Polity by Rob Salmond


Saudi sheep: Misappropriating taxpayers' money

Last week, the government dumped 900 pages of Saudi sheep documents on the media and opposition. The record shows a Minister looking to mislead absolutely everyone in order to make an illegal $4 million payment to a foreign farmer. David Parker is calling for the Auditor-General to investigate; I can see why.

The reason we should care about this actually has nothing much to do with Mr Al-Khalaf, or sheep, or Saudi Arabia. New Zealanders deserve to be able to trust their government is spending their money within the law. We should have no tolerance for breaches of that trust.

Here’s what the issue boils down to: 

First, Murray McCully wanted to pay compensation to Hamood Al Ali Al Khalaf, who used to import live sheep from New Zealand before the practice was banned, and now objects to a New Zealand / Saudi FTA. McCully hoped that compensating Mr Al Khalaf would mean he stops objecting to the FTA.

From the documents, a February 2013 Cabinet paper recommends a payment of $4 million to Mr Al Khalaf partly for “the settlement of the long-running dispute.” That sounds a lot like compensation, even though McCully is at pains to ensure the payment should not appear to be compensation. Here’s an MFAT note of McCully’s comments in 2012 [with my emphasis]:

he would not want any (financial) contributions to be treated as compensation as this would involve a plethora of lawyers and bureaucrats.

The fact that proper authorities might scrutinise a multi-million dollar government payment isn’t a proper reason to hide the payment from them. That’s simply astonishing.

Second, there’s no legitimate reason to compensate Mr Al Khalaf. New Zealand didn’t break any law by changing the rules around sheep exports, meaning there’s no legal reason to pay compensation.

From the documents, the only “legal advice” about whether Mr Al Khalaf had a legal case came from Mr Al Khalaf’s lawyers. Not exactly an independent party! This is a far cry from John Key’s inferences in Parliament that New Zealand’s legal advice was that we were exposed.

Also, Mr Al Khalaf made it clear to McCully that he had basically no intention of going to court anyway, telling McCully in February 2012: “Under our culture when someone opens a door to you for many years, you do not take them to court at the end of your stay.”

Third, and not surprisingly, the government has no legal authority or money to pay  this kind of compensation, that is compensation to people they don’t actually have to compensate. That kind of pot is usually called a “slush fund,” and we try not to have those in New Zealand.

Fourth, that’s why Murray McCully dressed up Mr Al-Khalaf’s compensation payment as something else, over the objections of top government officials.

Working together, Al Khalaf, McCully, and MFAT concocted a scheme where Al Khalaf would provide ill-defined intellectual property and networking services to New Zealand – otherwise known as “being you” – which were magically valued at exactly the $4 million elsewhere suggested as the right amount for compensation. This, McCully thought, would allow the money to come from a part of the foreign affairs budget (Vote: Policy Advice and Representation – Other Countries) that has no authority for use as a way to settle legal disputes.

The Auditor-General took a different view, saying the business case for the joint New Zealand / Al Khalaf venture was “weak,” and raised concerns about the procurement process.

In fact, the MFAT Chief Executive even met the Auditor-General to plead that this isn’t a normal commercial deal, but rather a “diplomatic settlement” of a “unique nature,” and therefore should get special treatment.

This last part is really crucial. It both exposes the lie that this is a purely commercial solution, and also shows that MFAT – and by extension their Minister – were well aware that there were non-commercial (i.e. compensation) payments hidden among the accounts here. It indicates an intent to be deceptive with this payment, and to spend taxpayer money outside of its lawful appropriation.

Seeing the documents, it is clear Murray McCully personally directed his officials in such a way that they broke the law. He ignored advice, misappropriated funds, and misled his Cabinet colleagues and the public in order to illegally sent $4 million of taxpayer funds overseas. He should be gone.

McCully, and Simon Bridges and Judith Collins before him, have run roughshod. They ignored both the rules of government and their officials’ advice, and did exactly what they pleased with the taxpayers' money, regardless of whether their actions were appropriate, in the taxpayer’s interest, or legal. This, apparently, is what John Key meant by “higher standards of government.”


The documents I rely on in this post are currently available in hard copy only. Hopefully some enterprising soul will put them all up online soon, so the public can see exactly what Murray McCully has been up to.

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