27 July 2000





Press Release



Decision on Magnum







1.	I am today announcing my decision not to prosecute any party 

associated with the Magnum transaction ("Magnum").



2.	My decision follows an exhaustive consideration of all of the 

papers evidence on Magnum including the many commentaries that 

have been made about possible suggesting alleged criminal offending 

inherent in the scheme.  I have been assisted in my decision by the 

views expressed by the Crown Solicitor in Auckland and by the Crown 

Law Office.  Ultimately, it is for me to determine whether or not it is 

appropriate for the Serious Fraud Office to bring any prosecutions.  I 

have decided having Having regard to all the circumstances, I have 

decided that it is not.



3.	The issues before me devolved to a consideration of whether I 

could establish, to the necessary standard of proof, that any persons 

associated with Magnum had acted deliberately and with knowledge that 

their actions constituted a breach of their legal obligations.  I needed to 

satisfy myself that, if the conduct of any person could be shown to be 

legally wrong, I would be able to prove in a Court that that person did 

not have an honest belief that he or she was justified in acting in the 

way they did.  These are standard questions that the Serious Fraud 

Office must address when considering any prosecution for fraud.  As 

the Courts have said on several occasions when commenting on 

Magnum, simply stating that the scheme itself is fraudulent falls well 

short of establishing that individual participants in the scheme had the 

necessary criminal intent.



4.	The The principal factor in my decision not to prosecute was 

that, after considering all of the material and the various interpretations 

properly open to a Court, I could not safely say that determined a 

prosecution would more likely than not result in a conviction.  Indeed 

my view was that it was more likely that a prosecution would fail in its 

attempt to establish the requisite criminal intent.  Whilst I reached this 

view on my own analysis of all the material I am aware that it is a view 

shared by both the Crown Solicitor in Auckland and a senior member of 

my prosecution panelthe Serious Fraud Office panel of prosecutors, 

both of whom have studied the Magnum papers and are well versed in 

what has to be established in any fraud prosecution. 



5.	I am aware that there will be those who will see the decision 

not to prosecute as wrong and who will feel that the matter ought to be 

put before a Court for a decision on the criminality of those involved.  

Such views are often based on repugnance for the type of activity 

undertaken by the developers of Magnum.  Many New Zealanders, I 

believe,	are offended by what occurred between the Cook Islands and 

European Pacific back in 1988 – 1989.  However, I am confident that 

most New Zealanders would expect the Serious Fraud Office to take a 

principled approach to the case and to base any decision to prosecute 

solely on the evidence available and on the a likelihood of success.  I 

have concentrated on the merits of bringing a prosecution having regard 

to the ingredients that I would need to establish in a criminal trial.  That 

is how it should be.  



The issues before me devolved to a consideration of whether I could 

establish, to the necessary standard of proof, that any persons 

associated with Magnum had acted deliberately and with knowledge that 

their actions constituted a breach of their legal obligations.  I needed to 

satisfy myself that, if the conduct of any person could be shown to be 

legally wrong, I would be able to prove in a Court that that person did 

not have an honest belief that he or she was justified in acting in the 

way in which they did.  These are standard questions that the Serious 

Fraud Office must address when considering any prosecution for fraud.  

As the Courts have said on several occasions when commenting on 

Magnum, simply stating that the scheme itself is fraudulent falls short 

of establishing that individual participants in the scheme had the 

necessary criminal intent.



6.	There are well established steps to be followed by a 

prosecuting agency when determining whether or not to commence a 

prosecution.  These steps have been endorsed by the Solicitor General.



7.	The first step step is to assess whether or not the evidence in 

favour of a prosecution would supports any offence by any particular 

person. The case for the prosecution is that would be that certain 

individuals at European Pacific formed a deliberate intention at the 

outset of Magnum to defraud the New Zealand Revenue and then at 

later stages others joined that conspiracy.  Further, that the complex 

transactions and the financial arrangements were aimed at concealing 


the transaction from the New Zealand tax authorities knowing that this 

breached a legal obligation to disclose in the tax return, the full extent 

of what had taken place within the Cook Islands.



8.	The Crown Solicitor in Auckland advised me that in his view 

there was sufficient credible and admissible evidence that, if accepted 

(and in the absence of evidence to the contrary) would support the 

prosecution of a number of persons associated with Magnum on 

charges of conspiracy to defraud the Inland Revenue of New Zealand 

and/or of using a document, namely a tax return, with the intention of 

defrauding the Revenue.  It was, however, apparent from the numerous 

discussions that I had with the Crown Solicitor that the matter of 

evidential sufficiency was far from certain and depended entirely on the 

weight that was to be attributed to different parts of the evidence.  For 

example there are references in the documents to maintaining strict 

confidentiality over the details of the tax credit schemes.  In a 

prosecution those references would have to be pointed to as evidence 

of deliberate concealment of fraud from the authorities.  Significantly, 

however, the material is equally open to the interpretation that 

European Pacific was looking to protect its own corporate intellectual 

property and. There are a number of like extracts from the documents 

that would need to be relied on by the prosecution that are similarly 

open to a legitimate interpretations.



The second step is whether, given that an evidential basis for the 

prosecution exists, the public interest requires the prosecution to 

proceed.  Factors which will lead to a decision to prosecute or not will 

vary infinitely from case to case.  They include such matters as delay, 

abuse of process and the prospects of a fair trial.  A key issue in 

relation to any prosecution is the likelihood of success.  The generally 

accepted practice is that the Crown ought not to bring a prosecution 

unless it is satisfied that it is more likely than not to result in a 

prosecution.  As I indicated in an earlier paragraph the principal factor 

in my decision not to prosecute in this case was that after considering 

all of the material and the various interpretations open to a Court I 

determined a prosecution would likely fail in its attempt to establish 

the requisite criminal intent.  In this regard the following points were 

of importance.



A prosecution must establish a deliberate intention to breach a legal 

obligation, that obligation in this instance being the disclosure of all of 

the steps in Magnum to the Inland Revenue Department pursuant to the 

tax legislation.  That such a legal obligation exists was determined in 

1999 by the High Court ruling.  On the same facts, however, a former 

Chief Justice, Sir Ronald Davison, after hearing extensive argument at 

the Commission of Inquiry into the Winebox, found that no such legal 

obligation existed.  His view was consistent with the approach taken at 

that time by several senior lawyers and tax advisers, and by the Inland 

Revenue Department, all of whom reached their views honestly.



The Auckland Crown Solicitor and the Crown Law Office accepted that 

criminal intent would be virtually impossible to prove if independent 

legal advice had been obtained that Magnum was lawful.  That the 

designers of Magnum sought legal advice on various tax credit schemes 

in the period leading up to Magnum is not in question.  I have not seen 

that legal advice but it is apparent from references to the legal advice in 

the documents that it could be asserted by any defendant that the legal 

advice was relevant to the major aspects of Magnum and indicated that 

the scheme would not be unlawful.  To successfully negate that I would 

have to ask the Court to believe those parts of the documents relied on 

to establish fraud, but to ignore those parts that negated it.  It would be 

most unusual for the Crown to seek to impeach parts of its own 

documents in that manner.  I cannot overlook that the legal advice 

referred to in the documents was consistent with other advice given 

years later when the transaction was under close scrutiny.  Legal advice 

obtained by the Inland Revenue Department at the time that all of the 

Magnum papers came into its possession did not conclude that any of 

the participants had acted fraudulently.



Concealment of Magnum from the authorities would be a critical factor 

in establishing that there was a deliberate intent to defraud.  As I have 

already stated, the requirement of confidentiality sought by the 

designers of the scheme was just as likely to have been for commercial 

reasons.  Tax planning per se is not an illegal activity and the designers 

of a scheme are not bound in general to reveal all of the details to the 

tax authorities.  There is also a very real risk that should the authorities 

become aware of the full details of a scheme, it is likely to be 

addressed by changes to the legislation.  Indeed that is exactly what 

happened previously in Australia to a scheme being promoted by 

European Pacific through the Cook Islands.

 

A senior tax partner of KPMG was involved with the preparation and 

filing of the tax returns in question.  There is no evidence to suggest 

that he was part of any conspiracy.  Nor did he have any involvement in 

the planning of Magnum.  His evidence in a prosecution would be that 

the material provided to him, and to the Inland Revenue Department, 

was in his view sufficient to meet the disclosure requirements of the 

tax legislation existing at the time.  One has to ask why European 

Pacific would take the risk of referring the most critical aspect of the 

"fraud" – the tax return – to an independent expert over whom European 

Pacific had no ostensible influence.  Such a step is totally inconsistent 

with the concealment interpretation I would have to ask the Court to 

accept.



It has been argued by some that Magnum was so fundamentally 

fraudulent that it did not matter that the exact legal obligation may not 

have been fully understood.  It is argued that the actions of the 

participants were clearly dishonest.  However, the documents show that 

the tax credit schemes were developed over many months and with the 

assistance of legal and accounting advice.  The salient features of the 

scheme and the associated risks were documented and carefully 

considered by a group of people whose business involved tax planning.  

The "holistic" approach is simplistic and unhelpful, when considering 

the possible criminal prosecution of particular individuals and far 

greater analysis is required.  In this regard I comment that Magnum was 

subjected to the full scrutiny of a Commission of Inquiry as well as by 

other authorities including the Inland Revenue Department.  Had the 

action of individuals been so obviously fraudulent as is contended by 

some, I would have expected to have found comment to that effect 

from those having a full knowledge of the scheme and well versed in 

the law.



	In my view, any one of the above points was more than enough 

to raise a reasonable doubt as to guilt; taken together they present a 

considerable obstacle.



Other factors that would effect any prosecution are the delay in 

bringing the matter to Court and abuse of process arguments.  Apart 

from the difficulties of having to place reliance on people's memories 

of events some 12 years ago, there is also the issue that all of the 

documents were carefully studied by the Inland Revenue Department in 

1993-94 and it stated that its investigations had not disclosed any 

fraudulent activities.  Any defendants might also point out that the 

Crown had, through a Commission of Inquiry, already considered 

Magnum.



11.	In the final analysis I have decided that the evidence which 

negates a deliberate intention to commit a criminal act makes it 

unlikely that any prosecution would succeed.  I am not prepared to 

commence a prosecution in these circumstances.  It is not necessary 

for a prosecution to be a "sure thing" but I am required to be satisfied 

that a prosecution has a reasonable prospect of success before I charge 

anyone with a criminal offence.  That requires a detailed assessment of 

the evidence and the law.  I have undertaken that assessment and I am in 

no doubt that the proper decision in this case is that a prosecution 

should not proceed.



12.	It is not my practice to publicly provide reasons for not 

commencing a prosecution.  I have done so today given the previous 

history of this matter.  My reasons have nothing to do with the morality 

of Magnum, but relate entirely to a practical assessment of all of the 

material that would need to be put before the Court and whether or not 

the Crown could likely secure a conviction.  It is not my intention to 

comment on this matter further.  The persons who have been under the 

prospect of prosecution by the Serious Fraud Office are entitled to 

have a final decision from this Office.  Any further comments from me 

could be tantamount to running a case against individuals through the 

media and that would be entirely inappropriate.













DJ Bradshaw

Director