KEY POINTS:
In 1980s corporate culture no one would have looked twice as John Key tucked into mussel chowder and sipped champagne at a classy Wellington restaurant in August 1988.
He and his dining companion, Paul Richards, joked with the maitre'd and revelled in the bonhomie. Like all traders, they were well-known on the restaurant scene. By their account, this $342.40 lunch was at Plimmer House on August 31.
Key and Richards were mates and had been colleagues in foreign exchange at Elders Merchant Finance, the Wellington division of swaggering Australian corporate Elders IXL. It was Key's last day - he was heading to Auckland for a job at rival Banker's Trust. Key and Richards would soon be working together again on trading floors around the world. But this was the end of an era.
They called their lunch the Last Supper.
This week, 20 years later, that lunch and the events surrounding it had Key's opponents salivating at the thought that it could lead to the National leader's political crucifixion.
The outcome, however, has been messy, not fatal. Labour - and the Herald - have stood accused of digging dirt and running a smear campaign. Key, meanwhile, was left answering questions about his knowledge of the A$66.5 million (NZ$76 million) H-Fee, two sham foreign exchange deals at Elders in 1988, considered one of New Zealand's most notorious white collar swindles.
His recollection of those events in an interview with the Herald last year have been exposed as incorrect on several fronts.
As far as political scandals go it is intriguing for several reasons. For Key, it has highlighted again the fact that his grasp and recall of important details can be unreliable and has brought into question his judgment because of his loyalty to Richards, named as a co-conspirator for his alleged role in the H-Fee. For Labour, it has exposed the lengths the party has been prepared to go to in its quest to undermine the biggest threat to Helen Clark's nine-year tenancy of the Prime Minister's office.
If nothing else, this week has been a fascinating expose of the anatomy of a political dirt file.
On October 13, an anonymous blogger posted to Labour Party-affiliated website The Standard. The blogger, calling himself Batman, is believed to be a senior official, most likely party president Mike Williams, although he has denied it was him.
"Batman" alleged that he had uncovered a story of "lies, conspiracy, fraud, theft, and a truly good cover up that has stood the test of time - until now." The blog recounted Key's firm denial of involvement in the H-Fee when he gave an interview with the Herald's press gallery last year. It also accused the Herald of failing to dig deeper when it reported on the issue again this year. "Eugene Bingham's digging has been with a teaspoon," wrote Batman. "Either Granny Herald's huge political staff is asleep at the wheel, or this watchdog has turned into a blue-rinsed poodle. Batman charitably favours the former explanation."
Batman promised more dirt.
Whether or not he is Batman, Williams has been a determined Key-hunter for years.
About three years ago, Williams was on the case over Key's electoral roll declarations. Williams lodged a complaint with the Electoral Enrolment Centre over Key having listed himself on previous rolls at an address in his electorate, Helensville, even though he was living in the Epsom electorate.
The complaint was dismissed but not until Williams had doggedly pursued the matter, contacting several journalists to cajole them into exposing Key's alleged wrong-doing (the Herald did report on the complaint).
Soon, Williams was on the scent of another possible scandal. The possibility of Key's part in the H-Fee scandal was dropped into Labour circles by an anonymous tipster some time in 2006. Not long before Key took over from Don Brash as leader of the National Party, a senior Labour Cabinet minister approached Bill English and told him not to vote for Key, saying: "We've got a neutron bomb, we're going to blow him up. Ask him about the H-Fee."
Public taunts began in August last year. Cabinet Minister Trevor Mallard interjected across the House: "What about the H-Fee?" And Williams allegedly told a gallery journalist at a social function that Labour had a "neutron bomb".
Deciding that attack was the best form of defence, Key walked into the Herald's press gallery on August 23 to outline his side of the H-Fee story. During a 14-minute interview, he jovially explained how Labour thought they had him, when in actual fact they had missed their target. The story was elaborate and detailed, the essence of it being: "I wouldn't be sitting here today if I did anything dodgy. I never did the deals, I never knew about the deals, I was never involved in the deals and they happened after I left Elders Merchant Finance to go to Bankers Trust."
The Herald carried the story on 24 August 2007, and was followed by other media. Former Serious Fraud Office head Charles Sturt backed Key, as did two men jailed for their part in the debacle, Allan Hawkins and Ken Jarrett.
The neutron bomb had been defused - or had it?
When anonymous calls to the Labour Party continued, Williams refused to let the matter drop. Last week, he was in Melbourne inspecting court documents relating to the failed prosecution of Australian executives implicated in the H-Fee scandal.
The Herald too was on the case.
What has emerged is evidence of Key having been wrong about elements of his story, including his claim that he left Elders Merchant Finance in 1987. In fact, he resigned in June 1988 and officially left on August 31. He also said in the interview last year he had left Elders three months before the the H-Fees went through. Technically wrong too.
Was he being deliberately misleading or was he genuinely mistaken? Surely, if you're going on the front foot to fend off serious allegations, you get your facts right, don't you?
For Key, the problem is that he should not be seen to be mistaken during the heat of an election campaign. Labour's stump speech revolves around the theme of trust, and Key has previously been mistaken or less than forthcoming with the truth - remember the TranzRail share issue? When the media reported that he had owned 30,000 shares in the company, he failed to disclose that he in fact owned 100,000. Making matters worse, when challenged by a TVNZ reporter last month, Key was not immediately up-front, initially saying he owned 30,000 shares, until corrected by the reporter.
The TV sting was orchestrated by Labour's research unit which had armed the reporter with the 100,000 figure, part of a strategy to exploit every opportunity to make Key look dishonest. The H-Fee was another chance, even if it was always going to be a complicated munition.
Key's connection to the deals is tied through the Melbourne court papers to the Wellington lunch 20 years ago. The first H-fee deal from Elders to Hawkins-related companies in January 1988 occurred in Australia which is why, Key said this week, he did not know about it until told about it by the Herald on Wednesday. As for the second, there is no evidence of his being involved. But he became a person the Serious Fraud Office and the Australian National Crime Authority (NCA) were interested in talking to because of what Key's lunch partner Richards told investigators.
In an interview with the SFO in November 1990, Richards revealed the reason he remembered a crucial meeting with Elders executive Ken Jarrett was because he had been called away from lunch with Key.
"I think it was August, actually, because I'd been to lunch with the guy I worked with ... John Key, and he'd just resigned," Richards told the SFO. He told the SFO he was "... drunk was probably an understatement" - though he later told the court in Melbourne he was "less than drunk" - and that the lunch was at Plimmer House.
Investigators found an American Express account matching that lunch. The date on it was August 31, 1988. This date was to become a point of contention.
When investigators spoke to Key, he too said the lunch was August 31. "We had a few drinks and then at about 2pm, after entrees, Paul got a phone call and had to return to the office because of some problem in the dealing room," Key told the NCA in May 1991. "Paul returned some 45 minutes later. He had sorted the problem out."
When Key spoke to the Herald about the H-Fee last year, he added more details to his recollection of that lunch. Firstly, he said that Richards had told him he had to go back to the office because Jarrett was in town.
"He went from the lunch and then he came back. I said, 'Was Jarrett there?' and he said, 'Yeah, and it was the most bizarre thing but we'll worry about that another time'. That was the end of it - I wandered off into the sunset to Bankers Trust."
Key also told the Herald last year his evidence to the investigators had corroborated Richards' version and enabled them to prove Jarrett was in town when he denied he was. "[Investigators] eventually went to Jarrett and Jarrett in the end confessed. What he confessed to was he took a private jet and flew into Paraparaumu airport, no passport, came down here, issued instructions because they would never do it anywhere else and got back on the jet and went back to Australia."
It was a fantastic story of 1980s jet-set life. But from the evidence available - and according to Jarrett himself - it's wrong.
From the start, Jarrett told investigators that he flew to Wellington and met with Richards and New Zealand Elders head Peter Camm, but he said it was August 26, a date which matches up with his passport records. On that day, he also had other meetings, including one with the Reserve Bank and flew back to Melbourne. Contacted this week, Jarrett told the Weekend Herald he wanted to keep out of New Zealand politics, but he confirmed that while he frequently used the company jet at that time, he used Wellington airport and had never tried to avoid passport control.
Oddly, Richards' American Express account shows he did have a lunch on August 26 but that was at another Wellington restaurant, Kasey's. Did he and Key just get their dates wrong? Richards was adamant the answer was no. He told the court the farewell lunch with Key couldn't have been Kasey's because he and Key didn't like it.
Key this week stood by his recollection of the lunch of August 31 and Richards' account of being called away to the meeting.
"I remember it absolutely clearly. If Jarrett wasn't there or [Richards] got his facts wrong, I don't know. But that is what he said to me and that was my only involvement in it." As for the story about Paraparaumu airport, Key said that was what Richards had told him.
His comments pushed responsibility on to Richards and was the first public sign of any attempt to distance himself from the friend he has previously been happy to employ in trading rooms.
Richards was named as a co-conspirator during the Melbourne case, but given immunity from prosecution. He told the court of his role, which involved working out how the fake foreign exchange transaction could be done and faxing figures to Hong Kong, where the fake deal was eventually channelled.
On the stand, Richards was grilled at length about his memory of the meeting and the lunch. Lawyers for the defendants accused him of talking nonsense and challenged him over whether he and Key had discussed Key's statement to match their stories - accusations he strongly denied. Key also this week disputed any suggestion the pair had colluded to get their stories straight.
Who would have guessed a farewell lunch would cause so much angst?
The quest to find the dirt on Key has uncovered an awfully messy series of recollections. Key has been found to have been wrong on several fronts about his memory of the events, but there is no evidence he was involved in the H-Fee transactions.
Last Saturday morning around breakfast time, though, Labour thought it had struck pay-dirt among the Melbourne documents. The cheque for the first H-Fee bore a cheque with a signature strikingly similar to Key's. Senior Labour party figures discussed whether to break the story straight away. By 8.30am, the decision had been taken to wait until more checks could be made - a wise move. Other documents proved that the signature belonged to an Australian-based Elders executive, not Key.
Still, plans were made to capitalise on the H-Fee saga. When the Herald broke the story on Wednesday, Clark was distancing herself from it. But it is understood she was briefed about developments, as was senior strategist and cabinet minister Pete Hodgson who spent Monday and Tuesday reading the thousands of documents Williams brought back from Melbourne.
And where's Batman? On Thursday, a blogger on The Standard site posted some advice to his party: "Make sure you've got your ducks lined up before you go to the media, and when National is releasing stuff like their appalling prison policy don't waste your time on blind alley stories like this one." Batman has been turned on by his own.
The paper trail:
In the chronicles of New Zealand corporate fraud, the H-Fee is legendary. Yet in spite of being picked over by investigating authorities and judges on both sides of the Tasman, no one is clear exactly how it worked.
Even what the "H" in H-Fee stands for is a mystery (Justice Tompkins in the High Court at Auckland noted during the 1992 Equiticorp trial that one likely theory was that it was a reference to Hawkins, especially seeing as in one of the thousands of documents seized by the Serious Fraud Office it was called the "Harold fee", Harold being one of Hawkins' nicknames).
When the Weekend Herald spoke to a lawyer involved in the Equiticorp case to ask what he could remember, he laughed: "Not much. We never got to the bottom of it. Ask Hawkins!"
In fact, nobody is that keen to talk about the H-Fee. Paul Richards, a former colleague of Key's who gave evidence in Auckland and Melbourne as an indemnified witness, refused to talk about it this year. The Weekend Herald approached another witness central to the case who now has several high profile investments, but he was not forthcoming either.
The Serious Fraud Office failed to respond to queries.
A long paper trail, then, is our best source of information about the H-Fee. It featured in the 1992 Auckland Equiticorp trial, forming part of the SFO case against Hawkins and his co-accused. Justice Tompkins ruled the H-Fee transactions were illegal, and he convicted Hawkins for his part in it.
But the most compelling detail about the H-Fee are in the archives of the Office of Public Prosecutions in Melbourne. The Weekend Herald visited those offices this week, studying the 13,000 page file.
From 1994-1996, the A$66.5 million transactions were at the heart of two cases brought against Elders executives. In one, Ken Jarrett, a Whakatane-born 1980s corporate high-flyer once ordained Australia's finest finance director, sensationally pleaded guilty and turned Crown witness. The other saw Elders boss John Elliott and several lieutenants go to war with the Australian National Crime Authority.
Elliott, the former president of the Liberal Party, and his associates were acquitted after a legal case which gripped the Australian business and political world.
The Crown had honed in on two 1988 payments from Elders to Hawkins-related companies, one of A$39.5 million on January 11 and the other of $27 million on September 7. Prosecutors said the payments were sham foreign exchange transactions designed to conceal a back-hander to Hawkins.
According to Jarrett's evidence, the first transaction was arranged in Australia between himself, Equiticorp and the BNZ in Sydney. The files show that auditors raised questions about the sham transaction. As a result, said Jarrett, he decided that he needed to take more care with the second payment to make it look legitimate. In late August late 1988, he flew to Wellington to consult New Zealand Elders boss Peter Camm (who was cleared of wrong-doing). During the meeting, Jarrett and Camm called for their new foreign exchange head, Paul Richards - a request that dragged John Key into the saga.
