SFO investigation a distraction for Zespri

The Serious Fraud Office (SFO) investigation into Zespri's double invoicing problems, which resulted in the jailing of its then major importer Liu Xiongjie - known as "Big Liu'' - and a multimillion-dollar fine and penalties for the company in China, has been an expensive and ongoing distraction for the grower-owned kiwifruit exporter.

But, with the most recent fraud issues in Taiwan, the end result has seen Zespri making a commitment to more active management of its overseas efforts, especially in developing markets.

Zespri chief executive Lain Jager said he was unable to comment on the SFO inquiry for legal reasons, other than to note that it was extremely broad, with more than 100 boxes of physical documents and "terrabytes'' of digital information being provided to the SFO.

While saying he was unable to put a final figure on the costs of co-operating with the inquiry, Mr Jager estimated it could cost up to $1.5 million-$2 million. Buddle Findlay and John Billington QC have been retained, and Beattie Varley, a forensic company, is undertaking a separate investigation on behalf of Zespri.

"But the experience has underlined the requirement for us to be absolutely implementing best practice,'' he said. "We recognise that there were shortcomings in the way we were managing the business.''

Mr Jager noted the business had grown very quickly, from around $4 million in annual revenues in 2005 to almost $110 million in 2012.

"Over time we we were over-reliant on our former independent distributor and their claims that their customs arrangements were compliant,'' he said.

"We had insufficient familiarity with the laws and practices of China as a jurisdiction. And own internal compliance frameworks weren't sufficiently robust, which meant that local management didn't have the oversight that in retrospect would be appropriate.''

New Zealand Kiwifruit Growers Inc (NZGKI) has drawn criticism from some industry participants for not concluding its own investigation into the China problems, launched late last year. However, its chief executive, Mike Chapman, said it made sense for the organisation to pause its inquiry to take advantage of the SFO's much greater powers of investigation.

"It's only on hold,'' he said. "What we did do is, we looked at what's happening today in the market. And what we found in the market today in China gave us confidence Zespri is doing exactly what was required.''

NZGKI president Neil Trebilco said there hadn't been the oversight from head office into some of those markets.

"And Zespri has moved to rectify that, which we're pleased to see. But despite the problems, we have continued to grow in China. The brand is viewed very favourably in Asia and in China, particularly, to the point I've talked to distributors in China and they're competing amongst themselves to be able to distribute Zespri kiwifruit."