Private eye told to ‘focus only on Kiwi'

A private investigator employed by Fonterra to uncover evidence of illegal milk powder exports told the Auckland District Court yesterday he was instructed to focus only on offending by the "Powdergate" defendants - despite finding examples of offending by a wider group of dairy industry executives.

John Hughes, a retired detective inspector, worked on the Powdergate inquiry from October 2001 until it was closed just before Christmas that year.

He was part of a team that compiled a draft report for a committee of Fonterra directors.

The report highlighted eight examples of dairy company supply chains that appeared to involve illegal exporting.

Those examples implicated Kiwi Co-operative, New Zealand Dairy Group and the Dairy Board - then the sole manager of dairy exports. Fonterra was formed from the merging of Taranaki-based Kiwi and the Hamilton-based Dairy Group.

The Serious Fraud Office (SFO) has charged four ex-Kiwi executives and three associates with illegally exporting $45 million of milk powder.

Under cross-examination by defence lawyers, Hughes said his instructions were to focus on "example number three" in the report.

That example related to the alleged offending by Kiwi executives which is now before the court.

During the inquiry, Hughes said he heard allegations that Dairy Group subsidiary NZDI had been involved in illegal exporting on a large scale.

At one point, he was also told that New Zealand Dairy Group chief executive Pryme Footner "actively promoted the idea that, as far as possible, product would be exported outside the Dairy Board system".

Asked why he had not pursued that allegation further, Hughes said the person who made the accusation had not wanted to make a written statement. That had limited his team's ability to take the matter further.

There had also been pressure on the inquiry team to wrap things up before Christmas.

Hughes said he had been given an initial brief for the inquiry by Fonterra directors Mike Smith and Graeme Hawkins.

"Was it clear from Hawkins and Smith that the focus was to be on Kiwi?" defence lawyer Paul Davison QC asked Hughes.

"Yes," he replied.

SFO lawyer John Upton, QC, asked Hughes why he thought the focus was only on Kiwi employees.

"I can't say why it was," Hughes said. "But we were steered in that direction right from the beginning."

Hughes also uncovered claims that a Dairy Board firm, ITG, had sold several hundred tonnes of casein powder to commodity traders who then exported it illegally.

That example was not included in the report.

Hughes said he had reported directly to Richard Mehrtens - a Russell McVeagh lawyer working for Fonterra at the time.

On Monday, Mehrtens told the court of his concerns that the Fonterra committee he reported to had a "'just get the Kiwi guys' mindset".

Hughes told the court his notes and files relating to the case had all been handed to Fonterra.

Case and cast

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.

The hearing will finish on May 27.