Fonterra claims sales to Iraq all legitimate

Fonterra's milk powder sales to a Vietnamese company the United Nations accuses of paying bribes to Iraq during its oil-for-food programme were all legitimate, the dairy company says.

It had no involvement in, or knowledge of, any bribes and there are no plans for an internal inquiry, spokesman John Redwood said yesterday.

Suggestions that selling indirectly to Iraq through Vietnam was a way to get around UN sanctions were "patently ridiculous", he said.

The Ministry of Foreign Affairs and Trade has said it will investigate Fonterra's involvement with the Vietnamese state dairy company VinaMilk after VinaMilk was included in a UN list of more than 2200 companies that allegedly paid bribes to Saddam Hussein's government in return for contracts.

Ministry officials are examining all their records on the sales to Vietnam and a report is expected by the end of the week, said spokesman Brad Tattersfield.

At this stage there was no evidence to suggest Fonterra was involved in any bribery, he said.

He also confirmed that Fonterra had an exemption from the Government to trade indirectly with Iraq through UN-authorised third parties.

New Zealand had a 20-year history of milk powder sales to Iraq, which came to an abrupt halt at the time of the first Gulf war.

New Zealand's involvement in that war meant Iraq did not want to trade directly, so sales were made through intermediary companies.

Redwood said the re-packaging and on-selling of Fonterra milk powder by intermediary companies was a normal part of the company's commodity export business.

"We do not have any involvement in subsequent transactions - those carried out between our customers and their customers - nor could we be expected to."

Two small companies, a beekeeping business and a machinery manufacturer - both named in the UN's report - will also form part of the ministry investigation.

Both have said they followed the rules and have done nothing wrong.

The oil-for-food programme, from 1996 to 2003, was to provide necessities for millions of Iraqis trying to cope with UN sanctions imposed after Iraq's invasion of Kuwait.

- additional reporting by NZPA

The story so far:

* From 1996 to 2003 milk powder made by Fonterra (and its predecessor the Dairy Board) went to Iraq as part of the United Nations oil-for-food programme.
* Because Iraq would not deal with New Zealand it was sold through intermediary companies in places such as Vietnam and Oman.
* One of those Vietnamese companies was last week included in a UN list of 2200 companies that made illicit payments totalling US$1.8 billion ($2.59 billion) to Saddam Hussein's regime.
* Fonterra maintains it had no knowledge of any bribes. It says all its trading was sanctioned by the New Zealand Government and the UN.
* The Ministry of Foreign Affairs and Trade is investigating.