The electronic spy agency, the GCSB, would have more freedom to carry out surveillance on New Zealanders, under new recommendations.
A review of New Zealand's intelligence and security agencies has recommended the two agencies be governed by a single law.
Parts of the law governing the Security Intelligence Service (SIS) and the Government Communications Security Bureau (GCSB) have been described as a "double-humped ass" which could be compromising the safety and security of New Zealand because it is so confused and disjointed.
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That prompted a review, carried out by former Labour Deputy Prime Minister Sir Michael Cullen and lawyer Dame Patricia Reddy, the findings of which have been released today.
Under proposed new legislation, the GCSB could carry out surveillance on New Zealanders, for the purpose of protecting national security, with a warrant.
Sir Michael said the GCSB can do this already, but has been extremely cautious in how it has used that power.
The GCSB should be able to help other agencies, when for example, the lives of New Zealanders are in danger, he said.
"The view taken by GCSB is that they can't - because other parts of that act run in contradiction to that, the law is unclear.
"I would have thought that most people would have taken the view that in those kinds of cases it is legitimate."
Prime Minister John Key said the recommended changes for the GCSB would technically represent an expansion of its authority to carry out surveillance on New Zealanders.
But it was not an extension of the intelligence agencies' powers overall, as under the existing law the SIS could still use the GCSB in certain circumstances.
"Technically, yes it's an extension of their current authority. I don't think it's an extension of powers of the agencies overall, because under the existing law and under the right set of circumstances SIS could generate a warrant which it could then use GCSB as an agent of them to do the same thing."
The government will now work with other political parties before starting to draft legislation.
New law 'clarifies' powers
Sir Michael said although it was beyond the terms of reference, he and Dame Patsy probably would have recommended a straight merger of the two agencies if that had been within their purview.
"Because technologically it increasingly makes no sense, and a review in five to seven years might well come to that conclusion."
Dame Patsy said it was important the GCSB was able to use its technology to assist other agencies, including the SIS.
"Otherwise we run the risk, indeed it's probably already happening, of those agencies setting up their own mini GCSB powers and if you think of an online world that we live in, much of the world we live in is through the internet or online."
The review examined the current laws to see if they were working properly, to determine whether there were adequate oversight provisions and whether provisions contained in the Countering Foreign Terrorist Fighters legislation, which expires next year, should be extended.
They found the current law was inconsistent and a lack of clarity meant both the agencies and their oversight bodies were at times "uncertain about what the law does or does not permit, which makes it difficult to ensure compliance".
This led to an "overly cautious" approach, by the GCSB in particular, and created barriers to the two agencies working effectively together.
Sir Michael said the changes would not equate to an extension of the powers of the spy agencies, but rather the governing legislation "clarified" their powers and what they could, in fact, legally do.
He said on the face of it, section 14 in the current GCSB Act prohibited that agency from spying on New Zealanders but, in fact, the Act was "riddled with exemptions".
He used an example of a New Zealander being lost at sea, saying the agency could be hamstrung from finding information to help that person, because of their nationality.
"Under this legislation as the GCSB sees it (and) has to interpret it, the GCSB's capacity to trace an individual's cellphone or say where it is, cannot be used.
"We have no way of finding out where that person is, using that capacity, in order to take immediate and urgent action, in whatever, to try to protect the safety of that New Zealander."
The government was "almost put in the position of failing to protect New Zealanders" by legislation, and the interpretation of it by a "risk-averse" GCSB, he said.
Sir Michael said it was important to note the SIS had broad powers to carry out surveillance on New Zealanders, an "extremely" wide set of circumstance, including economic wellbeing.
A single piece of legislation would mean both agencies operated under the same objectives, functions and powers and warrant authorisation framework.
Included in the common functions would be collecting intelligence, protective security and assisting other government agencies.
In general, the review said the agencies should be able to obtain a warrant only to target New Zealand citizens, permanent residents and organisations to protect national security, and that broader objectives like economic and international well-being should only apply to foreign nationals and organisations.
It also recommended removing the current restriction on the GCSB to intercept the private communications of New Zealanders for its intelligence function.
"The restriction is confusing, does not protect New Zealanders to the extent it suggests and hinders the agencies' ability to assist the government to protect New Zealand against security threats."
The review has also laid out a new framework, under which all security and intelligence activities of both agencies would require authorisation, in a three-tier structure.
Tier one would be required for any activities that would "otherwise be lawful and are for the purpose of targeting a New Zealand citizen, permanent resident or organisation"; that would have to be signed off by the Attorney-General and a judicial commissioner.
That would also include "review warrants" for information collected incidentally.
Tiers two and three would cover foreign individuals or organisations and activities which would currently be lawful respectively, such as carrying out surveillance in a public place.
The review also recommended several changes to the powers of the Inspector General of Intelligence and Security, to make that position more independent of Parliament and to give them more powers to look into the case made for the gaining of a warrant, and to look at classified information.
It recommended making Parliament's Intelligence and Security Committee larger to allow for broader parliamentary representation.
The review also laid out requirements for the agencies when they were dealing with foreign intelligence partners, with the obligation any actions were consistent with the purpose of the new Act, and that when accessing information from foreign partners, an "appropriate level of authorisation" is needed.
"This would ensure the legislation does not provide scope for the agencies to use foreign partners' capabilities to collect information they cannot lawfully obtain themselves."
The Countering Foreign Terrorist Fighters Legislation 2014 was passed under urgency and the review recommends the powers relating to suspending or cancelling passports be retained, but with more checks and balances.
The review will be presented to Parliament, and the government will seek bi-partisan support from the Labour Party to draft legislation in line with the review's recommendations.
Prime Minister John Key said the recommended changes would technically represent an expansion of its authority to carry out surveillance on New Zealanders.
But he said it was not an extension of the intelligence agencies' powers overall, as under the existing law the SIS could still use the GCSB in certain circumstances.
Mr Key said the government would work with other political parties before starting to draft legislation.
A Labour Party spokesperson said it supported the idea of a single piece of legislation but wanted to see more detail about the GCSB potentially having more powers to spy on New Zealanders.
Green Party co-leader Metiria Turei said it was adamantly opposed to any expansion of the government spy agencies' powers.