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All firearms charges against the "Urewera 18'' arrested after police raids on alleged military training camps in the Ureweras have been dropped.
But four of the accused, including Tame Iti, will still stand trial on charges of participating in an organised crime group.
The Supreme Court has ruled certain evidence inadmissable at the so-called "terror raid'' trial of next year which was set to last for three months.
The groundbreaking decision overruled previous judgments from the High Court and Court of Appeal about whether the Crown could use evidence gathered in the covert police operation before the arrests in October 2007.
The Crown has now dropped the Operation Eight prosecution, according to a statement released this morning by the Auckland Crown Solicitor, Simon Moore SC.
Fifteen of the "Urewera 18'' accused faced firearms charges and four of them _ including Tuhoe activist Tame Iti _ faced charges of participating in an organised criminal group.
That trial, of Iti, Te Rangikaiwhira Kemara, Emily Bailey and Urs Signer, will still go ahead.
Three other defendants also faced firearms charges but their trial was "severed'' to be conducted separately. Neither trial will go ahead now.
The early morning raids in October 2007 involved more than 300 officers in property searches in Auckland, Waikato, the Bay of Plenty, Wellington and Christchurch using warrants alleging crimes under the Terrorism Suppression Act.
The Solicitor-General subsequently ruled out charges under the Terrorism Suppression Act _ saying the law was "almost impossible to apply in a coherent manner'' _ but firearms charges still remain.
The case has dragged out for nearly four years and cost taxpayers hundreds of thousands of dollars.
Mr Moore said the judgment of the Supreme Court is subject to suppression orders and cannot be reported. But as a result of the Supreme Court decision, the Crown no longer believes there is sufficient evidence to justify the Arms Act charges.
He said separate trials would be needed for those charged under the Arms Act and the four accused of the organised crime offences.
"The effect of the delay would be that those accused facing Arms Act charges alone would not be tried for a period of four and a half years from the date of there arrest,'' said Mr Moore.
"Further, they were remanded in custody for a period of time following their arrest, and they have been on restrictive bail conditions through much of the time since their release.
"Taking these matters into account together with findings made by the Supreme Court about the seriousness of their offending, it is the Crown decision that the continuation of proceedings would not be in the public interest.''
Mr Moore said the Crown will apply to the High Court for orders to permit publication of various judgments, currently suppressed, in the interests of open justice for matters of significant public interest.
"It is anticipated that a special hearing will be convened so that all accused other than the four charged with the organised criminal group charge can be discharged as soon as possible.''