New Zealand minister resigns in Kim Dotcom donation row

A New Zealand government minister resigned Wednesday after being ordered to stand trial over electoral fraud allegations involving campaign donations from Megaupload founder Kim Dotcom.

Prime Minister John Key said Small Business Minister John Banks had agreed to step down from his portfolio until the case is resolved. Banks will retain his seat in parliament, preserving Key's slim majority in the chamber.

"Mr Banks maintains his innocence but realises this is a distraction for the government and has offered to resign as a minister," Key said in a statement.

The case centres on donations Banks received from Dotcom and the Sky City Casino in 2010 to help bankroll a failed bid to become Auckland mayor.

Dotcom told a court this week that he donated NZ$50,000 ($42,000) to Banks, but the politician asked him to make two NZ$25,000 installments so the source of the funds could remain anonymous under campaign funding laws.

Dotcom was close to Banks until his arrest for alleged online piracy in January 2012, when the German Internet tycoon accused the politician of abandoning him as US authorities prosecuted his Megaupload empire.

Police examined the donations case last year, concluding that there was insufficient evidence to bring a case against Banks.

However, a Wellington accountant, Graham McCready, launched a private prosecution and obtained a ruling in the Auckland District Court on Wednesday ordering Banks to stand trial on charges of electoral fraud.

"This evidence clearly shows that Mr Banks was aware of the source of both donations and must therefore have known that they could not properly have been characterised as coming from anonymous sources," judge Phil Gittos ruled.

If convicted, Banks would face a maximum jail term of two years and automatically lose his seat in parliament.

Banks said he planned to plead not guilty, telling reporters: "I have nothing to fear and I have nothing to hide."

Dotcom remains free on bail in New Zealand pending an extradition hearing expected to take place in April next year.

He announced plans last month to form a political party to contest the 2014 election in New Zealand, accusing Key of bowing to Hollywood pressure by allowing the United States to pursue the case against him.

The US Justice Department and FBI allege Megaupload and related sites netted more than $175 million in criminal proceeds and cost copyright owners more than $500 million by offering pirated copies of movies, TV shows and other content.

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