The Overseas Investment Office (OIO) is investigating after revelations two Argentine brothers it allowed to buy a large Taranaki farm have criminal convictions for environmental pollution.
Documents obtained by the Labour Party show Rafael and Federico Grozovsky - who bought Onetai Station in 2014 - were found criminally responsible for chemical dumping from their Buenos Aires tannery.
The brothers are linked with Panamanian law firm Mossack Fonseca, which is at the centre of the Panama Papers revelations about how the rich hide their wealth in overseas trusts.
The OIO had said it was satisfied due process was followed when it granted consent for the pair to buy the 1300 hectare farm near Awakino.
Read the OIO's decision of December 2013 (43 pages):
But, in a statement issued this afternoon, it said it was now investigating the serious issues raised in media reports.
The illegal dumping in Argentina was revealed after a complaint by a local woman, Maria Rosa Balaguer, whose serious health problems were traced to high levels of the cancer-causing chemical chromium in her blood and urine.
Following further complaints, official investigations found high levels of a range of chemical waste in the Lujan River, including chromium 6, which causes irreparable damage to soil and water, skin lesions, lung disease and cancer.
Labour Party MP David Cunliffe said it only took a simple internet search to uncover the brothers' criminal history, and if the OIO did not know about it, it should have.
"The question has to be asked: how could they possible have passed a good character test on that basis when environmental considerations are part of that test?"
'A culture of approval'
Auckland University law professor Jane Kelsey said serious questions needed to be asked about the sale.
She said the news the brothers had been found responsible for chemical dumping was further evidence New Zealand's hands-off approach to overseas investment needed urgent reform.
"The Overseas Investment Office has a culture of approval, so I think we have [to have] a cultural shift and a shift in political will, not just a shift in what the regulations say.
"We're not going to see much change, and clearly, we need to have that shift pretty quickly."
Professor Kelsey, who was a leading opponent of the Trans-Pacific Partnership, said new agreements like the TPP would give governments further excuses for not tightening up the regulations.
Council of Trade Unions economist Bill Rosenberg said it was hard to see how Rafael and Federico Grozovsky could have passed "the good character test" if officials had known about their criminal record.
The OIO's own guidelines stated "good character" was broader than simply criminal convictions, and it should be making "active inquiries" in applicant's countries of origin, he said.
The current regime was "clearly not tough enough to keep out people who are not fit to run businesses in New Zealand."
"They shouldn't be relying solely on a statutory declaration [by the applicants].
"And they also should be tightening up the conditions to which the investors have to adhere once they get here, and the disclosures they have to make."
The fact the Grozovsky brothers were also linked with the disgraced Panamanian law firm Mossack Fonseca could further damage New Zealand's international reputation, Dr Rosenberg said.
"You have to ask, what's the net benefit to New Zealand from having these foreign trusts here?
"They are clearly being used for tax avoidance overseas, which is not only bad for our reputation, but also makes it difficult for us to hold up our heads when we're demanding that those companies that we know are avoiding tax in New Zealand - such as Facebook and Apple - should be subject to international action."
Neither Land Information Minister Louise Upston nor former associate Minister of Finance Jonathan Coleman, who signed off on the sale, were available for interview today.
The brothers' New Zealand law firm, Kensington Swan, said it was "aware of the release of court documents by the Labour Party today".
"However, consistent with all law firms, Kensington Swan does not comment on individual clients and we will not be commenting on this matter."