United States of America v Dotcom

[2012] NZHC 328

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CRI-2012-404-19 [2012] NZHC 328

UNDER  the Extradition Act 1999

IN THE MATTER OF     proceedings to extradite Kim Dotcom and others

BETWEEN  THE UNITED STATES OF AMERICA Appellant

ANDKIM DOTCOM Respondent

Hearing:         28 February 2012

Counsel:         AM Toohey, F Sinclair and D Boldt for Appellant

P Davison QC, W Akel and R Woods for Respondent

Judgment:      29 February 2012

JUDGMENT OF BREWER J

SOLICITORS

Crown Law (Wellington) for Appellant

Simpson Grierson (Auckland) for Respondent

COUNSEL

Paul Davison QC

THE UNITED STATES OF AMERICA V DOTCOM HC AK CRI-2012-404-19 [29 February 2012]

[1]      In January of this year Mr Dotcom was arrested by the Police pursuant to a provisional arrest warrant issued by a District Court Judge pursuant to s 20 of the Extradition Act 1999.  The United States of America wishes to extradite Mr Dotcom and others to that country to face charges relating to criminal use of the internet for commercial gain.

[2]      Mr Dotcom applied for bail in the District Court on 25 January 2012.  Bail was declined.  He appealed that decision to this Court.  His appeal was dismissed by Asher J on 3 February 2012.

[3]      Subsequently,  Mr  Dotcom  again  applied  for  bail  to  the  District  Court. Judge NR Dawson in the District Court at North Shore granted Mr Dotcom bail on

22 February 2012.[1]   The bail granted was of the electronically monitored variety and

there were other restrictive conditions.

[1] Dotcom & Ors v United States of America DC North Shore, 22 February 2012.

[4]      The Crown, on behalf of the United States of America, appeals against the grant of bail.

[5]      The application heard by Judge Dawson was made on the basis that there was new information which should be considered by the Court and that Mr Dotcom’s circumstances had changed.  Of the matters put forward, Judge Dawson considered that the existence of extradition treaties between the United States of America with both  Finland  and  Germany  was  a  new  circumstance.    Mr Dotcom  has  current passports for those countries and the existence of such treaties was not known to the Judges who decided the first round of bail applications.   Judge Dawson also considered that the absence of any new evidence as to Mr Dotcom’s financial ability to fund a flight attempt was also a new factor.   Accordingly, he felt justified in considering bail afresh.

[6]      The hearing before the District Court Judge focused on whether Mr Dotcom is a flight risk.  He records[2] that it was accepted by counsel that this was the crux of the issue.

[2] Ibid, at [8].

[7]      The Judge found that the factors which indicate that Mr Dotcom is a flight risk include his name changes, a criminal record, multiple bank accounts in different names, the avoidance of lengthy prosecution, the risk of a lengthy sentence if found guilty, and loss of lifestyle.  The risk of flight, in the Judge’s view, was supported by the  suspicion  that  Mr  Dotcom  will  still  have  significant  unrevealed  financial resources which could be used to finance an escape and thereafter a comfortable and

protected lifestyle.[3]

[3] Ibid, at [33].

[8]      The District Court Judge found the factors against Mr Dotcom being a flight risk include that he would thereafter live his life as a fugitive, he would have to abandon his pregnant wife and three children, and he would effectively lose all the considerable assets and bank accounts in a number of countries that have already been seized or frozen.  The Judge noted the submission on behalf of Mr Dotcom that he has a good defence to the charges and that he has every reason to stay and fight

for his family’s future and his seized assets.[4]

[4] Ibid, at [34].

[9]      The Judge found that the most significant change since Mr Dotcom’s first bail application on 23 January 2012 was the passage of time.  Since that date, the Judge  found,  all  Mr  Dotcom’s  known  assets  have  been  seized  and  are  now unavailable to  him.    No  new assets  or accounts  of any significance  have been revealed since his arrest.  Mr Dotcom’s position that he has not concealed any assets or bank accounts had not been gainsaid.   Accordingly, the suspicion that because Mr Dotcom is very wealthy means that he must have assets he has not revealed cannot now be used against him with the same force as previously.

[10]     The District Court Judge found that the factors relating to flight risk did not require Mr Dotcom to remain in custody once satisfactory bail conditions were put in place.

The appellant’s submissions

[11]     The principal submission on behalf of the Crown before me was that the District Court Judge plainly erred in granting bail.   He should not have held that there were new or changed circumstances justifying a departure from the earlier decision of the District Court and from the dismissal of the appeal from that decision in this Court.

[12]     So far as the extradition treaties are concerned, Ms Toohey made lengthy submissions to the effect that the extradition treaty between the United States of America and Germany would result in Mr Dotcom being treated more gently if he were to flee to Germany than if he were to be extradited directly to the United States of America.  In particular, it is submitted that the treaty would not permit him to be extradited and that whether he would be prosecuted in Germany at the request of the United States of America would be a matter of discretion for the German authorities. The same is said to be true of Finland.

[13]     So far as the significance of the passage of time is concerned, the submission is that the District Court Judge was not justified in regarding this factor as casting the issue of undiscovered funds in a new light.  The decision of Asher J on the first bail appeal did not turn on any finding that there were undiscovered funds.

[14]     Similarly, the Crown submitted that the District Court Judge should not have inferred  anything  from  the  absence  of  any  newly  discovered  accounts  since Mr Dotcom’s arrest.  The restrained accounts were identified as part of a prolonged investigation preceding the January arrests and were linked to companies or names known to be associated with Mr Dotcom.  It was submitted that any emergency fund that  he  might  possess  is  likely to  be  better  disguised  and  may  well  not  be  in New Zealand.   There was no evidence from which the District Court Judge could have properly drawn any conclusions about post-arrest investigations.

[15]     In support of this submission, the Crown filed an affidavit of Peter David Marshall regarding Hong Kong accounts and sworn on  27 February 2012.   The purpose of this affidavit was to put into evidence a letter to the Attorney-General

dated 24 February 2012 from a Mr Prabhu, an Assistant United States Attorney.  The letter listed six accounts that the United States had previously been unaware of and which have now been temporarily restrained by Hong Kong law enforcement.  These accounts had not been disclosed by Mr Dotcom in any of the previous proceedings.

[16]     I interpolate here that Mr Davison QC for Mr Dotcom submitted that none of these accounts are in the name of Mr Dotcom except for an account with the Grand Hyatt Hotel which has a negative balance.   Further, none of the balances are significant.  I accept that submission.  I also accept Ms Toohey’s point that the recent discovery of these accounts demonstrates the complexity of Mr Dotcom’s affairs and the difficulties faced by the United States of America in identifying all accounts in which he has an interest.

[17]     Mr  Prabhu’s  letter  says  that  funds  restrained  to  date  in  the  name  of Mr Dotcom (including funds held in other names by which he is legally known) total approximately  USD$17.8 million.    Funds  held  in  the  name  of  various  “mega conspiracy companies” total approximately USD$6.8 million.  These amounts do not include money and property restrained in New Zealand.  I am advised that the value of restrained property in New Zealand is approximately $20 million.

[18]     Mr Prabhu’s letter says that payments to Mr Dotcom for the years 2007-2010 inclusive   which   have   been   identified   are   in   the   range   of   approximately USD$54 million to USD$68 million.  It is submitted that these monies are greatly in excess of the value of the property restrained and indicate the potential which exists for significant funds to be in other accounts which have not yet been found.

[19]     The Crown submitted that the final evidential position as to Mr Dotcom’s known assets before the District Court Judge was essentially unchanged from the position before Asher J.

Submissions on behalf of Mr Dotcom

[20]     Mr Davison, not surprisingly, supported the decision of the District Court

Judge.  He submitted that the application for bail brought before the District Court

Judge was not advanced primarily on the basis that the circumstances had changed, but rather upon the fact that there was sufficient new evidence in relation to the existing circumstances to warrant the Court reconsidering the refusal of bail.

[21]     On the issue of flight risk, Mr Davison supported what he considered to be the careful consideration that the District Court Judge paid to the crucial question of flight risk.

[22]     Mr Davison took issue with the inference that the Crown sought to draw from the letter of Mr Prabhu that significant funds might not be restrained.  He submitted that the singular lifestyle of Mr Dotcom could well account for any difference in the figures.

[23]     Mr  Davison  put  emphasis  on  the  anticipated  length  of  time  before  the extradition application could be heard.  The District Court Judge had concluded that the information as to this was no different from that anticipated by Asher J in his judgment and therefore did not require consideration as a new or changed circumstance.   However, the latest position is that the extradition hearing will not take place until 20 August 2012.  A related difficulty is that the Police have seized Mr Dotcom’s personal laptop and a large number of computers which were also at his address.   There is a difficulty between the parties as to gaining access to the information stored on those computers.   Mr Davison says that it will be very important for the Defence to have a clone of the hard drives so that Mr Dotcom can properly put his case at the extradition hearing.  Ms Toohey for the Crown advised me that it would cost some $200,000 to clone the computers and that no agreement has  been  reached  to  do  that  at  this  point.    Certainly,  I  accept  Mr Davison’s submission  that  a  remand  in  custody  at  this  point  would  adversely  affect Mr Dotcom’s  ability to  properly prepare for the extradition hearing and instruct counsel.

Decision

[24]     The law is that a person is entitled to bring successive applications for bail. As a matter of law, but not as a threshold to jurisdiction, if the applicant cannot point

to a change in circumstances or other matters which warrant a fresh examination of the question of bail, the “Court is entitled to adopt the earlier finding and move on from there”.[5]

[5] Zhang v Police HC Hamilton AP68/02, 22 May 2003, Fisher J.

[25]     In this case, Mr Dotcom’s lawyers made a further application for bail based upon nine matters which they submitted justified the District Court Judge in considering the application in full.   The District Court Judge decided that two of those matters did justify him considering the question of bail afresh.  He did so.  In the exercise of his discretion he granted bail.   The matter is now before me on appeal.   Whether or not I agree that there were new circumstances which should have caused the District Court Judge to consider bail afresh is to an extent beside the point.  The District Court Judge chose to consider the application for bail afresh and he exercised his discretion in favour of Mr Dotcom.  I have to consider the whole of the decision of the District Court Judge against the usual principles.   This appeal proceeds by way of rehearing and I have to reach my own decision on whether the outcome reached by the District Court Judge resulted from a correct exercise of his discretion overall.

[26]     Of the two circumstances considered by the District Court Judge to be new, I agree with him on the revealed existence of extradition treaties between the United States of America and Germany and between the United States of America and Finland.  These countries are the countries of Mr Dotcom’s citizenship.  If they were thought in the earlier application to be safe havens in the event of flight then that could properly be seen by the District Court Judge to be significant.   It does not matter whether the Judges in the previous application thought it significant.   The District Court Judge has his own discretion and can form his own views.

[27]     I disagree with the District Court Judge that the passage of time since the first bail application to the hearing of the second application (22 days) amounted to a change of circumstance because no evidence of further bank accounts had emerged within it.   I agree with the Crown that this period is not long enough to be very significant and that the District Court Judge did not have sufficient evidence upon

which to base the firm inferences which he has drawn.  However, I do agree with

him that the period has enabled all known assets to be seized and secured away from

Mr Dotcom’s control.

[28]     That being said, I must now consider the appeal overall.

[29]     The fact that the appeal proceeds by way of rehearing does not mean that this is a completely new hearing.  I have to reconsider the issues that were raised before the District Court Judge and I have to take account of the fact that he was exercising a discretion.   The Court of Appeal, as has been cited to me by both counsel, has described the approach on appeal against a decision to grant bail as follows:[6]

... Someone who appeals a refusal of bail and is unable to point to a material change in the circumstances since the lower Court’s decision faces the difficulty that it is a challenge to the exercise by a Judge of a discretion. The appellant must therefore establish that the refusal of bail was contrary to principle, or that the Judge failed to consider all relevant matters or took into account irrelevant matters, or that the decision was plainly wrong.  (Where there has been such a change in circumstances the better course is for a further application to be made to the lower Court, rather than the pursuit of an appeal.)

[6] B v Police (No 2) [2000] 1 NZLR 31 (CA) at [6], affirmed in Hereroa v R [2011] NZCA 491 at

[19].

[30]     The same principle applies to an appeal by the Crown against a granting of bail.

[31]     I  begin  my  examination  by  acknowledging  the  statutory  principle  that Mr Dotcom is entitled to be released upon bail in this case unless there is just cause for his continued detention.

[32]     In this case, the risk that Mr Dotcom may fail to appear in Court for his extradition hearing is the determinative factor.  In considering this factor the Court may take into account the nature of the offences for which extradition is sought, the strength of the evidence and the probability of conviction, the seriousness of the punishment to which Mr Dotcom would be liable, his character and past conduct, whether there is a history of offending while on bail or breaching Court orders, including  orders  imposing  bail  conditions,  the  likely  length  of  time  before  the

extradition hearing and any other relevant matter.

[33]     In this case the nature of the alleged offending is making criminal use of the internet for financial profit.   The safety of the public is not at risk.   The sums of money alleged to be involved (in the hundreds of millions of dollars) make the alleged offending very serious in the continuum of its kind. Against that is the value of the assets already seized around the world.  Those assets (amounting to roughly USD$40 million) are at issue and unless Mr Dotcom is prepared to abandon them he will have to contest the charges.

[34]     I  am  not  in  a  position  to  assess  the  strength  of  the  evidence  against Mr Dotcom and the probability of conviction.   I am told that he will defend the charges and that the probability of conviction is not high.  On the other hand, I am told that the strength of the evidence is such that extradition to the United States of America  is  inevitable  and  that  the  risk  of  conviction  is  sufficiently  high  that Mr Dotcom would be motivated to avoid the prosecution process.  For the purposes of the bail application, I take it simply that Mr Dotcom faces serious charges, a lengthy prosecution process and no certainty of outcome.  If he could avoid all this then he would.

[35]     I am not in a position to evaluate the seriousness of the punishment to which Mr Dotcom might be liable.  However, common sense says that convictions for the criminal conduct with which he is charged to any significant extent would result in a lengthy term of imprisonment.

[36]     I have heard that Mr Dotcom has a history of offending, although some of that was when he was a teenager.  There is no relevant history of offending while on bail or breaching Court orders but in the overall scheme of things that is of little moment.

[37]     I understand that any extradition hearing would not take place until August of this year; in other words, at least another six months in custody for Mr Dotcom were the Crown’s appeal to succeed.   One consequence of his being in custody for this period would be the difficulties he would face in accessing computer-stored information and instructing counsel.

[38]     The other relevant matters are those referred to by the District Court Judge and by counsel.  I will not go through them individually.  In summary, Mr Dotcom seems to be an unusual character who has amassed a large fortune through the commercial use of the internet.  He has two valid passports from two countries in different names (although there is nothing illegal about that).  He has many credit cards and bank cards in various names.   There is a suspicion, based on his accumulation of wealth and collection of bank accounts, that he might have the undisclosed means of financing a flight from jurisdiction and a comfortable life thereafter.

[39]     I stand back and look at the overall situation.  Mr Dotcom is a very wealthy man who has had all of his identified assets seized or frozen.  The charges against him are that the business methods by which he acquired his wealth were illegal.  If he were convicted of all the charges against him, I take it that he would lose the assets now sequestered and would spend a considerable amount of time in an American prison.  Of course, he would like to avoid all of that if he could.  But to be incarcerated for another six months awaiting the extradition hearing, the risk of flight has to be a real one.

[40]     I find myself in agreement with the District Court Judge.  He has assessed the factors which he was required by law to assess and I cannot say that he was wrong in his conclusion as to the flight risk.  He has, in my view, overstated the significance of the passage of time for the issue as to whether unidentified funds exist.  But I do not find that that overstatement led him into error overall.  Electronically monitored bail means that the acknowledged risk of flight is ameliorated.  It essentially puts a perimeter around Mr Dotcom’s home and if he breaches the perimeter then the authorities will know about it very shortly.   That is a significant impediment to a person as recognisable as Mr Dotcom who seeks to flee the country clandestinely.

[41]     Am I certain that Mr Dotcom will not flee the country or attempt to do so? Of course I am not.  But the law does not require me to be certain.  If it did, then there would be no right to apply for bail on the basis that it should be granted unless good cause is shown to deny it.  Of course there is a possibility that somewhere there is a bank account with millions of dollars in it.  And it might be that Mr Dotcom is

secretly determined to flee the jurisdiction of this country if he possibly can.  But my task, as was the task of the District Court Judge, is to weigh the flight risk against the presumption at law that Mr Dotcom should have his liberty.  Overall, I agree with the District Court Judge that the risk of flight, ameliorated by electronically monitored

bail, does not overturn that presumption. The appeal is dismissed accordingly.

Brewer J