Suitcases of cash changed hands as a businessman paid kiwifruit marketing company Zespri millions of dollars in a scam to avoid duty in China, a Sunday Star-Times investigation has found.
Zespri, far from being an innocent party as it has claimed, knew its system for invoicing kiwifruit shipments to China was likely illegal the Star-Times has discovered.
Documents show the Mt Maunganui-based company was worried New Zealand Customs would discover what it was doing and alert its China counterparts.
And staff in the company's shipping department were so worried about being personally liable for filling out incorrect documentation that they sought assurances they would be protected.
The fraud may have netted up to $10 million in illegal gains.
Zespri, the single-desk monopoly that controls New Zealand's $1.6 billion kiwifruit industry, has blamed its importer in Shanghai - saying he "instructed" the company to issue "pro forma" invoices for customs purposes and told them Chinese customs had okayed it.
But the investigation has uncovered internal documents that show senior Zespri managers and directors had concerns about the legality of the arrangement from the start.
As concerns grew that the scheme would be discovered, they tried unsuccessfully to have it rubber-stamped by Chinese customs.
Sources have revealed that staff tried to warn management that the dual invoicing was a big risk, but were ignored.
The importer, Liu Xiong Jie, known as "Big Liu", was jailed for 13 years and ordered to repay $7.3m in tariff losses in relation to underpayment of customs duties on New Zealand kiwifruit from 2008-2010.
Zespri's subsidiary in Shanghai was convicted and fined almost $1m and a mid-level manager was jailed for five years. The court says around $10m in illegal gains should be repaid.
All parties have appealed.
When Zespri exported kiwifruit to China, it would produce two invoices - one for the actual price of the fruit, and a second for a lower amount that would not appear on its books but would be used by the importer to pay lower customs duty.
Zespri has never denied the dual invoicing but says Liu had misled the company by claiming to have ratified the deal with Chinese customs. Customs duty was his responsibility as the importer, it says.
But Liu has said in his appeal he was only a sales agent and Zespri was the one that gained from the lower duty payments.
It is understood Liu would have to make up the difference in price between the two invoices. He would use friends and relatives to transfer money from various foreign bank accounts to Zespri to avoid the prying eyes of Chinese authorities. Millions of dollars were paid between 2008-2010.
"He couldn't put it through his books. He was paying lump-sum amounts not bearing any resemblance to any invoice, he was just paying dollops of money," a senior figure in the kiwifruit industry says.
"He was finding other ways of getting the money into the Zespri bank account, through other companies and in cash.
"He would give a suitcase of cash to somebody to go and bank the money into the foreign account for him."
Zespri admitted in an industry briefing paper that money was coming in from bank accounts outside China, but because they were "legitimate banking institutions" and referenced as payments for "Chinese fruit", it accepted them.
The ACT Party, a long-time opponent of Zespri's monopoly position, is calling for an urgent inquiry into its international operations.
NZ Kiwifruit Growers Incorporated is conducting an inquiry, but many growers are concerned it will be a whitewash.
Its chief executive, Mike Chapman, said China was a complex and difficult place to do business and it was not a market that was easily understood by New Zealanders.
"Nothing in China is black and white, but the media has portrayed [this case] as black and white," he said.
- Sunday Star Times