Investigators knew they needed to do more work to prove fraud over a Labour Party artwork donation but decided not to, leading directly to four defendants being acquitted
The SFO's failure to obtain independent valuations for paintings in the Labour Party $60,000 donation case played a key factor in no one being found guilty of deceit in the breaking up of that funding.
Justice Ian Gault's full judgment in the Serious Fraud Office-led case finds the agency knew it should get the paintings valued but decided not to, and by relying on an informal estimate from a defendant it had failed to show that a donation sufficient to breach legal thresholds had been made.
The judge said that if the valuation had been made and the donation level was backed up, he would also have found that four of the six people connected to that Labour donation knew what they were doing was illegal and intended to deceive by breaking up their donation into small parcels.
But without the proof of the valuation, it could not be found that the donation sum in the Crown's charge had actually been met.
He found that the other two defendants in that part of the case, who have name suppression, could not be found to have intended to deceive or known the donation splitting had been illegal.
Justice Gault on Wednesday convicted three men, Yikun Zhang, Colin Zheng and Joe Zheng, on obtaining by deception charges relating to donations to National, but those three and one other, also with ongoing name suppression, were among those acquitted on the Labour artworks donation.
The SFO's omission on obtaining the valuation - despite having told a district court judge in an affidavit to secure a search warrant that further valuation of the paintings would be necessary - had been pointed out during the seven week trial by a defence counsel.
Lawyer Sam Lowery, for a name-suppressed defendant, had told the court the $17,000 value of two paintings which had been added to three others by one of the defendants ahead of the art being offered for sale on Labour's behalf, had been an off-the-cuff estimate in a text three years after that donation occurred.
Labour and then the SFO simply ran with that value.
The value mattered, Lowery said, because if, as both the defendant and his wife later told the SFO in interviews, the paintings might have been more valuable again, that would mean the ultimate sum paid as a donation to the party would be lower - possibly lower than the Electoral Act threshold for donations to be declared.
Lowery said there was evidence that a Labour finance official was not happy with relying solely for the two paintings' values offered roughly in a text message, but the party was on a deadline to submit its donations return and did use those figures.
While the defendant who supplied the two works "had many qualities, there is no evidence he has the qualities to evaluate art".
"The figures are effectively plucked from the air, expressed in the text message as 'rough' and he caveats that himself."
While the Crown wants now to rely on the defendant's painting valuations, "out of the other side of its mouth the Crown says [name] has engaged in some barefaced lies".
Justice Gault's judgment says of the lack of valuation: "There was no independent valuation evidence in relation to the paintings."
He said Crown lawyers had anticipated an argument from the defence that the court could not be sure a donation had occurred at all, and it had submitted that such thinking was speculation and "tenuous mathematics".
But the judge said: "The Crown must prove that the $60,000 purchase price of the five paintings was more than their reasonable market value (by more than $1000, to come within s241 a)."
However, taking a text message valuation for those works "did not suffice in terms of establishing reasonable market value of the two paintings in this proceeding", he found.
"It is also of questionable reliability in the absence of some evidence as to its basis."
He said he could not speculate on the value.
The judgment said SFO lead investigator Lee Taylor had acknowledged "that from early in the SFO's inquiry it recognised the importance of determining the reasonable market value of the paintings. And he had said in a without notice affidavit in support of a search warrant dated 15 October 2020 that verifying the value of the two paintings was a necessary line of inquiry".
"Although the SFO could have arranged valuations without difficulty, it decided against doing so."
Justice Gault then writes: "For these reasons, on the limited evidence available, I cannot be sure that the reasonable market value of the five paintings was less than Mr Zhang's payment. Accordingly, I am not sure that the Labour Party, indirectly or indirectly, obtained or retained a benefit.
"Accordingly, I find Mr Zhang not guilty on Charge 1."
He adopted the same conclusion for others acquitted on the Labour donation, but went on to say that had he been convinced that the valuation and donation were correct, under other elements of the charge he would have been sure that for four of the six, their conduct in splitting the main $60,000 donation and using 'sham donors' to pay Labour "involved an intention to deceive".
The judgment says Zhang as the purchaser of the paintings at $60,000 also must have known it was a breach of a legal obligation to provide Labour the names of five other people with smaller individual donation amounts when they were not the purchasers and had not paid.
The Zheng brothers' conduct also involved an intention to deceive, the judge said, as did that of one other defendant with name suppression. For that fourth person, however, the judge could not say he knew he was in breach of a legal obligation.
For the remaining two defendants connected to the Labour donation, he found he could not be sure they engaged in a fraudulent device, trick or stratagem, or that they intended to deceive.
They would therefore have got off the charges, even if a valuation had been proved.
On an alternative charge against all seven that they - rather than Labour - obtained the benefit from their deception and that the benefit was the freedom for Yikun Zhang from public scrutiny of his donation, Justice Gault found them all not guilty.
He said the Crown pointed to the steps the group had gone to to obtain that benefit.
"I cannot accept the submission that the benefit essentially proves itself - res ipsa loquitur - with the rhetorical question why would the deception have been practised by the true donor if it was not of value to him.
"In these circumstances, having concluded that a donation was not proved, I cannot be sure that Mr Zhang obtained a benefit of any value."
Justice Gault found Colin Zheng guilty in connection to the National donation of $100,000 in 2017.
He found Yikun Zhang and Joe Zheng guilty, with Colin Zheng, over the donation to National of $100,000 in 2018.
But the former National MP Jami-Lee Ross was not guilty in both instances.
The judgment says it could not be said for sure that Ross knew in 2017 that Zhang or Colin Zheng had been the actual donor of the $100,000 and that had been broken up into a list of names given to the MP, and there was no evidence he was involved in that splitting of the monies.
And for the 2018 donation, the judge found, as submitted by Ross' defence counsel Ron Mansfield KC in closing, that the MP's state of severe mental distress through that period when he first made the donation public and accused his former leader Simon Bridges of being corrupt, meant his evidence about his own involvement could not be relied on.
"I accept the expert medical evidence that Mr Ross' statements to media and police on October 16 and 17, 2018 were strongly influenced by his underlying mental disturbance and, in particular, his belief that he would commit suicide in the wake of his revelations."
The MP's "predominant focus was on harming Mr Bridges".
"I cannot rule out ... that Mr Ross was so driven by a desire to take down Mr Bridges that he lied in the most compelling way he could imagine, that is by falsely stating that he had carried out Mr Bridge's instructions.
"For these reasons I am not sure that Mr Ross engaged in a fraudulent device, trick or stratagem. Accordingly I find Mr Ross not guilty."
