Fonterra faces inquiry over sales to Iraq

A Government inquiry will investigate whether Fonterra is linked to a Vietnamese company the United Nations found paid bribes to Iraq under the oil-for-food programme.


The Government is already investigating claims that two small New Zealand firms may have been caught up in systematic bribes and corruption, and will extend the inquiry by looking at the dairy industry's exports to Iraq, a spokeswoman for Foreign Minister Winston Peters said yesterday.

The investigation would cover whether Fonterra was exporting large quantities of milkpowder to a Vietnamese company named by the United Nations as having paid bribes to the Iraqi regime under the oil-for-food programme.

It would also investigate whether Fonterra's predecessor, the Dairy Board, might have evaded sanctions against trade with Iraq in the 1990s by exporting milkpowder to Vietnam to have it re-bagged and sent on to Iraq. She said the investigation was being carried out by the Ministry of Foreign Affairs and Trade.

The oil-for-food programme from 1996 to 2003 provided food, medical supplies and other humanitarian goods for millions of Iraqis trying to cope with UN sanctions imposed after Iraq's 1990 invasion of Kuwait.

But it has since been investigated by the UN and the final report of the inquiry into the programme last week said that more than 2200 companies made illicit payments totalling US$1.8 billion ($2.59 billion) to Saddam Hussein's Government.

Fonterra declined detailed comment on the issue, saying only: "We have always complied with New Zealand and UN sanctions with regard to trade with Iraq. Fonterra, and before it the NZ Dairy Board, have not sold dairy products directly into Iraq since UN sanctions were applied."

But other commentators - including a senior Fonterra executive - have indicated that although Fonterra and the Dairy Board may have avoided direct exports to Iraq, they sent huge quantities of milkpowder to Vietnam, which was then onshipped to Iraq.

The US Department of Agriculture reported in March 2003 that Iraq was a very important market for Vietnam's exports of milkpowder, but noted that Vietnam was functioning primarily as a trans-shipment point.

"Milk powder from New Zealand (and other countries) was imported into Vietnam, minimally processed (re-bagged) and then re-exported to Iraq," the report said.

One of Fonterra's most senior executives, its director of Government and trade policy, Philip Turner, said in November 2003 that he was "confident of a continuation" of trade with Iraq.

He said that under the UN oil-for-food programme, Fonterra had supplied between 50,000 and 60,000 tonnes of whole milkpowder a year - about 10 per cent of the company's overall trade in that product. Fonterra had supplied Iraq with whole milkpowder through the UN programme since 1998. He was speaking when the company looked like losing its contracts, worth up to US$50 million a year, when humanitarian food supplies moved to US control at the end of 2003.

But the UN's independent inquiry published a report written by former US Federal Reserve chairman Paul Volcker specifically pointing to the Vietnam Northern Food Corporation and the Vietnam Dairy Products Company which together accounted for US$1.4 billion in sales to Iraq under the oil-for-food programme.

Mr Volcker's committee estimated that VinaMilk paid US$23.5 million in "fees" to an intermediary with the Iraq regime.

At the end of the oil-for-food programme, in the first five months of 2004, NZ supplied 43 per cent of Vietnam's total dairy imports when Vietnam was sending 98 per cent of its dairy exports to Iraq.

UN probe

* A UN report into the oil-for-food programme said more than 2200 companies made illicit payments totalling NZ$2.59 billion to Saddam Hussein's Government.

* Two NZ businesses were mentioned in the report and now the NZ Government will investigate any Fonterra involvement.

* Fonterra exported thousands of tonnes of milkpowder to Vietnam while that country was re-exporting dairy products to Iraq.

* The report said the Vietnamese exporter paid millions in kickbacks to the Iraqi regime.

- NZPA