Alleged internet pirate Kim Dotcom will appeal today's decision denying him bail, his lawyer says.

Dotcom, a German millionaire and founder of file-sharing site Megaupload, was arrested on Friday on behalf of United States authorities, including the FBI, in a police raid at his $30m Coatesville mansion.

US authorities were now seeking his extradition.

They alleged Dotcom's company breached copyright laws costing copyright owners more than US$500m in what they call the "Mega Conspiracy".

The 38-year-old, who was previously convicted of hacking and insider trading, has denied any wrongdoing.

Dotcom was today remanded in custody, with judge David McNaughton saying he posed a "significant" flight risk.

He will be held until February 22, when extradition papers are expected to be filed.

However Dotcom's lawyer, Paul Davison, QC, said that decision would be appealed to the High Court.

Davison spoke of the disappointment at the decision.

"We were hopeful that the judge would accept our intentions and our arguments and see that there was no risk whatsoever of Kim Dotcom seeking to leave New Zealand.

"All of his assets have been frozen, all of his resources have been taken," he said outside court.

"He's living here with his wife and family, he has no intention whatsoever of endeavouring to leave New Zealand."

He said Dotcom was "very disappointed" and had instructed Davison to appeal the decision at the High Court. The appeal would be lodged straight away, he said.

Dotcom had "health issues" which were being addressed in prison but there was "nothing adequate at this stage".

He would not specify what Dotcom required in prison.

He also didn't comment on how Dotcom's family, including his New Zealand-based wife who was heavily pregnant, and children, had taken the news about him having to remain in custody.

Davison said his "arguments spoke for themselves" and the judge "agreed with much of what we submitted".

But the judge decided Dotcom was a flight risk.

"There is no evidence whatsoever that he has any criminal connections or associations at all, I don't know where the judge got that idea," Davison said.

Outside court, a procession of Ford vehicles awaited to collect Dotcom's supporters, including a white Ford Territory wagon with 'boss 260' imprinted on the bonnet.

The judge reserved a decision on bail for three co-accused in the case until tomorrow afternoon.

Meanwhile, in Washington, a US Justice Department official said Dutch police have arrested a fifth suspect - Andrus Nomm, 32, a citizen of Estonia and a resident of both Turkey and Estonia. The official spoke on condition of anonymity because the case is still pending.

In total, seven men were indicted in a US court last Friday. Each face five charges, three of breaching copyright law, and one each of racketeering and money laundering.

RESERVED DECISION

The decision was reserved since Monday, when after a day of legal ping pong in the North Shore District Court, McNaughton decided he needed more time.

In court this morning, Dotcom again appeared in black clothing, brought from Auckland's remand prison where he has been held in custody since Friday.

The public gallery was packed with the same posse of tight-lipped supporters who turned up at the first hearings on Friday and Monday.

Whether Dotcom would reoffend while on bail or was a flight risk were mandatory considerations in McNaughton's decision.

McNaughton said the alleged risk of reoffending was a "neutral factor" on the bail application.

If Dotcom was held in custody, there were some 30 Megaupload staff employed worldwide and two defendants still at large, who could carry out any contingency plans in place to re-launch the site.

"Restarting the business from another site outside the jurisdiction is a factor completely outside the court's control, and remains an open question irrespective of any decision regarding bail."

As for whether Dotcom was a flight risk, McNaughton said: "I am sure that he has the financial resources to obtain forged identity or travel documents and to arrange transport out of the country by covert means should he chose to do so."

Dotcom had disclosed an unknown New Zealand account with NZ$300,000 to the FBI in "good faith" prior to the bail application.

But McNaughton said: "I cannot exclude the possibility that there are other bank accounts and other sources of cash available to him at short notice."

Dotcom also had three passports in three different names, and though he explained why he carried them, he showed no trouble in changing his identity.

"The applicant's unlawful possession of the firearm is another factor which weighs in the balance.

"It suggests a level of criminality which to my mind could easily extend to exploiting criminal connections to obtain false travel documents and leave the country undetected."

Also, if Dotcom were to leave the country and travel to Germany, he would be safe from extradition to the United States.

McNaughton said he put no weight on Dotcom's so called deportation from Thailand in 2002, after he allegedly fled to the country when he was charged with insider-trading in Germany.

"If the US Government had been able to satisfy me that is in fact what occurred the my decision in relation to bail would have been straightforward and I could accept the submission that the risk of flight is very significant."

McNaughton said although the flight risk argument wasn't as strong as initially suggested, he concluded that "there is a risk and it is a significant risk."

THE HEARING

In Monday's hearing, Crown lawyer Anne Toohey had argued Dotcom posed a flight risk at the "extreme end of the scale". She cited his access to money, transport and multiple passports as evidence of this, as well as his alleged lack of respect for authority.

Toohey detailed how during the police raid, Dotcom had run from police to a safe room, hiding behind a pillar and refusing to show his hands despite repeated pleas. A gun - believed to be a modified shotgun of a kind illegal in New Zealand - was found in an open safe just metres away.

She said 35 credit cards in numerous, differing names were found at the mansion along with three passports.

In defence, Dotcom's lawyer Paul Davison had argued his client "collected" credit cards and had only used his New Zealand passport since its issue in 2010.

He rubbished claims that Dotcom was a flight risk, saying the helicopter he leased could not be flown overseas.

Davison said Dotcom did not want to jeopardise his residency so would comply with any bail conditions - including not using computers to restart the Megaupload business.

QUESTIONS OVER RESIDENCY

Meanwhile, questions have been raised about whether the $10 million invested in New Zealand by Dotcom was raised lawfully, amid suggestions his residency could be revoked if it wasn't.

It comes as the Government faces growing pressure to release all information it holds about the Megaupload founder.

The 37-year-old German national was granted residency last year under the Government's Investor Plus category, which requires applicants to invest $10 million for three years.

Dotcom invested $10 million in Government bonds and made a large donation to the Christchurch earthquake fund.

Requirements under the Investor Plus category include having to prove the money was earned or raised lawfully.

Former immigration minister turned immigration consultant, Turariki Delamere, said it was no secret Dotcom was earning his money through Megaupload.

''Given the whole issue of piracy, one would suspect what he was doing was unlawful, which is the whole basis he has been arrested on.

''Piracy of intellectual property is illegal in New Zealand... But was that question ever put to Mr Dotcom?''

If the investment money was found to be raised illegally, Dotcom's residency could be revoked, Delamere said.

 

However, officials said they are satisfied the residency application by Kim Dotcom was handled appropriately.

Prime minister John Key said the file has been reviewed in the wake of Dotcom's arrest and the investigation had confirmed that correct procedures were followed.

Labour has joined NZ First in calling for an inquiry into why Dotcom was granted residency and the release of all information held by the Government on the flamboyant millionaire.

Labour leader David Shearer has questioned why Dotcom passed the character test for residency, but failed the character test set by the Overseas Investment Office when he applied to buy his rented mansion at Coatesville, north of Auckland, last year.

''How did we allow somebody like this to come in that had convictions in other countries? At the same time he's not being permitted to buy the property that he's been using. I think that brings up some questions about what is the policy, what did ministers see?''

Prime Minister John Key suggested yesterday the final decision to turn Dotcom's OIO application down was made by Government ministers.

But that was a different test to the one for residency.

The residency application was not referred to ministers for sign off, though the Immigration Minister was aware of the matter. He had been briefed by officials under the ''no surprises'' policy, Key said.

NZ First leader Winston Peters said the issue for New Zealand was not the charges Dotcom faced in the United States, but why he was ever allowed into New Zealand.

''It is in the Government's interests to tidy up these immigration irregularities.''

Key said officials were reviewing the file ''to check that they appropriately applied the rules'' but he had no plans to change the law.

It has emerged that Dotcom schmoozed ACT MP and former Auckland Mayor John Banks, who dined at the leased Coatesville mansion, which is in Key's electorate.

Key said he had been to the house when it was being built and he was a backbencher. But the first he knew about Dotcom living there was when he was briefed by the Solicitor General the day before last week's raids.

Immigration New Zealand boss Warwick Tuck said 10 applicants from Belgium, Malaysia, the United States, China, Great Britain, Singapore and South Korea had entered New Zealand through the investor category, including Dotcom.

None of the other applicants declared criminal convictions and police certificates that were required as part of their application were all clean.

Key said Dotcom had ''fully disclosed his history'' and under German law, because of the clean slate provisions, effectively had a clean record.

''To be honest it will be no different to a number of New Zealanders who've had residency in countries overseas, and who've previously had convictions here.''

- Auckland Now