Kim Dotcom and John Banks have quite different stories about their relationship. It might matter an awful lot who is telling the truth.

Politics costs money. Anyone who has had anything to do with any sort of campaign - be it to pressure the Council to fix the potholes in your street, or to get the leader of a political party elected as Prime Minister of New Zealand - knows this. 

So to pay for political activity, those who are wanting to engage in it must have money. They may have it themselves - think Colin Craig and his ability to bankroll the nascent Conservative Party. Or, they may not have it themselves (or not want to spend their own money). In which case, they have to get it from other people.

Which then starts to raise questions. If a person is just giving money to some politically active individual or organisation because they think the individual or organisation has the right answers, then that's one thing. We might still have concerns about how much a donor ought to be able to help out others in the contest for political power, but in general it is a good thing that people put their money where their mouths are. 

However, what about cases where we suspect a donation is motivated less by ideological sympathy and more in an effort to curry favour with those who may hold future public decision making power? Or, to put it crudely, there's a fear someone has tried to buy a politician? 

Well, one way we might try and put such fears to bed is to say to candidates (and the organisations behind them) that they have to tell us who are the big funders of their campaigns. The glib rationale for such rules is that "sunshine is the best disinfectant"; if everyone can see potential links between a donation and a future policy outcome, then it's a lot harder to create the sorts of corrupt relationships that otherwise may flourish.

Which is why today's New Zealand Herald story about Mr Kim Dotcom's claimed donation to Mr John Bank's Auckland mayoral campaign back in 2010 matters. Not so much because Mr Dotcom was in fact trying to buy any influence, or that Mr Banks in fact intended to sell anything. But rather because unless we can see exactly who is giving what to whom, then we cannot be sure what sorts of deals may be getting struck behind the scenes.

Here's Dotcom's account of the donation (as related by the Herald):

"He mentioned the elections were coming up [and] he was raising money for his campaign," Dotcom said. "He said it was hard to raise money in New Zealand, the mayoral campaign was coming up and he's trying to raise funds for that.

"I kind of liked the guy. I said, 'I'm happy to help.' I told Wayne to write a cheque for $50,000.

"His [Mr Banks'] eyes got a little bit bigger at that moment."

Mr Tempero asked the chief financial officer to come into the room to write the cheque.

"John said, 'Wait a minute'," Dotcom recalled last night. "'It would be good if you could split it up into two payments of 25 [thousand dollars], then I don't declare publicly who made it'."

Dotcom said one cheque was made out in his own name, or the name of his company Megastuff Ltd, and the other in Mr Tempero's name.

"He [Mr Banks] called me a few days after the cheques entered his bank account and he thanked me personally."

Now, as I say, this is just Mr Dotcom's account. But I can't see why he'd have an interest in making up a story like this about Banks - unless he's very, very bored on home detention, or feels that Banks has screwed him over in some way, or the like. And given that Mr Dotcom names others who were present at the meeting, you'd think there's ways of checking how accurate his recollection of it is that make fabrication a futile business.

But against those reasons for believing Mr Dotcom is his claim that: "John said, 'Wait a minute. It would be good if you could split it up into two payments of 25 [thousand dollars], then I don't declare publicly who made it'." This seems a bit odd, on its face. Splitting a donation of $50,000 into two donations of $25,000 has no effect whatsoever on the requirement to disclose it under the Local Electoral Act 2001.

Under s.109(1), a candidate must disclose within 55 days of the election the source of all "electoral donations" made to her or his campaign that exceed $1000. So it makes no difference to the requirement to disclose if the donation comes in one $50,000 amount or two $25,000 payments - both have to be declared. 

Assuming Mr Dotcom's account is accurate (which is, I reiterate, simply an assumption at the moment and in no way a certainty), it would appear that Mr Banks either did not know the law in this area, or perhaps was concerned that a single donation of $50,000 would raise questions that two $25,000 donations would not. Which is, if not unlawful in itself, certainly in tension with the spirit of the law.

But so far all we've looked at is what Mr Dotcom says happened. What does Mr Banks have to say about Mr Dotcom's claims? Again, the Herald tells us that:

Last night, Mr Banks said there would be nothing wrong with his telling people how to give anonymously.

"If someone says to me, 'How can I put money into your campaign?' what would be wrong with telling them that - if that was that case?

"I could say, 'Firstly, you should talk to people who are raising money for me. But if you want to put money into my campaign, you can put it in two ways. You can put it in anonymously or you can put it in and have it declared.' It's quite legitimate.

"If Kim Dotcom wants to put money into my campaign anonymously he is quite entitled to do it. Whether it is 1000, 5000, 50,000 or 500,000 [dollars], he is quite entitled to do it under the act.

"Nothing to hide, nothing to fear. If Mr Kim Dotcom put money into my mayoral campaign, you should tell him I'm grateful and thank you very much."

Technically, this is true. The Local Electoral Act 2001, s.109(1)(c) says that "electoral donations" of more than $1000 that are made "anonymously" simply need to be reported in the candidate's election expenses return as coming from an "anonymous" source. And s.5 defines "anonymous" as: "in relation to an electoral donation ... , means a donation that is made in such a way that the candidate concerned does not know who made the donation."

So a local body candidate legally can meet with a potential donor, tell that donor "here's what to do if you want to avoid having your name appear in my return of election expenses" and then go off and leave the donor to deal with those who are in charge of the campaign's financial affairs. And even if the candidate subsequently learns a large "anonymous" donation was made to her or his campaign in the days after the conversation, the candidate can claim not to "know" who it came from. And then that donation only needs to be reported to the public as being "anonymous" in nature. Which, you might think, is a pretty silly rule to have if the concern is revealing to the world who is paying the bills for elected officials (and thus may expect favourable treatment thereafter).

(Note also that the disclosure rules for local elections are different (in the sense of much looser) than those that apply at national elections - as David Farrar explains here.)

However, Mr Banks' account of the conversation with Mr Dotcom - actually, he doesn't acknowledge talking to Mr Dotcom at all, so his generic account of theoretical conversations with potential donors - diverges significantly from what Mr Dotcom says happened. For one thing, it sounds from Mr Dotcom's account like the cheques were given directly to Mr Banks. And in any case, Mr Dotcom claims Mr Banks rang him to thank him for the donation.

If either of these claims are true, Mr Banks cannot possibly claim not to "know" the source of the donations. And so they cannot qualify as "anonymous" in nature. And so if they were reported as such in his return of election expenses, rather than as coming from Mr Dotcom (or his company) and Mr Tempero, then that return was false. And returning a false return of electoral expenses is an offence.

Now, here I'm stacking assumption upon assumption, but if it turns out Mr Dotcom's account is the accurate one (and this seems eminently checkable through witness statements and phone records) and Mr Banks is charged with an offence, what then? Well, it depends on Mr Banks' state of knowledge with regards the expenses return. 

If he knew the return was "false in any material particular" - by conciously treating Mr Dotcom's donations as anonymous when he knew the donor's identity - then he's in real trouble. Because under the Electoral Act 1993, s 55(1)(d), a conviction for this offence automatically results in his seat in Parliament becoming "vacant" (i.e. he gets kicked out of Parliament). It doesn't matter what sentence he receives - it's the very fact of a conviction that matters.

Of course, even in this worst-case scenario, Mr Banks could stand again in the resultant by-election. And even if he doesn't win it, National's candidate certainly would. Which would mean that the numbers in Parliament wouldn't change appreciably - but it certainly wouldn't be something the Government would appreciate happening.

However, if he didn't know of the false return (i.e. it can be shown that it was someone in his campaign that wrongly reported the donation as anonymous and he didn't realise the mistake was made), then at most Mr Banks may be in line for a small fine. And if he can prove he did all he could to avoid such errors, then not even this.

So - as I say, there's a lot of assumptions that have to be proven true before we even get to this point. But who knew that letting a fat German ex-hacker with a questionable internet business model into the country would lead to such interesting times?