Internet millionaire Kim Dotcom says he would prefer not to sue the Government over his extradition case.



Dotcom is fighting moves to return him to the United States to face anti-piracy charges.

However, this week it emerged the Government Communications Security Bureau (GCSB) illegally spied on him in the lead up to his arrest.

Search warrants used to raid his property have been ruled illegal, and his legal team are fighting to have the FBI disclose what evidence they have against him.



Today the Government has been dogged by questions over how much the errors could cost them.



Dotcom has been using social media to respond to developments.



Tonight he tweeted: "I prefer not to sue the NZ Government. We love it here & we don't want to burden tax payers. But it's time for diplomacy. This is all wrong."



INTELLIGENCE BUNGLE

The GCSB had sought assurances from police that Dotcom and his internet piracy co-accused were foreign nationals, court documents revealed.



The agency is only allowed to monitor foreign intelligence - and the blunder occurred because Dotcom, a German, and his Dutch co-accused Bram Van Der Kolk, hold New Zealand residency.



Organised and Financial Crime Agency New Zealand (OFCANZ) wrongly told GCSB agents the pair were foreigners.



The bungle could threaten the entire extradition case - which is due to be heard in March. A further hearing on the search warrants is to take place in Auckland tomorrow.



OFCANZ asked the GCSB to glean information relevant to "location, awareness on the part of the wanted person of law enforcement interest in them, or any information indicating risk factors in effecting any arrest’’.

The documents state "GCSB sought assurance that all the persons of interest were foreign nationals. OFCANZ gave that assurance".



The advice on the immigration status of Dotcom and Van der Kolk was "incorrect".



The spying began on December 16 last year and lasted until 20 January 2012. It did not involve installing or connecting devices.



Any other GSCB activity in the Megaupload case cannot be made public - because of a ministerial certificate signed by Bill English, as acting prime mininster, last month.



Prime Minister John Key said the report into the Dotcom bugging will be finished by the end of the week.



He asked Inspector General Paul Neazor to investigate when he learned of the unlawful spying last Monday.



MINISTER KNEW



Earlier it was revealed that English, the Finance Minister, knew spies were involved in the Dotcom case before the Prime Minister was alerted.



Labour leader David Shearer today claimed English had signed an indemnity order which made New Zealand liable for all costs if Kim Dotcom decided to sue - but after earlier declining to comment so he could check his paperwork, Mr English said this afternoon that was not true.



"It was a suppression order relating to the court proceedings; the leader of the Opposition has said I signed an indemnity, that's not true."



Key was briefed by GCSB last Monday and ordered an inquiry.



The blunder became public yesterday once documents were lodged at the High Court.



Both the GCSB and English were unaware at the time that the covert eavesdropping was illegal. GCSB were alerted five days before Key - there was a delay in briefing him because director Ian Fletcher was overseas.



The bugging is believed to have taken place under former head Simon Murdoch, who was director of GCSB between July 1 2011 and December 19 2011.



Key defended the bureau. "The entire time I've been the minister there has never been another issue for which I've had concerns. I think they've got a very thorough processes. They actually self-identified this potential error."



Key has refused to say who ordered the bugging. And he won't say if it was at the behest of the FBI.



"They act under their own instructions," he said of the GCSB.



Shearer scoffed at the idea spies were not aware Dotcom was a resident.



"Dotcom threw the biggest party, the biggest fireworks party, I think in Auckland's history.



"He threw that party to celebrate his residency, surely our intelligence agencies would have picked that up?"



Meanwhile, Dotcom this morning tweeted: "We came to NZ to raise our young family in peace. The Government greeted us with unlawful acts, abuse & terror while Mega was totally legal."