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Justice seen to be done in dirty milk powder case
Northern Exposure, May 22, 2006
By Philippa Stevenson
Powdergate was a creature of its time.
This brand of dirty dairying blasted into the headlines in September 2001 at a crucial point in the fraught merger talks between New Zealand Dairy Group and Kiwi Dairies.
The negotiations barely survived the shock wave that continued to reverberate within the new company billed as New Zealand's flagship and later named Fonterra. The who's who at New Zealand's biggest company changed irrevocably in Powdergate's wake.
Five years later, the saga is gasping its last in the courts. The scandal of the dodgy dairy exports - over the years valued variously by Fonterra, MAF, and the Serious Fraud Office at between $39 million and $75 million - has become the case that time overtook.
Earlier this month, just before they were due in the High Court in Auckland for a 10-week trial charged with conspiracy to defraud related to $44.6 million of product, six of the seven accused offered to plead guilty to lesser, representative charges involving $3.2 million worth of product.
Former Kiwi Milk Products executives Paul Marra, Malcolm McCowan, and Steve Wackrow, and three that worked for or had close links to Kiwi, Ross Cottee, Terry Walter and Geoff Winchester, were fined a total of $58,000 for breaching the Customs and Excise Act. The penalty for the original charges was jail
The seventh defendant, Sean Miller, another one-time Kiwi employee, pleaded not guilty and is still before the courts.
Fines of a few thousand dollars seem inconsistent with the furore that Powdergate stirred up at its height - the cacophony reduced to a whimper. It's left many wondering what it was all about and whether the case was worth the undoubted millions of dollars that went into its preparation.
As the journalist whose investigations sparked the case I have some sympathy for the confusion. Powdergate was never a simple case of good and bad, gain and loss.
In the knock down, drag 'em out world of pre-deregulation dairy industry politics many seemed either happy or powerless to do other than let the toughest - often those with the biggest voice or swagger - rule the roost.
Where business ethics didn't get lip service they seemed to be regarded as a foreign concept or akin to a dim relative - a drag and hopelessly naïve.
In such an era the machinations of Powdergate epitomised the dairy industry.
From the beginning the tribally segregated industry had two ways of looking at the dodgy export practices - the behind-the-bikeshed deals in which manufacturing companies flicked a bit of product overseas in hopes of getting higher returns than those filtered back from their statutory exporter, the Dairy Board.
To some it all boiled down to a bunch of savvy executives pushing the boundaries to the financial benefit of their company. After all, goes this argument, it was just a minor breach of arcane export regulations that were about to become defunct and only ever incurred wet tram-ticket penalties anyway.
To others they were arrogant cowboys who were feathering their own nests while playing fast and loose with New Zealand's hard-earned trade access.
The Powdergate transactions were not the only backdoor exports - a point pressed repeatedly and at every opportunity by the defence team whose chief argument was that their clients were unlucky victims of a politically-driven, selective crackdown on a widespread practise. But at no time did they present any credible evidence that other backdoor exports reached the scale and sophistication of the Powdergate transactions. Sometimes being the biggest and best just isn't a good thing.
Why didn't it all end with the departure of the accused from their various positions at Kiwi? Why did it drag on for five years and until those belated guilty pleas?
Without doubt the reason was New Zealand's reputation as an international trader. New Zealand exports around $14 billion worth of food each year - half of it dairy products.
MAF's Food Safety Authority investigated the Powdergate allegations for 18 months, referring them twice to the SFO before it took the case and embarked on its own 18-month inquiry.
Executive director Andrew McKenzie told the depositions hearing last year that if importing countries lost confidence in the FSA's assurance regime they could ban New Zealand products. Enforcement was the cornerstone of the assurance process, he said.
Powdergate "was one of the cases you didn't back out of because of the implications for trade," McKenzie said.
This was a case where justice needed to be seen to be done.
Whether investigations went high enough, deep enough, far and wide enough remain questions for some. But none of those questions are a reason for not pursuing a case of Powdergate's scale. The SFO's brief is to investigate and prosecute serious cases which are defined as fraud involving more than $500,000, perpetrated by complex means or likely to be of public interest.
The SFO has been criticised for watering down the charges but assistant director Gus Andre Wiltens is adamant the guilty pleas to lesser charges weren't accepted because his office had insufficient evidence.
"We saved having a 10-week trial and we're pleased we got convictions for corporate dishonesty," he said.
"It all happened a long time ago. It was historic offending and the industry has now revitalised and changed. We got the conviction. That's what we wanted. It was never a matter of the penalty."
Let's hope the price of milk powder is never as high again.
© Philippa Stevenson 2006
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