and the judge sentenced Rod Petricevic and Rob Roest to six and a half years in prison.[38] Also in 2007, Capital + Merchant Finance collapsed owing $167 million to 7500 investors with the directors facing numerous charges arising out of its demise.[39] Wayne Douglas and Neal Nicholls, the founding directors of Capital+Merchant were found guilty of 'theft by a person in a special relationship' and jailed for seven and a half years each – the longest sentences so far given to failed finance company directors.[40]

One of the largest finance companies to fall was South Canterbury Finance in 2010 with debts of $1.7 billion. Charges were laid by the SFO against the owner, Allan Hubbard, but the case against him was dropped after he died in a car crash.[41] Also in 2010 Stephen Versalko was sent to prison after committing the biggest case of employee theft in New Zealand. Versalko stole $17.8 million from wealthy clients while working as an investment adviser at the ASB's Remuera branch.[42] In 2012, KPMG released its latest fraud figures for New Zealand showing losses in 2011 were $279 million.[6] Altogether since 2005, more than 50 finance firms have failed, leaving billions of dollars owed to retail investors, lengthy legal tussles and jail sentences for an increasing number of company directors.[43]

Finance companies aren't the only ones being investigated by the SFO. In 2012 SFO chief Adam Feeley said "We opened 40 new investigations in the last financial year, the most cases the SFO has ever taken on in a year, none of them were finance companies.[44] We do have a problem [with financial crime], it's endemic in every sector of business, it exists in the public sector, it's a transnational problem and it's not getting any smaller." In November 2012, the SFO began investigating Ross Asset Management (RAM), possibly New Zealand's largest ever Ponzi scheme, after receivers revealed that only $10m had been recovered of the $450 million which had been invested.[45] The following month it was reported that the Financial Markets Authority (FMA) was investigating the role of financial advisors who recommended their clients put money into the scheme. Investor spokesman Bruce Tichbon said some investors had already started legal action against authorised advisors who put them into RAM.[46]

Affinity crimes[edit]

The SFO also warns of a rise in "affinity crimes", where in the wake of the collapse of finance companies run by strangers there is a trend for people to feel their trust is better placed in people they know. One such case was that of Jacqui Bradley who in 2012 was convicted on 75 fraud charges relating to a Ponzi scheme that stripped $15.5 million off 28 victims – many of them her personal friends.[47] Another case was that of Anthony Allison, a stockbroker who was jailed for 4 years after stealing $1.1 million from friends and clients to fund his lavish lifestyle. Allison offered to take care of the finances of family friends and wealthy clients he met through the Parnell Tennis Club and then plundered their bank accounts.[48]

Tax fraud and welfare fraud[edit]

A study by tax lecturer Dr Lisa Marriott of Victoria University has found that there is 150 times more tax fraud in New Zealand than welfare fraud[49] – but those who commit welfare fraud are more likely to go to prison.[50] She examined three years of tax evasion and welfare fraud and found that welfare fraud was also significantly more likely to be prosecuted than tax fraud – despite substantially greater losses from the latter. In 2010 alone, tax evaders cheated the country of between $1 billion and $6 billion, while welfare fraud cost only $39 million. In 2012, 714 people were convicted for defrauding taxpayers of $23.4 million.[51]

The total amount owed back to the Government from welfare fraud was about $106 million because most of those convicted were only able to pay back very small amounts.[52] The average amount stolen by welfare fraudsters was $70,000, and those found guilty had a 60 per cent chance of being jailed. For tax evaders the average fraud was $270,000, but those found guilty had only a 22 per cent chance of being jailed. For example, a welfare fraudster who stole $148,000 – at the upper end of the scale for welfare fraud – received 18 months in prison. A woman who received an extra $51,000 over five years from Work and Income was given a 12-month prison term.[53] Meanwhile, a tax cheat who failed to pay $222,000 in tax – at the lower end of the prosecution scale – got eight months' home detention and 250 hours' community service. In 2012 Antoinette Cherrington, a Bay of Islands businesswoman pleaded guilty to 59 charges relating to the non-payment of $109,358 in tax and was sentenced to home detention and community work.[54] Another tax cheat who avoided paying $500,000 was only sentenced to 12 months' home detention.[50]

Marriott found that public attitudes towards tax evasion were indulgent, sometimes admiring, while beneficiaries were considered "scroungers or cheats". Commenting on the results of the study, Revenue Minister Peter Dunne. “I don't think that's fair.”[55] Auckland Action Against Poverty spokeswoman Sarah Thompson said: "We have a cult of prejudice against beneficiaries. This research shows not only is that belief unfounded, but it's wrong. Tax evaders are ripping off the country to a much greater extent than beneficiaries are."

Police corruption[edit]

The term ‘police corruption’ has been used to describe a range of unethical or illegal activities: bribery; excessive use of force; fabrication and destruction of evidence; racism; and, favouritism or nepotism. Police corruption generally involves an abuse of power – what is corrupted is the ‘special trust’ invested in the police. Corruption in the police service is not necessarily about money but may still involve unethical or illegal behaviour for personal gain – such as the kudos of gaining a conviction or the possibility of promotion.[citation needed]

One example of police corruption in New Zealand was that of Arthur Allan Thomas. Thomas was convicted twice for murdering Harvey and Jeanette Crewe after two detectives, Bruce Hutton and Len Johnston, planted a cartridge case in the garden of the house where the murders were committed to secure a conviction against him.[56] Author Chris Birt, who spent 37 years studying the Crewe murders, believes that Hutton and Johnston 'were not alone'. He says Hutton was pressured by the head of the national Criminal Investigation Branch, Bob Walton, to come up with a "solution" to the murders.[57]

Former police inspector, Ross Meurant, who searched the Crewe's property at the time (and failed to find a cartridge) says he was also pressured by Walton to change his evidence at the Royal Commission which was held into the case nine years later. Meurant says: "It's true that New Zealand is largely free of blatant corruption – such as kickbacks, bribes and inducements for the personal gain of officers – but in its place has emerged a corruption of zealousness; where police break the law to put someone behind bars because of the belief within police that they know what is best for society."[58] This is sometimes known as 'noble cause corruption’ when police commit an offence believing the end justifies the means.[59]

Investigative agencies[edit]

The Independent Police Conduct Authority[edit]

The Independent Police Conduct Authority is an independent body that considers complaints against New Zealand Police and oversees their conduct.[60] Under section 12 of the Independent Police Conduct Authority Act 1988, "the Authority's functions are to: receive complaints alleging misconduct or neglect of duty by any member of Police or concerning any Police practice, policy or procedure affecting a complainant; and to investigate incidents in which a member of Police (acting in the execution of his or her duty) causes or appears to have caused death or serious bodily harm."[61]

The Ombudsman[edit]

The first New Zealand Ombudsman was appointed in 1962. The Ombudsman's role is to ensure citizens receive 'fair play' in their dealings with government entities. Over the years the powers of the Office have been extended to include education and hospital boards (from 1968), local government agencies (1975), requests under the Official Information Act (2003) and in 2005, all crown entities.[62]

See also[edit]


  1. ^ Transparency International
  2. ^ Definitions and types of corruption
  3. ^ Transparency International (2011). "Corruption Perceptions Index". Transparency International. Transparency International. Retrieved 1 December 2011. 
  4. ^ Alexander Gillespie: Legal code of conduct for politicians needed, NZ Herald 20 September 2012
  5. ^ Police avoid hard questions Stuff website 28 October 2012
  6. ^ a b c d The Director – Cover Story: Boards blasé about management
  7. ^ The 2011 Global Economic Crime Survey results for New Zealand p 15
  8. ^ WINZ unit fails to stop staff fraud
  9. ^ Minister: ACC corruption case not over
  10. ^ a b c d Corruption rears head in NZ business
  11. ^ Cleanest public sector in the world: Keeping fraud at bay
  12. ^ Global Economic Crime Survey 2011
  13. ^ The 2011 Global Economic Crime Survey results for New Zealand p 4.
  14. ^ O'Neill, Rob (9 January 2011). "Corruption rears head in NZ business". Sunday Star Times. Retrieved 12 May 2011. 
  15. ^ Deloitte Bribery and Corruption Survey 2012 Australia & New Zealand: A storm on the horizon? p 16.
  16. ^ Deloitte Bribery and Corruption Survey 2012 Australia & New Zealand: A storm on the horizon? p 3.
  17. ^ Bribery and corruption – exposure, enforcement and accountability key risks for New Zealand organisations
  18. ^ Cleanest Public Sector in the World: Keeping Fraud at Bay
  19. ^ Summary Annual Report 2011/12
  20. ^ The 2011 Global Economic Crime Survey results for New Zealand p 8
  21. ^ Summary of our outcomes, Annual Report, Office of the Auditor General, p 4.
  22. ^ Privacy breach reports jump since last year, Dominion Post 5 December 2012
  23. ^ Pullar has done us a huge favour
  24. ^ Ministry shuts down PCs to prevent more breaches
  25. ^ MSD report exposes 'atrocious' practices – Paula Bennett
  26. ^ Urgent review of Govt computer systems ordered
  27. ^ a b Honeywell contract not disclosed
  28. ^ Editorial: Time for correction of Corrections
  29. ^ Jail for Access boss
  30. ^ Migrants sold hope in phoney documents, The New Zealand Herald, 3 April 2005
  31. ^ Immigration Service boss quits after visa scandal, DomPost
  32. ^ Maori TV fraudster: It's Kiwi injustice, NZ Herald 7 May 2010
  33. ^ Editorial: Scales of justice tilt in CV fraudster sentences
  34. ^ Property fallout would top '87 share crash
  35. ^ SFO History
  36. ^ Story: Business failures and corporate fraud – Failures since 1950
  37. ^ Banker tips more crises
  38. ^ Bridgecorp trio facing $442m claim
  39. ^ Finance company directors face likely jail stint
  40. ^ Capital+Merchant men plead guilty to new charges
  41. ^ Departing SFO boss hints at huge fraud case
  42. ^ Fraudster's wife wins ASB payout
  43. ^ Receivers of failed firms get fat cut
  44. ^ SFO chief: Be afraid, be very afraid NZ Herald 28 September 2012
  45. ^ Serious Fraud Office investigating Ross Asset Management DominionPost 19 November 2012
  46. ^ Ross collapse prompts adviser probe, Stuff, 4 December 2012
  47. ^ Bradley Ponzi scheme: The not-so-winning woman
  48. ^ Conman preyed on friends, NZ Herald 2 December 2012
  49. ^ Political round-up: October 23 NZ herald 23 October 2012
  50. ^ a b Courts softer on criminals wearing suits, Dominion Post, 18 November 2012
  51. ^ Benefit fraud grows as repayments trickle in
  52. ^ Benefit fraud grows as repayments trickle in
  53. ^ Benefit fraudster's jail term cut,
  54. ^ Home detention for Northland tax cheat, NZ Herald, 30 November 2012
  55. ^ Courts tougher on benefit fraud than tax dodging – study
  56. ^ Crewe case: Murder review nears end
  57. ^ When good cops go bad, North & South magazine, October 2011, p 45
  58. ^ When good cops go bad, North & South magazine, October 2011,p 44
  59. ^ Understanding and preventing police corruption: lessons from the literature, Tim Newburn 1999 p 4.
  60. ^ It's our job to keep watch over Police IPCA website
  61. ^ Role and powers IPCA website
  62. ^ History of the Ombudsman

Further reading[edit]

External links[edit]