Marra bully boy with vendetta says SFO

Paul Marra

Alleged "Powdergate" conspirator Paul Marra was a bully boy with a personal vendetta against the Dairy Board, the Serious Fraud Office said yesterday.

SFO lawyer John Upton argued in a depositions hearing at the Auckland District Court yesterday that the $45 million export fraud was likely to have been motivated by industry politics rather than financial gain.

He said Marra - the most senior former Kiwi Group executive charged in the case - and his "able lieutenant", Malcolm McCowan, were involved in the conspiracy "due to previous perceived slights" by the Dairy Board.

That led them to drive others to join their endeavour to show up the Dairy Board as outdated and ineffective.

Marra was chief executive of Kiwi Milk which controlled Kiwi Group's domestic marketing of dairy product. He reported directly to former Kiwi Group and Fonterra chief executive Craig Norgate.

The SFO alleges that between 1997 and 2001 Kiwi Milk was exporting premium milk powder, without proper licences, by re-labelling it as animal feed and selling it through intermediaries.

Outlining other possible motives for the fraud, Upton said the Kiwi executives might have been trying to bolster their market share in anticipation of the dairy industry merger that created Fonterra.

At the time, there was a feeling that a power struggle was inevitable between the two big co-operatives in the industry - Taranaki-based Kiwi and Waikato-based Dairy Group. Of the seven "Powdergate" accused, four are former senior executives with Kiwi Group.

The other three are alleged to have worked for the intermediaries which redistributed the powder from Australia to destinations around the world.

Upton said illegally labelled product found its way to Italy, Mexico, Canada and the United States.

Six of the accused were present in court yesterday. Sean Miller was the only one absent.

At the centre of the SFO case is an intermediary company called SPD - one of the accused, Terence Walter, was its sole director and shareholder.

The SFO argues it was set up primarily as a vehicle to disguise premium dairy product as animal feed.

On September 26, 1997, another of the accused - William Winchester - registered SPD as an exporter of animal feed.

The prosecution alleges that SPD was operated by Winchester through his Tauranga company (TTE) but was completely under the control of Marra. The SFO said SPD did not have any actual offices, factories or staff and did not make any profit by being the intermediary between Kiwi Milk and Cottee Dairy Products.

The prosecution would produce email evidence showing that by the middle of 2000 other senior managers were beginning to ask questions about the goings-on at Kiwi Milk.

Upton quoted email transcripts involving Marra and others, including Norgate and Kiwi Dairy Products general manager Max Parkin.

In November 2000, Parkin - now director of operations at Fonterra - raised concerns about a request by Kiwi Milk to produce milk powder in unlabelled bags.

But it was not until April 2001 that physical evidence of the fraud began to appear.

On April 2001, an Italian employee, Gianni Cairoli, discovered some Kiwi dairy product in Italy which had been labelled as originating from Australia.

Cairoli supplied evidence of this to the Dairy Board in the form of bags and labels.

SDP's involvement in the affair only became known when more mis-labelled Kiwi product turned up in Mexico.

This, ultimately, led to the 2001 internal investigation by Fonterra.

That investigation found that Norgate was not implicated and, at no stage, acted improperly.

Marra and McCowan resigned after the inquiry.

The depositions hearing is expected to last four weeks and the SFO plans to call 25 witnesses, including Norgate and former Dairy Board chief Warren Larsen.

If JPs Ken McKay and Don Harrow agree there is enough evidence to proceed, a full trial will be held next year.

Yesterday, the SFO called two witnesses: John Pak, a Hamilton-based accountant who claims to have noted anomalies in the financial reports of Kiwi Milk; and Mary Hamilton, who was manager of the dairy board's export-licensing authority.

Pak told the court that Marra had an "interesting management style".

"In my view, he was loud and brash. He would ream people out in front of other people using strong vocabulary that I certainly wouldn't use."

Under cross-examination Pak admitted that, on at least one occasion, Marra had told him that he believed the exporting of unlicensed colostrum milk powder was legal.