The Police are being blamed for telling the Government's spy agency that Kim Dotcom and his associate were foreign nationals when they were in fact New Zealand residents.
The Government Communications Security Bureau asked the police to confirm Mr Dotcom's status before they eavesdropped on him and his co-accused Bram van der Kolk.
They're not allowed to tap New Zealanders' phones.
The Police told the agency they were foreigners.
A memorandum's been tabled in the High Court showing the botch-up and admitting the spy agency's actions were illegal.
Police Minister Anne Tolley won't be drawn as to whether the police performance has been adequate.
"I think you're jumping to conclusions. I think you need to wait (for) the outcome of the inquiry. (It's) not as simple as it seems."
Attorney-General Chris Finlayson says there is an indemnity but it only applies to the restraining order put on $20.5 million worth of Dotcom's assets.
"It's not a general undertaking for any damages he may suffer in relation to litigation both here and overseas, such an undertaking would be ultra vires anyway."
Meanwhile opposition parties are highly critical the GCSB ended up spying illegally on Dotcom, and his associate van der Kolk.
They argue Dotcom's status was well-known.
But Prime Minister John Key says they should wait for the findings of the inquiry being conducted by the Inspector General of Intelligence and Security.
"The member is jumping to conclusions without all of the information, he's joining dots that actually can't be joined."
New Zealand First leader Winston Peters wants to know why the Prime Minister wasn't briefed by the GCSB ahead of the police raid on Dotcom's residence.
"So he could be aware the GCSB had met with Crown law, the police, and US authorities two months before the January raid on Dotcom's residence."
John Key says the activity didn't require a ministerial warrant and he's not briefed on every operation the GCSB undertakes.
And Bill English says he knew about the involvement of the Government's spy agency in the Kim Dotcom case long before the Prime Minister knew.
Mr English signed off what was effectively a suppression order for the Government Communications and Security Bureau and didn't think he needed to tell John Key about it.
"I was signing as Acting Prime Minister and I didn't think I needed to inform the Prime Minister about that because there's a whole process run by the police and the intelligence authorities around it."
Mr English denies he signed off any indemnity that may make the New Zealand taxpayer liable for any civil action brought by Mr Dotcom.
Green Party Co-leader Russel Norman is flabbergasted the GCSB, an intelligence agency, didn't correctly determine Dotcom's immigration status.
"Given that it was in every newspaper in the country, and Mr Kim Dotcom had a fireworks display to celebrate his residency."
Photo: Kim Dotcom (NZ Herald)