The Overseas Investment Office (OIO) has apologised to the government for failing to conduct a robust inquiry when it approved the sale of Onetai Station in Taranaki to a foreign company.
Land Information Minister Louise Upston has ordered an independent inquiry into the OIO after it approved the sale to two Argentine brothers.
The Labour Party revealed last week the brothers had been found criminally responsible for dumping chemicals from their Argentine tannery.
The brothers are linked with Panamanian law firm Mossack Fonseca, which is at the centre of the Panama Papers revelations about how the rich hide their wealth in overseas trusts.
The OIO last week said it was satisfied due process was followed when it granted consent for the pair to buy the 1300ha farm near Awakino, but shortly after said it was investigating issues raised in media reports.
The office knew that company had a previous conviction but failed to alert the government.
Ms Upston said it seemed it was just one person who did not put that information into the document that was then considered by ministers.
In a public apology today, Land Information New Zealand's chief executive Peter Mersi said the OIO failed to carry out a robust process and described his office's performance as a "regrettable lapse".
"In the Ceol & Muir case, relevant information was not passed on to government ministers. I have advised Land Information Minister Louise Upston of this situation and apologised.
"I have also given her an assurance there will be no repeat of this situation in future," said Mr Mersi.
"The OIO has a robust process for dealing with applications but on this occasion, it does not appear to have been followed."
Mr Mersi said the office had also failed to alert the Minister to information it had about the pollution incident.
OIO 'dropped the ball' - Minister
Louise Upston said the Overseas Investment Office clearly dropped the ball.
Speaking to Checkpoint with John Campbell, Ms Upston said the incident appeared to be a 'one off'.
She said it was possible the application may have slipped through and never been reconsidered, had it not been for the Panama Papers.
But Ms Upston rejected the suggestion it was easy to get an application through the OIO.
"There are 23 criteria that the overseas office has to consider.
"It is a privilege to own New Zealand land and significant assets - there is a high hurdle to pass, some would argue that it's actually much tougher in New Zealand than other countries."
She said the issue that had been raised in the application of the Argentine brothers that was of concern was around one of the 23 criteria the OIO considers.
Ms Upston noted that in the case of the Taranaki farm sale, the two applicants had signed a statuary declaration stating that they did not have any convictions.