A Shanghai Court has upheld a ruling against Zespri's China-based subsidiary and one of its employees, leaving the company with a $960,000 fine and the employee with a five-year jail term.
The rulings, relating to under-declaration of customs duties on imports into Shanghai of New Zealand kiwifruit between 2008 and 2010, were originally handed down in March. Zespri had appealed the original decision but was unsuccessful. Zespri chief executive Lain Jager said he accepted the decision.
"While we are disappointed, Zespri accepts the court's decision and acknowledges Zespri's monitoring of its import arrangements into China between 2008 and 2010 failed to ensure that its import partners were compliant with local customs laws and regulations," said Mr Jager.
"Our biggest concern remains for the welfare of our employee and we will continue to work with his family and legal representation to explore how we can support him personally and legally going forward."
On appeal, the company said it produced evidence showing its importers had provided shipment reconciliations to Zespri demonstrating the full duty owed had been deducted.
Zespri said the reconciliations proved the company received no benefit from the duty evasion and had no intent to facilitate the under-declaration of customs duty.
The court ruled the reconciliations were not relevant. As a result, the original fine of approximately $960,000, issued against Zespri Management Consulting Corporation, was upheld, as was the five-year jail sentence previously imposed on its employee.
The court's original ruling that "illegal gains" could be subject to reparation was also unchanged.
"We have embarked on a significant overhaul of our China operations to minimise the risk of this happening again," said Mr Jager. "That process continues, but we are working closely with China customs and other parties to ensure our operations are compliant."
Mr Jager said Zespri's brand and business had not been damaged by the matter.
Kiwifruit Growers Association president Neil Trebilco said the decision was bad news for growers.
"It's extremely disappointing from a grower's perspective because the shareholders of Zespri, who are all growers, will have to foot the bill.
"I understand they do have some time and another avenue by which to make a further appeal, so we will have to wait to see if they go that way.
"China is an important market and it goes to show we may still have things to learn about the frameworks around doing business there.
"We are not the only industry to have had issues.
"If there are positives it seems that Zespri is already well on the way to learning some of those lessons."
The case so far
Criminal smuggling related to alleged under-declaration of customs duties by independent importers.
The upheld decision
A fine of $960,000 issued against Zespri subsidiary, Zespri Management Consulting Corporation, and a five-year jail sentence imposed on its employee.