Failure to prosecute

Staff instructions.  July 2021

  1. By July and August 2020 MSD’s integrity teams had identified some fraud and, through MSD Legal, sought Crown Law advice about how to investigate fraud in the context of the wage subsidy scheme. Many of these cases continue to be investigated.

COMMENT:  The MSD did not ask for advice about prosecuting so a year later had not prosecuted anyone.

Auditor-General’s report on management of the wage subsidy.  May 2021

The public organisations managing the Wage Subsidy Scheme have identified a number of applicants they consider might have acted unlawfully. In my view, it is important to pursue prosecutions of these applicants. This is because it is important to maintain public trust and confidence in government schemes.

We recommend pursuing prosecutions to recover funds and/or to hold businesses to account for potentially unlawful behaviour.

4.89 The Ministry of Social Development can request information from recipients in accordance with consents given under the declaration or apply to the New Zealand Police for production orders under the Search and Surveillance Act 2012. The Ministry anticipates using a combination of prosecution (under the Crimes Act 1961), recovery through a civil claim, and restraint and/or forfeiture pursuant to the Criminal Proceeds (Recovery) Act 2009 to support its enforcement work. 4.90 In our view, effective prosecutions where there is evidence of fraud or abuse are critically important to maintaining trust and confidence in the Scheme. This work needs to be adequately resourced and prioritised.

MSD 2022 affidavit

  1. From March 2020 through 2021 most of MSD’s Client Service Integrity resources have been focused on assessing the legitimacy of Wage Subsidy applications, including, from July 2020 investigating and preparing cases for civil recovery and/or prosecution. These resources would otherwise have been focused on benefit fraud.14 Between May 2020 and September 2020 the team was also supported by up to 25 Department of Inland Revenue (Inland Revenue) compliance specialists and up to 11 staff from the Department of Internal Affairs.

COMMENT:  In July 2020 they started preparing cases for civil action or prosecution so why the 15-month delay?

The failure to prosecute was a result of the facts outlined in this document. Officials failed to follow wage subsidy objectives and Ministers requirements. They prepared an inadequate Declaration so that all businesses could be paid the wage subsidy. They ignored widespread abuse and overpayments amounting to thousands of millions of dollars. Businesses who made a lot of money from the wage subsidy had inappropriate influence over the rules. Officials ignored numerous articles about abuse, data showing businesses better off and most complaints they received. Their stated different approach to that used for checking on Benefit fraud involved ignoring overpayments, calling inadequate checks audits, not “monitoring and adapting” and not writing to recipients.

(Minister of Finance OIA February 2021)

MSD Report on audit processes 15 July 2020

26.   Criminal prosecution will be considered in the most serious cases. Any prosecutions   relating to the payment of the subsidies will be led by MSD in collaboration with other agencies.

COMMENT:  It appears that the MSD was not allowed to follow the normal processes it used for prosecuting Benefit fraud and had to get the consent of others before commencing prosecution action.  It may have been known that Ministers did not want any prosecutions.

The Minister of Finance said that the wage subsidy was a high trust model but giving it this label does not mean that normal standards regarding the prudent use of taxpayer money can be abandoned. It is clear that most recipients signed a false Declaration and later failed to comply with it and to make repayments. The Government has a duty to ensure that all taxpayer money which was wrongly obtained or retained by businesses and individuals is repaid.

One prosecution could have led to hundreds of millions of dollars being repaid.

(Minister of Finance OIA February 2021)

Joint Report 27 November 2020

MSD Affidavit

54.At current levels, our management of application exceptions, targeted audits and complaints is expected to be completed prior to 23 December 2020 by focusing most FIS resources on these areas of work.

An MSD affidavit said that some children under 5 and adults over 85 had been paid the wage subsidy.

A 11 December 2020 Cabinet paper is on the Treasury website and states that children doing a paper run received the wage subsidy so a minimum age of 18 was proposed.  It stated that complaints had been made about some employers who required their employees to use their holiday leave entitlement during the lockdown. This was a blatant breach of the Declaration signed by employers so they should have been prosecuted.

The Declaration signed by the employer stated that they had discussed their application with employees and got their consent in writing. If this had happened, the MSD would not have received thousands of complaints from employees. The MSD knew that many employers ignored this and other Declaration requirements, but it failed to take prosecution action.

(MSD OIA response 14 April 2021 prosecutions)

An OIA response received stated that staff were given no instructions regarding investigations and whether to refer a case for possible prosecution. Beneficiary instructions could have easily been adapted so this clearly demonstrates that officials were not interested in investigating or prosecuting.

“Your request for written instructions given to staff regarding which complaints to investigate and accepting or rejecting explanations about the Wage Subsidy being wrongly obtained are refused under section 18(e) of the Act as this information does not exist or, despite reasonable efforts to locate it, cannot be found.

Your request for written instructions given to staff regarding which investigations will be escalated to prosecution is also refused under section 18(e) of the Act as this information does not exist or, despite reasonable efforts to locate it, cannot be found.”

(MSD OIA response 14 April 2021 prosecutions)

“Where the Wage Subsidy was fraudulently obtained and/or retained where it should not have been, there is an expectation that the Ministry will respond to the loss of those public funds.”

“1.   To date, five cases have been considered for one or more of the responses outlined in the response to question 2, below. Of these:

  • Two are being prepared for civil recovery action (if the applicant voluntarily makes the requested refund, this action would not be proceeded with).
  • Three have been referred to investigators for further action before making a final decision on the appropriate response.

Where a decision has been taken not to prosecute, this is because the evidence available did not meet the standard required to prove a criminal offence beyond reasonable doubt.

  1. Please list all the enforcement actions the Ministry considers available to it in respect of the wage subsidy.

The Ministry’s enforcement actions may include prosecution, recovery through the civil courts, and/or recovery through restraint and forfeiture pursuant to the Criminal Proceeds (Recovery) Act 2009.”

There have been some prosecutions in Australia where the rules were tighter. It is clear from a Newsroom article on 12 October 2021 about the first two prosecutions that in New Zealand those who have done wrong only risk prosecution if they ignore several requests to repay.

  • The repayment process gives the opportunity for employers to repay the subsidy or negotiate a payment plan with MSD. If the employer does not engage, or refuses  to pay, then MSD could take civil enforcement action through the In some cases MSD may have the option of commencing bankruptcy proceedings in respect of individuals, or liquidation proceedings in respect of companies. The decision to do so would consider the impact on businesses and employees

COMMENT:  Businesses who commit fraud and are caught are not prosecuted if they repay or if they are established and jobs could be affected.

  • MSD has not commenced these processes to date as investigations continue and our decision-making framework is being.
  • Employers who committed fraud in filing WSS applications or misappropriated WSS payments (e.g., by failing to inform MSD that their circumstances changed) may be liable for prosecution under the Crimes Act.

COMMENT:  Most businesses did not report and repay when they had a boom in business halfway through the 12-week payment period)

31 March 2021 quarterly report to Ministers

  • This work will inform whether additional integrity checks are required for the original scheme and inform future scheme integrity programmes, noting that applicants we approach are under no obligation to respond or provide any verification.

(This does not seem to be a correct position to take)

Page 392 Quarterly report at 31 March 2021

No cases recommended for prosecution have been considered by the panel to date, and further decisions will be made in the coming weeks and months.

Staff instructions July 2021

  1. By July and August 2020 MSD’s integrity teams had identified some fraud and, through MSD Legal, sought Crown Law advice about how to investigate fraud in the context of the wage subsidy scheme. Many of these cases continue to be investigated.

COMMENT: The MSD sought advice about investigating fraud but not about prosecuting the fraud they had found in July and August 2020.

(OIA response 6 April 2022)

Decisions about prosecutions are made only after a thorough investigation process.

From our integrity programme, we have found that in the majority of cases employers did the right thing. In many cases where entitlements have been wrongly claimed, it is due to uncertainty about the eligibility criteria, rather than deliberate attempts at deception.

As of Friday 18 March 2022, the Ministry has referred 1,218 cases for investigation of which 518 have been resolved and 700 are underway.

COMMENT:  If a recipient claims uncertainty, they can avoid an investigation and possible prosecution.

MBIE OIA Response

As of 15 July 2021, the Ministry has received a total of 6,519 wage subsidy complaints. Of those, 4,208 relate to not receiving the full wage-subsidy entitlement and include one or more of the following topics:

  • Subsidy not passed on;
  • Employer paying incorrect subsidy rate; and
  • Employer applied for wage subsidy without employee’s knowledge.

Of those 4,208 complaints, 379 have become Labour Inspectorate cases and of those 379 cases, 115 have either been investigated or are currently under investigation. A further 73 have been managed by the Labour Standards Team as guided self-resolution, of which 37 cases have been resolved.

Furthermore, 5300 of these complaints have been received through the submission of the online wage subsidy complaint form, with the remainder having been passed on to the Ministry by other government departments or entities who have received the complaints in error.

Since 18 September 2020 (the date the Early Resolution Team took over the wage subsidy) the Ministry has received 261 complaints relating to the wage subsidy from the wage subsidy complaint form, Ministerial correspondence and the Early Resolution online web form.

Please be aware that every complaint received by the Early Resolution team is assessed and appropriate action is undertaken to manage it. At the point of triage, a complaint is referred to MSD, if appropriate, or allocated to an Early Resolution Officer to attempt resolution.

Wage subsidy complaints are triaged by a Principal Labour Inspector who assesses the appropriate way to manage the complaint. At triage, the Principal Labour Inspector refers the complaint to MSD if there is a clear allegation of a breach of the terms of the Declaration signed by the employer when applying for the wage subsidy. For example:

  • The employer is not passing on the wage subsidy in accordance with the terms in the Declaration
  • The employer has applied for employees who are no longer in their employment or never were in their employment or family members not working in the business
  • The business has received the wage subsidy but does not meet the criteria (30% less income than for the same time the previous year)
  • The employer is not making “best endeavours” to pay 80% of the wages
  • Employees being made redundant immediately after the employer received the wage subsidy
  • The employer claimed full time subsidy for part time workers
  • The employer using the wage subsidy funds for anything other than wages (for example – increase in personal wealth)

How many complaints did MBIE refer or recommend to MSD for possible prosecution?

As of 15 July 2021, 2129 complaints have been referred to either MSD or the mediation service. However, as breaking down these figures accordingly would require substantial research and collation, this part of your request is refused under section 18(f) of the Act.

COMMENT:  A substantial number of complaints must have been referred to MSD for possible prosecution but it is unknown how many and what happened to them.

Up to October 2022 the Employment Relations Authority made over 100 determinations where the wage subsidy was mentioned. A check of some of these cases brought by employees shows that they involved breaches of the wage subsidy Declaration. The MSD has done nothing about them.

The Auditor-General has had three very critical reports on the wage subsidy, emergency housing and the tourism fund.  These all involved officials promoting giving away huge amounts of taxpayer money without adequate justification.  These schemes involved the lobbying of officials and Ministers.  The huge wage subsidy giveaway resulted in a big increase in the value of homes and other assets so officials, Ministers and their relatives and friends would have benefited.

Ministers often have little time and ability to make well considered decisions so rely heavily on official advice and lobbying.

The MBIE website provides a lot of information on how they promote tourism. They say “We listen to and provide support to the sector to help them navigate through difficult times, including the COVID-19 pandemic.

Tourism New Zealand prepared a Cabinet paper, dated 12 May 2020, outlining a tourism model that would “enrich New Zealand and the well-being of New Zealanders”.

This proposal became the basis for the Strategic Assets Protection Programme.  It was a fancy name for made up concerns that sounded plausible but had no basis in reality.  On 13 May 2020, Cabinet formally agreed to establish a $400 million tagged contingency “Tourism Sector Recovery Fund”.  On 14 May 2020, the Minister of Tourism announced the $400 million assets. In June 2020 300 applications were received.

On 9 July 2020 the delegated Ministers were asked to make decisions but had difficulty deciding what was a strategic business and had other concerns regarding the need to only pay businesses that needed the money. They asked officials for further advice.

A week later on 16 July 2020 officials could not justify their recommendations and said that tourism businesses had bounced back after the lockdown and had access to the extension wage subsidy and other assistance so recommended that the STAPP be stopped or changed.

Ministers did not accept this advice because of the announcements already made, including the Prime Minister giving large sums to two well-known tourism companies when visiting Queenstown and Kaikoura.

The 290 million Tourism Strategic Assets Protection Programme was another example of officials giving away large sums of taxpayer money to individual businesses with loose rules and very poor checking and monitoring. When Ministers asked for justification of details, MBIE officials could not provide this and realised that circumstances had changed so they recommended that the Programme be stopped or changed.

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