Prime Minister Helen Clark negotiated the best possible solution to a political crisis today when Winston Peters stood aside as foreign minister while the Serious Fraud Office investigates allegations against him.
Mr Peters' future now rests on the outcome of the inquiry, which will focus on donations to his New Zealand First Party, and before he met Miss Clark in Auckland he angrily rejected the allegations.
He vowed to present her with evidence that would prove false the "vile, malevolent, malicious and wrong" claims that have been laid about undeclared donations and whether the money was used for the purpose the donors intended.
But after an hour of talks at a secret location, Miss Clark calmly announced Mr Peters had offered to stand aside and had asked her to take over his foreign affairs, racing and associate senior citizens portfolios.
"Mr Peters has been thinking very carefully about this," she told reporters.
"It's been clear to me this would be the appropriate course of action but there hasn't had to be a lengthy argument about it at all."
Miss Clark said Mr Peters would be reinstated if the SFO cleared NZ First, and he would co-operate fully with the inquiry.
The first meeting between the SFO and Mr Peters' lawyers, led by Peter Williams QC, would take place tomorrow, Miss Clark said.
Miss Clark said Mr Peters had not had a chance yet to give his side to the SFO and would open all relevant books and documents which she thought would help it progress quickly.
Miss Clark said there had been "no difficulty" reaching the position.
If there had been a confrontation at today's meeting, or if Mr Peters had refused to stand down without a fight, the consequences for the Government and NZ First would have been severe.
The National Party has been demanding action for weeks, and after Miss Clark's announcement party leader John Key said she had taken too long to deal with the crisis.
"It's now up to the prime minister to answer questions. . . she is implicated in this," he said.
ACT Party leader Rodney Hide, whose complaint led to the SFO inquiry, said the stand down was not good enough.
"Miss Clark hasn't been prepared to do what's right – sack a minister who has misled her and the country and who is under investigation by the Serious Fraud Office," he said.
Mr Hide said Miss Clark was treating Mr Peters' behaviour as "some temporary aberration" and voters would judge her.
Miss Clark described Mr Peters as "hurt but calm" after their meeting.
"In politics, each of us has a reputation and obviously Mr Peters is very keen, as any of us would be, to defend his reputation," she said.
Asked whether she thought the controversy reflected on her, Miss Clark said as prime minister she had to deal with difficult issues.
"You don't ask for them to come along but you have to deal with them and I am endeavouring to deal with this in a way which is fair and has some dignity about it," she said.
"As someone who has been in politics a long time I know how precious a reputation is, and how hurt people get when there's a serious assault on their reputation."
The SFO will investigate whether a $25,000 donation to NZ First by Sir Robert Jones was used for the purposes he intended, and whether cheques from the wealthy Vela family reached their intended destination.
SFO director Grant Liddell said he had enough information to suspect the investigation might reveal "serious and complex" fraud.
He also said the inquiry may find find there was no basis for the allegations. It was "entirely possible", he said, that there were "innocent and honest explanations".
Parliament's privileges committee is holding a separate inquiry into a $100,000 donation from expatriate billionaire Owen Glenn, which was not declared.
Peters has vowed to meet the SFO inquiry "head on" and denounced its investigation as "ridiculous in the extreme".
In an unplanned call to Radio New Zealand's Morning Report today Peters said he had evidence to show allegations against him were a lie.
He said unnamed groups were organising a plot against him and that the SFO was part of it.
He said if the Serious Fraud Office (SFO) had talked to him he would have convinced them in five minutes that he was not breaking the law.
He told Radio New Zealand that The Dominion Post was part of the "malevolent planning strategy" and he would not stand down in the face of a "kangaroo court of public opinion, organised by the media in this country and others."
"The public has been most vilely misinformed," he said.
It was a day of extraordinary developments yesterday:
* The Serious Fraud Office launched an inquiry into NZ First finances, centring on donations to the party from Sir Robert Jones and members of the Vela family that were revealed by The Dominion Post as part of a two-year investigation into NZ First and its murky finances.
* SFO director Grant Liddell said the matters were serious and he had "reason to suspect that an investigation may reveal serious and complex fraud".
* Miss Clark revealed she had known since February there were conflicting accounts of a donation from expatriate billionaire Owen Glenn. Mr Glenn had informed her personally at that time that he made a donation in response to a request from Mr Peters.
* The SFO was delivered a stay of execution, after Miss Clark halted progress of legislation disbanding it till the NZ First inquiry was complete.
Clark was dragged directly into the donations row by her admission that she raised the Glenn donation with Mr Peters in February, seven days before his press conference categorically denying receiving any money from the shipping magnate.
TWISTS AND TURNS:
FEBRUARY 20: NZ First MP Dail Jones prompts speculation that expatriate billionaire Owen Glenn had been a donor after he says there was an unexplained deposit in the party bank account at the end of 2007.
FEBRUARY 28: Holding up a big "NO" sign at a Wellington press conference, NZ First leader Winston Peters denies the party ever received money from Mr Glenn.
JULY 14: Speculation about a Glenn donation revives after e-mails from the billionaire to a public relations firm emerge. They appear to confirm a donation had been made.
JULY 18: Mr Peters' lawyer, Brian Henry, reveals Mr Glenn gave $100,000 toward the bill for the failed 2005 Tauranga electoral petition. This had been kept from Mr Peters.
JULY 22: A Dominion Post report raises questions about what happened to big donations to NZ First from the wealthy Vela family and property magnate Sir Robert Jones.
JULY 30: The Serious Fraud Office announces it is assessing whether to investigate.
AUGUST 5: Speaker Margaret Wilson asks the privileges committee to investigate whether Mr Peters should have declared the Glenn donation in the register of interests.
AUGUST 18: Mr Peters and Mr Henry tell the committee Mr Peters had no knowledge of the gift, so could not have declared it.
AUGUST 27: The committee issues a letter from Mr Glenn. In it he says Mr Peters asked him for the donation and thanked him for it in early 2006.
YESTERDAY: Prime Minister Helen Clark reveals Mr Glenn told her in February he had made a donation, but details were vague and Mr Peters had denied it. The SFO launches a formal investigation into donations to NZ First.
- NZPA with Fairfax Media
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