Email said keep quiet, claims SFO

Max Parkin was in charge of production for all of Kiwi Group's dairy products. Picture / Dean Purcell

The dairy executive who first rang alarm bells about "powdergate" was sent an email by one of the defendants telling him to keep quiet, the SFO alleged yesterday.

Max Parkin - now director of Fonterra operations - was general manager for Kiwi Dairy Products at the time of the alleged conspiracy.

He was in charge of production for all of Kiwi Group's dairy products.

His two customers were the Dairy Board (which was supposed to handle exports) and Kiwi Milk Products (a Kiwi Group subsidiary that was supposed to sell only to the domestic market).

The SFO alleges that a group of four Kiwi Milk executives and three intermediaries conspired to illegally relabel premium milk powder - which was made by Kiwi Dairy - and export it as animal feed.

Nearly $45 million worth of product was incorrectly labelled and exported in breach of Dairy Board regulations, the SFO says.

Giving evidence at a depositions hearing in the Auckland District Court, Parkin outlined two occasions in 2000 when he raised concerns about Kiwi Milk's milk powder operations.

He said he had also tried to investigate an incident in 2001 where Kiwi Milk product was found on sale in Italy with packaging that suggested it was Australian.

Parkin said he hit a dead end with those investigations when he reached the limits of his company's electronic stock tracing system.

After voicing worries about the incidents to other dairy executives Parkin was sent an email from Kiwi Milk general manager Malcolm McCowan telling him to keep quiet about Kiwi Milk operations.

The email, presented as evidence by the SFO, said: "Max it is most important that there be no further discussion between KDP and third parties about KMP business and what it does and what it buys etc."

During cross-examination, defence lawyer Paul Davison, QC, suggested that Kiwi Milk was engaged in fierce competition with the Dairy Board and requests for Parkin to keep production information "in house" were entirely reasonable.

Davison asked Parkin if he was aware that the Dairy Board had been trying to edge Kiwi Milk out of a Japanese market where it had been legitimately selling a blended dairy product - for which no permit was needed.

Parkin accepted that at the time McCowan sent him the email he had no particular knowledge of the reasons for it.

Parkin told the court that the first hint of irregularity about Kiwi Milk's operations arose in May 2000 while he was on study leave in New York.

One of his employees, Anne Bridges, emailed him to say "that someone had been applying labels they shouldn't have been".

Bridges noted that some product had been incorrectly labelled as if it were to be exported by a German company.

Product was also being bagged up without the MFE (Manufactured for Export) labels that were required by the Dairy Board. "We didn't make product for export without MFE labels," Parkin said.

"I called Anne and said it had to be stopped."

But on his return the matter was not revisited in any detail.

In November 2000, Parkin talked to a Dairy Board executive about the size of an order that had been requested by KMP.

Asked to produce 2000 tonnes of powder in plain bags, he sought assurance from Kiwi Milk chief executive Paul Marra that the product was not for export.

Marra refused to say where the product was going. The order was dropped and the issue became theoretical, Parkin said.

Central to the SFO case is the practice of "slipping bags" - removing the outer layer of a multi-layered milk powder bag and replacing it with another layer of packaging.

This practice was relatively common in the packaging of animal feed and other product not fit for human consumption, Parkin said.

Animal grade product was not supposed to be sold with an MFE label. Sometimes when only MFE bags were available the printed outer layer of packaging was removed, he said.

But this practice was not common in relation to premium grade powders, he said.

The SFO produced an email which it alleged was sent by Kiwi Milk employee Stephen Wackrow to fellow accused Ross Cottee in November 2000.

"I don't want us to be asking KDP [Kiwi Dairy Products] staff to slip bags for us," Wackrow wrote. "Max Parkin would have a fit."

Powdergate court action

The defendants:

* Paul Henry Marra
* Malcolm Alexander McCowan
* Terence David Walter
* William Ross Cottee
* William Geoffrey Winchester
* Stephen Ross Wackrow
* Sean Robert Miller

The charges:

* Conspiring to defraud the Ministry of Agriculture and Forestry, New Zealand Customs, the Dairy Board and Kiwi Co-operative Dairies.

The allegation:

* $45 million of premium milk powder was illegally exported by Kiwi Co-operative Dairies' employees and subcontractors on 210 occasions between January 1997 and October 2001. The Dairy Board then controlled all dairy exports.