Police officers told the Government's spies in February that surveillance of Kim Dotcom may have been illegal.
But after its legal department reviewed the case, the Government Communications Security Bureau concluded their actions were legitimate.
A report by the inspector-general of intelligence and security, Justice Paul Neazor, released on Thursday, found the GCSB had illegally snooped on the tech mogul. The agency bungled by wrongly interpreting the law and is now reviewing all cases dating back to 2009, when immigration laws were changed.
The Green Party yesterday laid a complaint with police over the law breach and Labour Party leader David Shearer formally requested that Prime Minister John Key initiate an independent inquiry.
Inquiries by The Dominion Post have revealed police first raised the problem with GCSB agents at a meeting on February 16. Mr Key said this week GCSB became aware of the law-breaking about a fortnight ago.
Officially a debrief on Operation Debut, which had culminated in a raid on Dotcom's mansion on January 20, it is understood the February meeting was a "back-slapping" exercise, with a Power Point presentation.
The potential problem and the subsequent legal review was not disclosed to Mr Key, who was unaware of the GCSB's involvement in the high-profile case until last week.
The law-breaking only became public when Dotcom's legal team questioned the identity of a "mystery group" of officials who attended a meeting to plan Dotcom's arrest.
GCSB attempted to have its role covered up, asking acting prime minister Bill English to sign a ministerial certificate suppressing details in August, while Mr Key was in the United States.
The performance of the GCSB's legal department will now be the subject of discussions between its director, Ian Fletcher, and State Services Commissioner Ian Rennie.
A police spokeswoman yesterday confirmed the operation debrief took place on February 16.
Justice Neazor refused to comment but confirmed Mr Key's office asked about the meeting.
Mr Shearer believes the Neazor report, which was completed 11 days after it was commissioned by Mr Key, was "limited."
Mr Shearer wants an independent "wide-ranging" probe "into the serious failures within our intelligence services and the Government's management of them".
"This isn't just about whether a couple of people screwed up at the lowest levels of the Government Communications Security Bureau," he said.
"It's about many serious issues, including how a number of key agencies, like the Intelligence Co-ordination Group which reports directly to the prime minister, were either unaware of the issue or deliberately kept it from John Key."
Mr Key yesterday ruled out an inquiry.
Greens co-leader Russel Norman said the GCSB flouted the same laws cameraman Bradley Ambrose was accused of breaching in the "teapot tapes" saga.
"When he [Mr Key] was taped in a public cafe by a media person discussing matters of public interest, Key kicked up an almighty fuss . . . If Prime Minister Key really feels so strongly about a person's right to privacy, then he should back my call for the police to investigate the illegal surveilling of New Zealand residents by a government spy agency."
- The Dominion Post
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