#The Winebox Inquiry | Explore Tumblr Posts and Blogs

bealeness · 12 years

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The basics behind the Winebox inquiry

For many of my generation and younger the Winebox Inquiry is something which will most likely fall into the lost pages of history and rightly so, because how many of us really want to dig up white collar crime cases from the past. As a ten, eleven year old in the standard four and form one, I remember hearing the words "Winebox Inquiry" in the news every night of the week. What I was doing watching the news at 10 years, God only knows. From what I can recall, it had something to do with Winston Peters, but everything else ran over my head and I haven't thought about it since. What I have come to learn is that it had something to do with much more than just the MP for Tauranga. It is but the surface of an iceberg that was New Zealand in the 1980's. Let's just say that the Winebox opened up a big can of "whoop-ass" and I mean a really big can.

All I can remember of the 1980's is a small coastal settlement at the top of the East Coast called Hicks Bay, Play School, a Cyclone called Bola, a crazed Rastafarian cult in Ruatoria, a family movie favourite called "The boy who could fly", my Uncle Bill's jet boat and buying candy at a price of 1cent a pop. I was five years old when it all came to an end. As an adult I have been able to read about the 1980's in New Zealand and I have concluded that what happened was again, in my opinion, the very same effect as if to open up a very, very big can of "whoop- ass", humongous big!

In an earlier article I explained what happens in a four stroke combustion chamber and how the upward stroke creates all the pressure, which is sparked at top dead centre and results in an explosion forcing the downward movement of the piston. This is basically what happened to New Zealand except that the pressure creating upward stroke lasted some thirty or so years, building up more and more as it went along, forcing a downward explosion which was all over in three short years or so. The spark was, depending on how you view the world, the genius of one man, one lone wolf of the pack, Sir Roger Douglas.

Now Douglas was not the only one, there were a few others in on the master plan. There were the other main Labour party henchmen. Such names as Mike Moore and Richard Prebble come to mind. However Douglas was the leader and as such he was trudging his way through dark and murky, unfamiliar waters. The whole deal was an experiment. By his side, and in the corporate world, were two key figures who towered above all others in the exclusive circle of the 1980's business elite. These two gentlemen were Sir Ron Brierley and Sir Michael Fay. The former was the best corporate raider in our history and the latter the best magician and bank robber. Let's just say for the articles sake that from my reading these two and Roger Douglas come across as thick as thieves.

The story starts with Sir Robert Muldoon and his nine year reign over New Zealand. Not only was Muldoon Prime Minister, but he was also Finance Minister. It was said of New Zealand at the time that it was the most regulated and centralized state in the world outside of communist Europe and Asia itself. The Government had a monopoly over most areas of significant industry in the country and for those it didn't it granted license to someone who did. Imports were heavily taxed and our main export industry, agriculture, was heavily subsidised. These measures came at a cost of a 66% tax rate and an exorbitant inflation. It was a good time to be a state employee, but a terrible time to be in business. To many New Zealanders these times might sound all rosy, especially those who preach the virtues of the welfare state, but New Zealand is in essence a divided country. The division is clear. On the one side we have those who argue that the state ought to provide and on the other side we have those who argue that we should get out and provide for ourselves. In the early eighties the former were rewarded, but only at great cost to the latter, but how this was to quickly change.

Now keep in mind the combustion analogy I made earlier. In 1979 the state of Iran was overthrown by a hard lined fundamentalist regime. The consequence was that the price of oil tripled. Around the same time our main export destination the U.K. decided that it couldn't really afford to buy from us anymore. Why did it do this? Well, because with the price of oil so high, it costs a lot of money to ship stuff from New Zealand to London. It's cheaper to source it from a closer market. This effectively put New Zealand into crisis mode. The tax payer had to subsidize the farmer even more just to keep them employed and our import bills, due mostly to the oil spike, went literally through the roof.

Situations such as this have the effect of causing runaway inflation, because a high oil price will likely push the price of everything up, including the wage you need to pay workers, which is tough when the main employer is the state itself. At the same time New Zealand just wasn't making anywhere near enough money to afford all these rising expenses. The country was on the verge of a financial and economic crisis. A panicking and mostly intoxicated Rob Muldoon put a freeze on prices and wages in 1982, while he went away and thought up a solution. This freeze was to last until 1984 when he was ousted. At the same time he froze the banking system and everywhere else New Zealand businesses placed their money. What happened was that money started going to the only remaining option, which was by law free from government regulation, the stock market, which up until that point was some backroom with a couple of tables and some telephones. As a result, values on the dormant New Zealand stock market began to rise, all thanks to Muldoon.

The first Douglas and Fay scandal occurred in 1984, just as Muldoon was in the process of leaving his post as Prime Minister. Douglas became a convert to the philosophies of the New Right and decided that it would be his destiny as incoming Finance Minister to put the running of the countries riches into the hands of the public, which as you will see was a scam. Anyway, because Muldoon had placed a price freeze on the economy from 1982-84 it was quite obvious that the value of the New Zealand dollar was anything but accurate. This is so, because technically, with the oil hike and the export drop, the prices of goods should have been going up, which would naturally bring the value of the currency down, but the artificial interference of Muldoon's price freeze kept the dollar up. The value of the dollar therefore, was not a true reflection of its real value. It was really worth much less. It was what those in financial circles call "over-valued" and therefore vulnerable to speculation. This is because speculators know that the value is going to take a big drop one day and so they speculate on it. The incoming Labour government decided that the best measure against speculation was to manually devalue the currency by 20% of its value.

Now for those of you who are unfamiliar with the art of profiting from speculation let me explain how it works. However before that let me just say that a merchant banker from Auckland by the name of Michael Fay from the firm Fay, Richwhite and Co. asked the incoming Finance Minister Roger Douglas if he was really going to devalue the currency. Douglas replied with a "yes, he would". Now in most countries, when the Finance Minister tells a well-known speculator that he is going to devalue the currency, it is known as "insider trading", because now the speculator is certain that there will be a drop in value and can now set about laying his sure bets. This was the first seriously dubious act conducted by Douglas and Fay.

Fay responded by leading a mass speculative charge. The elite community of business people in New Zealand set about getting their hands on every last dollar in the country and with it all they bought US dollars. This was only possible because the new Government re-opened the foreign exchange, which Muldoon had shut down. Let me tell you how the speculation works and how they all made a fortune and got the ball rolling for a decade of boom and bust. New Zealand just wouldn't be the same after this. So to begin with you know that the New Zealand dollar is going to be devalued by 20%, because the Finance Minister told you himself, when really he should have said, "no comment". Let's say you get your hands on $100 million New Zealand dollars. What you then do is you exchange all this for American dollars which will most likely remain stable. Once the NZ dollar is devalued it is then just a simple matter of exchanging back from US dollars to NZ dollars and in the process you now have 20% more NZ dollars than what you started out with. It is estimated that some $280 million NZ dollars was profited in the great currency speculation of 1984 and back then that was a lot of money, all thanks to a leak from the Finance Minister.

Now let's just fast forward. We all know what happened next. I personally, completely agree with the establishment of the SOE's. This was something which just had to be done. The privatizations on the other hand took somethings just a little too far. With the above story I hope you now get a feel for just how small New Zealand is and just how much insider trading was going on in the 80's. The insider trades continued throughout the whole privatization process and one man in particular, Michael Fay, became the master of executing deals, which in most countries would be illegal due to "conflict of interests" and also "insider trading" through the possession of forward information. Anyway let's fast track to 1994, Winston Peters and the Winebox.

Now it is alleged that Winston Peters was in a Wellington cafe with some unknown identity whom, until this day, is still only known simply as "deep throat". At the time the New Zealand First party was only about a year old. Peters had up until 1993 been a National MP. This reported "deep throat" figure supposedly gave Peters a wine box, hence the name, and in it were documents which reported transactions conducted by companies which were all subsidiaries of European Pacific Investments, a Cook Island based company. European Pacific Investments was in turn owned by the Bank of New Zealand, (which at the time of the crimes was owned by the state of New Zealand, Her Majesty the Queen and all the rest of it), Brierley Investments Limited and Capital Markets Limited, which was really Fay, Richwhite and Co. The documents described the following transactions.

(1) Magnum Ltd., which was a subsidiary of European Pacific received income on a debenture, which is an unsecured bond. Magnum Ltd. was therefore required to pay tax on this income to the Government of the Cook Islands.

(2) Magnum Ltd. paid tax of $2 million.

(3) In return Magnum Ltd. received a receipt from the Cook Islands Government for the payment of the tax.

(4) The Government of the Cook Islands entered into a contract of promissory notes with another subsidiary of European Pacific Investments. The Government made a loss on the contract, which for all intents and purposes seemed to be a completely fabricated contract. Because of this loss the Cook Islands Government then paid $2 million dollars minus a $50,000 fee to Harcourts Ltd., which was, you guessed it, another subsidiary of European Pacific.

(5) The $2 million tax receipt from the Cook Islands was used as credit by European Pacific in filling out its New Zealand tax return on its earnings with the IRD, which meant that European Pacific's NZ tax bill decreased by $2 million.

(6) In presenting the Cook Islands receipt to the NZ IRD, European Pacific did not declare the $2 million payment, minus the $50,000 fee, made to Harcourts Ltd., by the Government of the Cook Islands.

Now to really appreciate the beauty of European Pacific we just need to take a good hard look at it. The first question one has is this. Why would Brierley Investments, Fay, Richwhite and Co. and the Bank of New Zealand want to combine and register a company in the Cook Islands? Not only that, but they floated an extra 14% of European Pacific on the Luxembourg Stock Exchange, which has long been known as a "tax haven". One can only guess and in 1994 Winston Peters had in his hands, thanks to an anonymous agent, proof and evidence as to what European Pacific was getting up to. First we must look at the main suspects.

In 1984 Michael Fay had been tipped off by Roger Douglas about the impending devaluation. As a result he reportedly made some $3million in profit, which you assume would have been taxed at 66%. So it was that the downside to making money was that you had to pay a whole load of tax, although that rate did come down considerably to some 48% (don't quote me on this) by the time European Pacific was in business. Michael Fay as we know was in bed with the Finance Minister. The same Finance Minister whose destiny it was to sell off state assets. Is it then no surprise that the two private owners of European Pacific were responsible for buying, running dry and reselling two of these state assets back to the Government. Brierley Investments purchased Air New Zealand at a below market price, sucked the profits out of it, i.e., didn't retain the earnings in Air New Zealand itself, but sucked out the profits as a good holdings company would and then they had the cheek to sell it back to the Government. You can only imagine how much money one would make from that. Michael Fay then went on to buy out Kiwi Rail with a consortium of others at below market price, sucked that dry, stripped it down and then again had the cheek to sell it back to the Government. A few years later and $900 million richer he emigrated to Switzerland, victim of a public outcry and NZ doesn't get to see him again.

The other owner of European Pacific was Bank of New Zealand. Now at the time, guess who the Chairman of Bank of New Zealand was, well none other than tin arse Ron Brierley himself. Guess who accounted for some 45% of Bank of New Zealand's total receivables account, well none other than Michael Fay. This meant that 45% of BNZ's exposure was to one man or the company of one man. This is a level of exposure which was illegal in most countries. This basically meant that Michael Fay was a man the BNZ could not afford to mess with, because the theory is that if Michael Fay goes down then so does 45% of the BNZ.

Further Wine Box documentation showed that European Pacific had 8 other subsidiaries set up as "shell companies" or companies which existed only to serve as fraud. The scheme that unfolded looked a little something like this. This is how you rob a bank. The Bank of New Zealand purchased $50 million worth of redeemable preference shares in each of the 8 shells. This comes to a total of $400 million which was a very large portion of the banks capital base being offered to one customer. This is again the work of Michael Fay and illegal in most countries at the time. In return each "shell company" promises the Bank of New Zealand a 10% dividend on the shares. European Pacific, via the Cook Islands then goes on to invest the $400 million into Japanese banks at a return of 12.8%. This means that it profits by 2.8% of the $400 million and as we have seen it can now use its 8 shell companies to send these profits through the Government of the Cook Islands and receive receipts. The Government of the Cook Islands then gives European Pacific more dodgy refunds minus a fee here and there so that European Pacific retains the bulk of its tax free profits. Not only that but it can then use the Cook Island receipts against its New Zealand taxes.

When Winston Peters caught on to what had happened and what had been going on, he believed that both the Inland Revenue Department and the Serious Fraud Office must have been turning a blind eye to the mass tax evasion committed by European Pacific. Indeed two former employees of BNZ seemed to be able to back him up on this account. However both these men and their families were to be bankrupted by the bank and forced into silence.

What we know is that Brierley Investments, Fay, Richwhite and Co. and the Bank of New Zealand were by far the biggest players in corporate and financial speculation in New Zealand in the 1980's. And the speculation which occurred in this country between 1986 and 1987 was similar to what happened in America in 1928 and 1929. The stock market was the biggest earner. Stock prices were doubling, tripling and quad-drupling right before peoples eyes. The same was so for property prices. The riches were amplified by a breakdown of import barriers. Before we knew it everything was cheap. Everyone was making money and everyone was spending it just as fast. My Father at the time found himself, or I imagine so, I was too young at the time, in the same streak. He was in the crayfish business, which meant he was right in the money. He did indeed make for himself quite a fortune and reading books on the boom as I have been, I cannot but notice that everyone was drinking Moet and eating crayfish all the time and everywhere. It was as such that I thought to myself, wait a minute, my Father had his own crayfish operation in the 80's, that must be how he made his money, but unlike Brierley, Fay and Co., I know my Father was an honest man and had no tax haven to avoid paying a good chunk of his earnings to the Government.

This was the difference between the small guys like my Father and the big guys like Brierley. Not only did they make massive profits from insider currency speculations, rigged property, finance and stock deals and the eventual purchase, extraction and sale of valuable state assets, but they also had a well devised plan to avoid paying large amounts of tax. Also in their possession was free and easy access to the funds of the largest bank in the country. In this sense they had an endless supply of state owned money, they had enough insider muscle to fix every deal they made in their favour, they bought out Government politicians with political donations and to top it all off they had a system to avoid paying tax and rumour has it they also had secret accounts in places like Switzerland and the Cayman Islands to stash the loot. That was New Zealand in the 80's for you.

The Wine Box Inquiry lasted from 1994 to 1996 and came in at a total cost of $16 million. Commissioner Sir Ron Davidson ruled that even though European Pacific Investments had avoided paying hundreds of millions of dollars in taxes they did it within the letter of the law, whatever that means, and therefore the IRD and the SFO did not turn a blind eye. Brierley, Fay and other former Directors of the BNZ were all free to go. The only win for Peters and the New Zealand tax payer was that laws were introduced forbidding the use of foreign tax receipts to offset New Zealand tax payments. This is kind of a win, but at the end of the day it was justice and the tax payer who lost big time.

All in all, it can be concluded that Winston Peters was kind of going up against the wrath of God and lucky to be alive. Looking at the power the defendants held there was no way he would ever had won, but at least the truth came to be exposed and we can talk about it today, without the fear of having our phones and fax machines bugged, which is what Winston Peters claimed happened to him, anyway that is where I would like to leave this story.

Good night.

#the winebox inquiry

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