Former boss accused of unacceptable process

Grant Waterhouse

Former Kiwi Dairy boss Craig Norgate allowed "Powdergate" defendants Paul Marra and Malcolm McCowan to draft their own terms of reference for a 2001 inquiry into the illegal exporting of milk powder, the Serious Fraud Office said yesterday.

The inquiry, in 2001, followed the first "irrefutable evidence" of illegal exporting, SFO witness and former New Zealand Dairy Board executive Grant Waterhouse told the depositions hearing in the Auckland District Court.

Waterhouse, now Fonterra's regional managing director for Europe, said he went through the inquiry process unaware Marra and McCowan had been allowed to draft the terms of reference.

"I understood that Craig Norgate would draft the scope," he said.

It was not until the SFO investigation a few years later that it became clear that Marra and McCowan had drafted it.

Waterhouse said he would have considered that unacceptable had he known. He did, however, have concerns about the inquiry at the time.

"The investigation, from the Dairy Board side, was never completed. We didn't agree with the scope. The remainder was a Kiwi investigation."

In April 2001, Waterhouse received evidence that 1000 tonnes of a specialised milk powder product called rennet casein - which had originated from Kiwi Milk Products - was for sale in Italy.

KMP - a Kiwi Dairy subsidiary - was only legally allowed to sell within the New Zealand market.

Waterhouse said the evidence was uncovered by Dairy Board employee Gianni Cairoli. Cairoli had worked for the Dairy Board for 15 years and was an expert in rennet casein.

"He knew immediately when he tested the functionality of the product that it was from New Zealand," Waterhouse said.

But he was also able to supply New Zealand "cyphers" and bag numbers.

At a meeting in Auckland, which was attended by Norgate, Waterhouse presented Marra with evidence in the form of one of the bags. Marra was "non-plussed". Waterhouse described making several unsuccessful attempts to get the answers from KMP bosses Marra and McCowan.

He was eventually able to get Norgate to agree to an inquiry into the incident.

That inquiry team included Waterhouse, Norgate, Marra and one other senior executive. As a result of the inquiry, Marra, McCowan and fellow Kiwi employee (and defendant) Stephen Wackrow received written warnings.

Ross Cottee - a director of Kiwi's Australian subsidiary Cottee Dairy Products - was dismissed.

The inquiry found that Marra had no knowledge or involvement in the illegal exporting but he was given a written warning because of his attempted "cover-up" after the deception became known.

Norgate - who was chief executive of Fonterra until in 2003 and now controls rural services company Wrightson - will be called as a witness for the prosecution.

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 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.