America’s Cup: Government audit clears Emirates Team NZ of all allegations

by Richard Gladwell/ 26 Aug 05:09 UTC 26 August 2020 -nz-of-all-allegations-5e13d06.jpg” /> Te Aihe – AC75 – Emirates Team New Zealand – July 12, 2020 – Waitemata Harbour, Auckland, New Zealand © Richard Gladwell / Tweet
Grant Dalton, CEO of Emirates Team NZ © Carlo Borlenghi Sir Stephen Tindall Chair ETNZ Board proposes a toast at the Emirates Team New Zealand launch the world’s first AC75, Auckland, September 6, © Richard Gladwell

The New Zealand Government ordered investigation into America’s Cup champions Emirates Team New Zealand, and their event arm America’s Cup Events has exonerated both organisations of all claims made against them by informants.

Those claims included the leaking of a confidential letter jointly signed by the CEO’s of the Ministry of Business, Innovation and Employment (MBIE), and Auckland Council.

“The audit took five months for us to satisfy every single question they had of us, and they never found one thing,” ETNZ Chairman Sir Stephen Tindall told 3News.

Legal proceedings in the High Court have been filed by the team against the informants who were labelled as “Whistleblowers” in the MBIE document, however they may not have the protection of whistleblower legislation.

The media reporting the confidential and leaked documents claimed to have secretly recorded discussions within the America’s Cup Events management team. Also reported were claims that personal expenditure by ETNZ team members had been charged against the $40million Event Fee paid by the New Zealand Government to cover part of the cost of staging the event in Auckland.

All of those claims have been found to be false, and there was no wrongdoing at all.

The false claims received widespread coverage in the New Zealand media with the implication that there was more damning detail to be released. After three days of the allegations dominating the lead coverage in New Zealand daily media, the team obtained an ex parte injunction against the publication of leaked and confidential material, believed to include details of team salaries and other payments.

The formal injunction was heard in the High Court the following week, and was confirmed by the reserved decision of Justice Simon Moore.

The process to be followed in the event of disputes between the four parties was covered in the Host Venue Agreement, but despite some issues having occurred up to 12 months previously the prescribed processes were not instigated.

Further, three milestone payments had already been made under the prescribed HVA process where a Steering Committee comprising MBIE Auckland Council ETNZ and ACE were given a progress report on KPI achievement, 30 days ahead of the milestone payment being due. It was only the fourth payment which was delayed by the audit, and will now be paid.

One of the issues raised was the loss of a payment of several million dollars to a scammer, operating an elaborate fraud which it transpired had also been worked on several other companies within the marine industry in New Zealand, but not to the extent of the amount paid by ACE.

The payment was authorised by ACE CEO, Grant Dalton but it is claimed that proper accountancy and payment practices normally used to prevent fraudulent processes were not followed by the event management company who made the payment on behalf of ACE.

MBIE in consultation with host partner Auckland Council, called for an audit into allegations made against Emirates Team New Zealand Limited (ETNZ) and America’s Cup Event Limited (ACE).

The specialist audit firm, Beattie Varley report found that there was no evidence of financial impropriety or misappropriation of funds.

The report also found:

– there was no loan from ACE to ETNZ, – there was no fraud by ACE or ETNZ, – that no personal expenses of Grant Dalton or any other personnel were paid from Crown monies, – that there has been no financial impropriety of any nature.

The process began after MBIE and Auckland Council (as Hosts) were made aware of claims relating to the organisation of the 36th America’s Cup, which prompted an investigation by forensic accountants Beattie Varley and triggered an escalation process under the Host Venue Agreement.

MBIE say the matter regarding the third party fraud that ACE/ETNZ were a victim of has been satisfactorily resolved from MBIE’s perspective. MBIE are satisfied that any loss as a result of this scam won’t be paid for by any Crown investment.

The Beattie Varley report noted that a contractual disagreement was outstanding, regarding whether the AC36 Event and Class Design Costs is a cost that should be borne by the event, and therefore, ultimately, by Crown investment. The Parties have agreed to go to mediation on this issue.

Looking back through the modern era of the America’s Cup back to 1956, it is difficult to see how the development of the AC75 Class Rule could have been handled other than by Emirates Team New Zealand, given the unique resources, and know-how developed by the team, including the use of simulators to test design options, and produce a high quality Class rule for a new type of yacht.

It is not clear why the development of a Class Rule should be a cost to the Cup Defenders. In the past it had been possible to use an existing rule (eg in the 12 metre era from 1956-1987), or using a 25-strong design group, which developed the first version of the International America’s Cup Class rule (1992 to 2007). The cost of that process was not charged to the then Cup champion Team Dennis Conner.

The Beattie Varley report complained of a lack of timesheets for the class rule development process. Previously ETNZ had said they later estimating the costs of the exercise – believed to be at least double the amount charged to the event. That timesheet accounting approach completely overlooks the development of the design testing and performance technology, used and owned by ETNZ and deployed over a six month period to develop and test the class rule.

The risk of taking a less than thorough approach to the design of a class rule was exemplified in the development of the AC72 class rule – for a 72ft wingsailed displacement catamaran used in the 2013 America’s Cup. ETNZ’s design team found a loophole in the rule which allowed the 72fter to be a foiler. Fortuitously there was time for other teams to switch their designs to foilers, after confirmation by the International Jury that the type was legal, if not intended by those who drafted the Class Rule.

Similarly with the development of the IACC class rule in 1988 – despite being worked over by 25 top designers, a serious mathematical error was only discovered by design doyen, Olin Stephens who picked up the error after dropping in on the meeting late on the final day.

The other point picked up by Beattie Varley concerned the lack of specification of the details of the Host Broadcast. However in the America’s Cup context these are well known, and the broadcaster objective is to innovate and improve on the previous event and technology used. The issue is covered in the Host Venue Agreement, which states the benchmark that the 2021 Event cannot be to a lesser standard than the 2017 America’s Cup in Bermuda. The basic broadcasting output has not really changed since the 2000 Cup in New Zealand – with the area of biggest change being in the use of mobile technology, and increased bandwidth for domestic users. The America’s Cup is widely seen as a demonstration of technology, has innovated many aspects of coverage which have been applied to other sports.

The Cup event organisers as such, do not own any of the technology used.

After terminating the contract of the the previous event management company engaged by ACE, CEO Grant Dalton said in the written media statement “With the departure of the previous event managers, we have undertaken a thorough review of our personnel and we have the team to deliver on the event. We have engaged experienced and respected senior event professionals to lead the Event preparations.”

Sir Stephen Tindall, Chairman of ETNZ, said “We are pleased to have this behind us and ACE can now focus on putting on a great spectacle, and ETNZ on keeping the Cup in New Zealand.”

The summary findings of the report as prepared by Beattie Varley can be viewed by clicking here. Source

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