SFO ends four-year Zespri investigation with no charges

Julie Read, director of the Serious Fraud Office, said the investigator found the evidence didn't meet a high enough standard to lay charges. Photo / File

The Serious Fraud Office won't files charges against Zespri Group over dual-invoicing, ending a four-year investigation into the legislated fruit export monopoly.

Director Julie Read said the white-collar crime investigator found the evidence didn't meet a high enough standard to lay charges after investigating allegations Zespri facilitated tax evasion while exporting kiwifruit to China by providing false invoices to its importer to use in declarations to Chinese officials.

"In this case the practice of dual invoicing facilitated criminal offending in China. The lower-valued invoice was used by Zespri's importer to evade duty and resulted in him being convicted for the Chinese offence of smuggling," Read said in a statement. "The instrument of that offending was created by Zespri in New Zealand. For that reason the matter properly came to the attention of the SFO."

A Zespri subsidiary was found guilty of being an accessory to under-declaring customs duties by a Chinese court, which fined the unit $960,000, sentenced its employee to five years imprisonment, and ruled gains of some $11.6 million should be repaid. At the time, chief executive Lain Jager said corruption and fraud didn't involve Zespri. There were "things we could have done better, but we're not corrupt".

Read said New Zealand exporters should approach the practice of dual invoicing with "extreme caution" because it's a warning flag that duty is being evaded.

She acknowledged the case took a long time, saying there were "complex and unusual arrangements between Zespri and their Chinese importers".

In a statement, Zespri said it was pleased the Serious Fraud Office (SFO )had publicly confirmed the end of its investigation.

Zespri chairman Peter McBride said the investigation, had cost the kiwifruit marketer $7m.

"As we have always been clear, we relied on our former importers to comply with their legal obligations under local customs laws and, based on our own internal investigations, we know that we did not benefit from their customs fraud," he said.

"It is satisfying to finally have the SFO confirm that its investigation of Zespri has closed and that there are no further actions."

Since Zespri became aware of the offending of its former importer in China in 2011, it had significantly changed its operating model in that market, he said.

"China continues to be a market of tremendous opportunity and, as in many of our fast-growing emerging markets, also has a unique set of challenges in which to do business. We will continue to invest in robust systems to protect our reputation and brand," he said.

Zespri's costs included legal advisers and costs incurred to locate, copy and provide electronic records in the format required by the SFO.

The SFO investigation was extremely broad and, given the size of Zespri's business, the information requests resulted in significant volumes of data, he said.

Dual invoicing refers to the practice of issuing two invoices in relation to international sales of goods.

This can occur when the final purchase price is not known at the time of sale due to potential quality claims, where there is a middleman between the seller and the ultimate buyer, or where a deemed value exists for the purpose of customs declaration.

"There are legal reasons why dual invoices may be issued, however Zespri no longer sells to any customers on the basis of a variable price, with the sale price now determined at the time of sale," McBride said.