Public money earmarked for the America's Cup - a $3 million loan to Team New Zealand - has been "reclassified", and a payment made to a "Hungarian bank account through fraud", according to allegations outlined in an MBIE and Auckland Council letter.
The confidential June 22 letter, obtained by the Herald, reveals allegations around the handling of public money; the operation of the Cup itself and worries about public safety; and it lifts the lid on officials' concerns that the event organisers, America's Cup Events (ACE) and Team NZ, are in breach of obligations.
The letter - written by council chief executive Stephen Town and Ministry of Business, Innovation and Employment (MBIE) chief executive Carolyn Tremain and sent to ACE and Team NZ - outlines "serious matters" raised by a financial investigation firm commissioned by the Crown to look into the financial management of next year's America's Cup in Auckland.
Economic Development Minister Phil Twyford's office confirmed to the Herald on Tuesday evening that the minister was aware of fraud allegations. Earlier this week, Team NZ denied any impropriety and described allegations as baseless.
The council and MBIE say in their letter they are "extremely concerned" about how taxpayer money paid by MBIE has been used - the letter also claims "certain personnel" from ACE and Team NZ have suggested they will no longer cooperate with the financial investigation firm, Beattie Varley.
The MBIE-council letter says they are also "extremely concerned about the ability of ACE to deliver [a] safe and successful" Challenger series and America's Cup finals series.
Among the concerns and allegations raised in the MBIE-council letter:
• "ACE has used part of the Event Investment for costs that have arisen but which are not in relation to the management and delivery of the Events";
• "This includes the $3,000,000 loan to ETNZ which was subsequently reclassified and the payment that was made to the Hungarian bank account through fraud";
• "Lack of record-keeping and unwillingness to provide the information that has been requested";
• "Material relationships with third parties that are not documented and which can be terminated ... upon 30 days' notice";
• "Poor governance including suggestions that records should be retrospectively amended".
On Monday night, Team NZ issued a press statement, saying "highly defamatory and inaccurate allegations regarding financial and structural matters" had been levelled against ACE, ETNZ and its personnel. They said the claims were baseless.
At the same time, MBIE said it was working with the council, ACE and Team NZ following the claims.
ACE and Team NZ are yet to respond to requests for comment in light of the specific allegations outlined in the MBIE-council letter obtained by the Herald yesterday but Team NZ boss Grant Dalton is speaking to Newstalk ZB's Mike Hosking at 7.05am today.
A spokeswoman for Twyford confirmed he had been made aware of fraud allegations concerning Auckland's hosting of the America's Cup. MBIE had been "regularly updating him" on the matter.
"He isn't able to go into any specifics about this dispute because there are contractual and commercial sensitivities."
Asked if he had confidence that public money has been used appropriately in relation to money paid towards the America's Cup, Twyford said that was the purpose of MBIE's review.
He indicated the Cup would go ahead as planned.
"MBIE has advised today that Cup planning is continuing along original timelines."
However, one source told the Herald the "whistleblowers have tapes", saying the Government and MBIE were worried about the impact of the allegations on the Cup.
The America's Cup kicks off with the challengers' Prada Cup in January and February, with the Cup final regatta in March.
The council-MBIE letter says they - as 'hosts' - "are extremely concerned about the ability of ACE (America's Cup Events Ltd) to deliver safe and successful Events".
The Crown appointed financial investigators Beattie Varley to have access to ACE and Team NZ personnel and relevant records "in order to verify that ACE and ETNZ have complied with their respective obligations".
An interim report has been compiled by Beattie Varley and Town and Tremain's letter says the matters raised are "individually and cumulatively material adverse events in relation to the management and delivery of the [Cup]".
The council and the Government have poured $250m into hosting the 36th America's Cup - and the council is planning to spend a further $20m to support the regatta and other events next year.
The council's share of the $250m is $113m. The Government is spending $136.5m, including a host fee of $40m. On top of this, the council has been spending about $100m to spruce up the waterfront in time for the Cup and other events in 2021.
In their letter, Town and Tremain said it was MBIE's assessment that ACE was in breach of rules that it would use event investment solely for costs of the management and delivery of the events.
On-water safety concerns
The letter also raises operational and safety concerns around the Cup, including police and harbourmaster concerns around the use of on-water marshals.
It says a suggestion by ACE to renegotiate the on-water crowd management plan to provide for "fewer marshal boats is not acceptable and if this is undertaken, the Harbourmaster might not issue the relevant permits for the Events".
"The delivery of a safe and successful event requires proper management of all on-water aspects and a revised plan with fewer marshal boats and stake boats would mean that there is a serious risk to the health and safety of members of the public."
It also says an event investment dashboard that was presented on May 31 showing total spend is "materially different" to that presented earlier.
The letter reveals a suggestion "certain personnel" from ACE and Team NZ might no longer cooperate with the financial investigation.
"It is critical that ACE and ETNZ cooperate with Beattie Varley in a timely manner so that Beattie Varley can complete the process and issue its final report".
In their June 22 letter, Town and Tremain say a legal letter has also been received from MinterEllisonRuddWatts "in the last few days", and shared with Auckland Council. The allegations in that letter, they said, had not been investigated (as at June 22) but that Beattie Varley had been asked to extend their investigation.
"These matters may provide the hosts with confirmation that there have been other breaches of the [host venue agreement]."
Town and Tremain do not say who MinterEllisonRuddWatts is representing.
The hosts say the allegations and concerns are enough to issue an escalation notice and they sought a meeting with ACE and Team NZ on Monday this week. It is understood that meeting went ahead.
"The hosts consider that each of the [health and safety] concerns, reporting of the event investment [Beattie Varley] report matters, Breach of Warranty and Breach of Commitment are individually and collectively material adverse events in relation to the management and delivery of the events," said Town and Tremain in their letter.
The hosts say they are also concerned event cancellation insurance has not been taken out and, as such, they were not obliged to pay the next instalment of public funding.
MBIE, Phil Goff, Team NZ statements
Iain Cossar, general manager of tourism at MBIE, said on Tuesday evening that the ministry, along with Auckland Council, "have been made aware of some claims relating to the organisation of the event".
Cossar would not say what the claims involved beyond being "structural and financial" matters.
"The claims made require careful and thorough consideration. We are working with America's Cup Events (ACE) Ltd, and Emirates Team New Zealand in relation to the claims made."
In a similar statement on Monday night, Cossar said the organisation and Auckland Council, as co-hosts of the 36th America's Cup, had been made aware of some claims relating to the organisation of the event.
"We are working with America's Cup Events (ACE) Ltd, and Emirates Team New Zealand in relation to the claims made," he said.
"As there are contractual agreements in place, we're unable to go into further detail at this time due to commercial sensitivity, but we will provide a full update once more information is available.
"We are motivated to make AC36 a successful event that highlights the pinnacle of sailing and showcases Auckland and New Zealand to the world."
In a statement on Tuesday, Goff said he was made aware of an investigation by Government into allegations relating to structural and financial matters.
"These relate to funds from Government and they are undertaking an investigation into these allegations. Until the investigation is complete, it is not appropriate for further comment at this point," Goff said.
The mayor did not say if anyone from council or Auckland Tourism, Events and Economic Development attended Monday's meeting.
Stephen Town said he ended his term as chief executive at council on Friday and had not been to any AC36 meetings this week.
"I'm sure you will understand that I cannot comment," he said.
Team NZ, in an earlier statement on Monday evening, said the claims included allegations around structural and financial matters.
It said ETNZ had ended a contract and claimed "spies" were caught leaking confidential information and spreading "inaccurate allegations".
ETNZ bosses said the team and ACE became suspicious they had informants in the event organisation about six months ago.
They said those suspicions were confirmed when sensitive information recently came back to the organisations from Europe.
"The motives of the informants, who had access to the Emirates Team New Zealand base, can only be guessed at, at this stage," Team NZ bosses said in the statement.
"In addition, these people have made highly defamatory and inaccurate allegations regarding financial and structural matters against ACE, ETNZ and its personnel.
"Although these allegations are baseless, MBIE have no choice but to investigate despite our belief that the motives of the informants are extremely suspect. We are working with MBIE to close out the remaining issues with them quickly," ETNZ said.
"Emirates Team New Zealand and ACE will not let this set us back in our America's Cup defence or hosting of a great event this summer."
Team New Zealand boss Grant Dalton didn't respond to the Herald yesterday but told Newstalk ZB's Mike Hosking: "The bottom line is it's solved, we've done it, we've sorted it. We've had nothing but help from the Government. They've been brilliant through this, through the process. We've just got to finish that process off and get some new people and get on with it."