"In this case, Mr Butt knowingly made a false declaration after being potentially exposed to an extremely serious bio-security risk," Mr Fletcher said.
The MPI lawyer described how horse racing was a huge part of the New Zealand economy, generating more than $1.4bn in economic activity in 2004, and creating 18,300 full-time equivalent jobs.
"Any action by those involved in the industry that may damage the industry would lead to significant economic consequences," he said.
On August 28, this year, Butt arrived at Christchurch International Airport having flown in from Sydney.
He failed to declare that in his baggage was harness racing driving equipment, including "very soiled" clothes, boots, galoshes, and goggles.
After fears that he could be bringing in the potentially lethal hendra virus, Butt was taken to a search bench by bio-security officials.
The court heard that he "deliberately" did not declare his driving gear and told the quarantine inspector he was not working when he was in Australia.
When asked about horse manure on his clothing, Butt said it came from New Zealand.
Officials soon discovered that Butt had ridden in Australia earlier that day, in two races at Menangle, near Sydney at 2.55pm and 4.05pm.
When interviewed under caution, Butt was uncooperative.
He admitted that he had been racing in Australia but claimed "driving in a race wasn't really being in contact with horses".
Butt claimed he'd not used the gear in question while racing, but video footage of the races showed him in those colours as he crossed the finishing line.
He admitted he knew of the bio-security rules, adding it was a "hassle" to clean his boots before returning to New Zealand. Defence counsel Liz Bulger said she was "at odds" with the MPI over what sort of threat the hendra virus is to New Zealand.
"It's fair to say Mr Butt takes some considerable issue he was putting the racing industry in any sort of danger," she said.
Ms Bulger asked Judge Raoul Neave not to enter a conviction until Butt is sentenced on March 14.
Butt, who has won the Dominion Handicap eight times, oversees the training of 35 Premier Stable horses at Templeton, outside Christchurch.
He refused to comment as he was leaving court today.
What is hendra virus?
It is a rare virus which causes respiratory and neurological disease and death in people, as well as horses.
It can be transmitted to people through close contact with infected horses.
To date, there has not been a human-to-human transmission of the virus.
There is no treatment or vaccine available for either people or horses.
The virus was first discovered in 1994, in Australia, when 21 horses and two people were infected. One person died.
Since then, there have been 10 outbreaks, all in Australia. Three involved human cases.
Infected people initially develop fever, headaches, muscle pain, sore throat and a dry cough. They could also have enlarged lymph nodes, lethargy and vertigo.
