Zespri had invoice warning years ago
Zespri has admitted it was warned in 2008 that a dual invoicing system in China could lead to the arrest of its employees and cause "reputation risk" for New Zealand.
The warning came from New Zealand Customs and Ministry of Foreign Affairs and Trade officials, who raised "serious concerns" that Zespri's importers in China were evading customs duty.
Zespri says it checked with customs officials at a port in southern China and was assured everything was okay, but the revelations raise more questions about the Mt Maunganui-based company's handling of the scandal.
It is the first time Zespri has disclosed that it was warned the scheme was illegal years before Chinese authorities launched an investigation in 2011. That investigation led to smuggling convictions for its Shanghai subsidiary and a mid-level manager.
The Sunday Star-Times reported last weekend how Zespri would issue two invoices for kiwifruit shipments - one for the true value of the fruit and a second for a lower amount that was used for customs purposes.
Importers would give suitcases of cash to associates to deposit into Zespri's offshore account, to make up the difference in price between the two invoices.
Zespri Management Consulting Corporation, the company's Shanghai marketing branch, has been convicted of being an accessory to smuggling and fined almost $1 million, while ZMCC manager Joseph Yu has been jailed for five years.
In response to Star-Times inquiries, Zespri said in a statement that it had proactively sought advice from NZ Customs and MFat in early 2008 about the valuation methods being used by its importers as the New Zealand-China Free Trade Agreement loomed.
A NZ Customs official in Beijing concluded that "in an attempt to evade duty, your importers entered into a relationship with certain customs officers in certain ports and agreed to strike new values which would allow the evasion to continue to be perpetrated".
MFat in Wellington also raised concerns with Zespri's then in-house lawyer, who raised the matter with Zespri's then-chief executive Tony Nowell and other management.
The lawyer wrote that the "claims, if correct, could cause a reputation risk for the New Zealand Government, and could potentially result in fines, back duties and arrests of Zespri staff members".
The lawyer said Zespri had to "get to the bottom of this [issue] very quickly indeed".
Zespri's Asia-based employees and its independent importers met China Customs authorities in Shenzhen on March 4, 2008. They spent three hours taking the officials through how the importer's valuation was struck.
The meeting "went well" and Shenzhen officials "understood Zespri and its importers were not part of the cheating that goes on with other fruit importers . . . where there is gross under-declaration of values", Zespri's statement said.
It was satisfied at that point that the issue had been resolved.
But the Star-Times understands Zespri got nothing in writing and did not get any assurances from officials at other ports it used.
Documents obtained by the paper show that a year later Zespri managers were concerned that their dual invoicing would be discovered by auditors in New Zealand and "it would not look good".
Act Party president John Boscawen, an opponent of Zespri's monopoly position, said Zespri's investigations and discussions after being warned about the tax evasion were "clearly insufficient. There appears to be no written acknowledgment from Chinese officials that all was in order".
He repeated the party's call for a government inquiry. Zespri chairman Peter McBride wrote to growers last week admitting the company had been warned by its own staff about the dual invoicing and had failed to adequately investigate the process.
- Additional reporting, Jamie Ball
Sunday Star Times