SFO to probe dairy scandal

By KEVIN TAYLOR

The Serious Fraud Office is taking over the long-running probe into the dairy industry's milk powder scandal from the Ministry of Agriculture and Forestry.

SFO director David Bradshaw said yesterday that he had decided to investigate "alleged irregularities" by South Pacific Distributors, a company associated with the former Kiwi Co-operative Dairies.

The irregularities in the export of dairy products spanned a number of years, he said.

The $50 million "Powdergate" illegal exporting scandal came to light in September last year, when the Dairy Board raised concerns with MAF about possible Kiwi breaches of export regulations.

Kiwi merged with NZ Dairy Group and the Dairy Board a year ago today to form Fonterra.

South Pacific Distributors was the New Zealand buyer and exporter of the product sold by Kiwi, and was run by a director of Kiwi's Australian subsidiary Cottee Dairy Products, which is now in liquidation.

In July, the probe was transferred to MAF's Food Safety Authority.

The man in charge of the MAF investigation, director of dairy and plant products Tim Knox, said yesterday that the file would be given to the SFO.

"The SFO has decided to open a file and investigate it, so we will be handing over what we have been working on and we will provide whatever assistance it requires."

The SFO website says the office investigates:

* Frauds involving more than $500,000.

* All fraud perpetrated by complex means.

* Any fraud likely to be of major public interest and concern.

Asked if the SFO move indicated that those involved in illegal exporting made some personal gain, Knox said he could not comment.

"That's a matter that's subject to investigation," he said.

In announcing an end to the Powdergate affair last December, Fonterra's board said the company investigation showed no evidence of "improper impersonal gain".

The board said the conduct was undertaken by individuals to maximise returns to the co-operative organisations competing under the old dairy industry structure.

Last November, MAF said it had briefed the SFO on Powdergate.

"Given the extent of the alleged offences here, we thought it was important to brief them," Knox said at the time.

Bradshaw said yesterday that a considerable amount of investigative work would be needed before a decision could be formed about the alleged irregularities.

"As with any other SFO investigation, I will not comment on this matter during the course of the investigation.

"Nor am I prepared to speculate as to the length of time it will take to complete all of the investigatory work."

The SFO has not explained why it took 11 months to decide it would investigate.

Fonterra chairman Henry van der Heyden yesterday welcomed the SFO move.

"This investigation will allow these matters to be settled once and for all.

"That is in the best interests of Fonterra and we will be willing to assist the SFO, if necessary, during this inquiry."

He said no current Fonterra executive was implicated in the MAF inquiry.

Neither Fonterra nor any of its legacy companies had any legal ownership interest in South Pacific Distributors.

South Pacific Distributors had "trading relationships" with Cottee, which was a 75 per cent-owned subsidiary of Food Solutions Group, a subsidiary company of Kiwi.

"SPD is no longer trading, and no one associated with these inquiries is currently an employee or director of Cottee," van der Heyden said.

He said he would make no further comment until the investigation was finished.

Dairy Farmers of New Zealand chairman Kevin Wooding welcomed the handing of the investigation to the Serious Fraud Office.

"Dairy farmers will be pleased that an independent body has been brought in and will hopefully bring the issue to a close."

MAF Director-General Murray Sherwin and Agriculture Minister Jim Sutton would not comment.

National agriculture spokesman David Carter criticised the time the various investigations have taken.

"The SFO had this matter first referred to it by MAF nearly a year ago, yet it is only now starting an investigation."

He said one of the country's biggest export earners was at risk while the probe hung over Fonterra's head.

From the initial discovery last September, Powdergate quickly widened into a major scandal involving about $50 million worth of Kiwi product found in Italy and Mexico.

It tarnished the image of Fonterra before it was off the ground, and raised concerns among shareholders.

During Fonterra's inquiry, a NZ Dairy Group employee was disciplined, and senior Kiwi executives Paul Marra and Malcolm McCowan were suspended.

After mediation they resigned "on a severance basis".

A director of Cottee, Ross Cottee, was sacked, and former Cottee chief executive Terry Walter left his job.

Feature: Powdergate