Monkeys With Rubber Stamps
The Overseas Investment Office
- by Quentin Findlay
The Overseas Investment Office (OIO), formerly known as the Overseas Investment Commission until 2005, is charged with protecting New Zealand interests in the nature of overseas ownership in New Zealand. This applies to sales of land and or commercial businesses. But, is the Office actually effective in terms of carrying out its duties and protecting New Zealand’s interests? Or does it merely hold the door open for overseas investors like a doorman welcoming people into a brothel or a medium priced hotel? The Office has an unfortunate reputation as being an ineffective protector of New Zealand interests. It has been accused at times of looking the other way and of deliberately forcing through investments. This has occurred against the advice of other State departments, and even when the Office knew that there were serious questions that needed to be asked. At the best the Overseas Investment Office could be labelled as incompetent and ineffective, at the worst it could be described as duplicitous.
If one reads the past issues of Watchdog and in particular, the OIO Decisions that frequent the back sections of each issue, then one would be left with the strong impression that the OIO and its predecessor are simply doormen. In one issue of the magazine, the Commission as it was then was labelled as being completely useless at preventing the takeover of New Zealand by overseas interests. Indeed the author of the article implied that a monkey with a rubber stamp would be more effective and cheaper than the Commission. This rather biting comment was made in the aftermath of an investment Decision which allowed a buy out of a locally owned company (Canterbury Malting Company) by overseas investors some of whom had proven criminal credentials (Archer Daniels Midland, ADM).
The latest criticism of the Office has come in the aftermath of the Cedenco Foods fiasco, when despite being warned about the duplicity of the principal owners (SK Foods), the OIO failed to take the matter seriously. To bring people up with the play in relation to this incident, Cedenco was one of New Zealand’s largest vegetable processors with two Gisborne factories, a processing plant at Whakatu in the Hawkes Bay and a business in Ohakune. It employs 88 fulltime staff and 410 seasonal workers. Cedenco used to be listed on the New Zealand Stock Exchange. But, that all changed in 2001 with the majority (55%) buyout of Cedenco by SK Foods. In 2003, SK Foods brought out the entire company and moved into full ownership. SK Foods is 100% owned by the Salyer Family Trust, which is based in the United States.
What made this situation interesting was that SK Foods’ Chief Executive, Scott Salyer, and SK Foods senior management became the focus of a US Federal investigation, which included allegations of bribery as well as mail and wire fraud. Several senior managers had been arrested previously and others were under investigation. In scenes reminiscent of the defence employed at the Nuremburg Trials, managers desperate to save their own skins turned State’s evidence, stating that they were merely “following orders” and implicated Scott Salyer. Salyer was arrested by US federal authorities in early February 2010 at John F Kennedy Airport, New York, trying to board an international flight out of the US. Authorities suspected that he was trying to fly to a country which had no extradition treaty with the US. In March he was denied bail and ordered held in prison, as a flight risk.
Allegations of corruption and bribery by Cedenco’s parent company forced the ANZ Bank which was the financial backer of Cedenco to place it into receivership in November 2009. Although Cedenco’s New Zealand Manager, Richard Lawrence, tried to maintain that the two operations were separate. Brendon Gibson, of KordaMentha, the receivers appointed by the bank, admitted that: “…the ultimate ownership of the NZ business was an issue, even though the NZ and Australian businesses had operated quite separately to the American operation. The issues surrounding the status of the American activities and previous shareholders and directors were certainly causing concern" ( NZPA; “ANZ Puts Receivers into Cedenco after Worries over USA Ownership” http://www.guide2.co.nz/money/news/business/anz-puts-receivers-into-cedenco-after-worries-over-usa-ownership/11/12410, 9/11/09).
So, you might ask, corrupt foreign owners force their New Zealand operation into receivership, but where does the OIO fit into this? The OIO fits into this because it had been previously warned by CAFCA about the investigation into Salyer and SK Foods. One of the requirements of overseas ownership under the Overseas Investment Act is that foreign persons owning and operating businesses in New Zealand have to be of “good character” (it needs to be noted at this point that this section of the Act can only be applied to individuals and not to companies – this is an important distinction).
On 28 August 2008, CAFCA wrote to the OIO and informed it that Salyer was under investigation by Federal authorities (who subsequently filed in Court), for allegedly encouraging a “named US broker, over a four year period, to offer bribes to food companies such as Kraft”. CAFCA reasoned that since Salyer was the CEO of SK Foods and a director of Cedenco and SK Foods owned 100% of Cedenco, one would think that Salyer’s conduct would have fallen under the “good character” criteria of the Act. The OIO disagreed and responded months later that in an e-mail that:
“To the best of our knowledge, there have been no charges brought against either SK Foods or Mr Salyer. All charges to date have been brought against the broker (the payer of the bribes) and representatives of third parties (the recipients of the bribes). SK Foods and Salyer expressly deny any wrongdoing. We understand that investigations continue in the US…. [Accordingly] …there is nothing for the Overseas Investment Office to investigate at present” (CA FCA press release; “ Overseas Investment Office Ignored CAFCA’s Warning About Cedenco’s US Owner”, 10/11/09. Pedro Morgan, Solicitor, Overseas Investment Office, to Murray Horton, CAFCA [10/3/09] http://canterbury.cyberplace.co.nz/community/CAFCA/publications/Statements/skfoods.html).
Later when the news broke publicly about the Cedenco receivership and the criminal allegations surrounding SK Foods and Scott Salyer the OIO attempted to claim, like Richard Lawrence, that the two operations were separate. OIO Manager Annelies McClure told the New Zealand Press Association that SK Foods was a “sister” organisation to Cedenco ( NZPA; “No Cedenco Links So Far In US Investigation: OIO”, www.stuff.co.nz, 11/11/09). Simply, neither claim really washes when one examines the relationship between the two organisations and the Salyer Family Trust and Scott Salyer.
What drew me to this issue was the fact that the Overseas Investment Office did not appear to take CAFCA’s concerns seriously. In fact one got the distinct impression that the Office was in fact disdainful of CAFCA’s concerns and they were only forced to take them remotely seriously when the entire issue reached the pages of the newspapers or was covered by radio and television. By this time, to quote the old saying, the horse had well and truly bolted and the OIO was wearing proverbial “egg on its face”.
Archer Daniels Midland
What is more worrying is that this does not appear to be the first instance when the OIO or the OIC has reacted disdainfully toward information which appeared to question its Decisions. As I noted previously, in 2000 there were questions asked about the good characters of Michael Andreas, Terry Wilson and Mark Whitacre who were the senior executives of Archer Daniels Midlands. Archer Daniels Midlands was the subject of an investigation, in which Andreas, Wilson and Whitacre were all convicted of conspiracy to fix prices on an international scale, in the largest antitrust case ever brought against a company. As CAFCA noted in its e-mail to the Commission at the time,
“…These are not technical offences but serious criminal matters, ‘international criminal conspiracies’, in the words of the highest law officer in the US (the Attorney General). The US authorities certainly thought that it was a big enough crime to levy ‘the largest criminal antitrust fine ever’… and to imprison senior executives…. The question arises – when this international criminal conspiracy case was so extensively reported in major US media, why did the OIC certify ADM and the persons controlling it as ‘being of good character’ and thus approved for investment in New Zealand?” ( Watchdog 95, December 2000, Bill Rosenberg; “American Corporate Criminal Comes To NZ: OIC Happy With Its "Good Character ”. Canterbury Malting Co Sold To US TNC Convicted Of International Conspiracy” http://www.converge.org.nz/watchdog/95/12ameri.htm).
The OIC’s response was that that the incidents that were raised with it referred to past incidents, they were employed in another division of ADM and the persons involved were no longer employed by ADM. As was noted at the time, it was a ludicrous response which allowed the OIC to wipe its hands of any involvement. Simply, people had lost positions and been jailed for criminal offences that went back years and even decades. Secondly, the OIC was wrong in relation to the positions occupied by the man named, one of whom, Michael Andreas was the son of the President of Archer Daniels Midlands and was himself Executive Vice President and the heir apparent to the firm. Lastly, it was the company itself that was found guilty and fined. As for the men at the centre of the case no longer being involved with or employed by the company, as CAFCA caustically noted, they were no longer involved because they were in jail. CAFCA concluded that the OIC had exercised “interesting reasoning” in the case. “The OIC won’t do anything unless it’s proved in court. When it’s proved in court, the OIC will do nothing because those few bad apples are no longer in charge. It’s called turning a blind eye” (ibid).
“Good Character” Provision Is Meaningless
One can discern a similar line of reasoning from the OIO in relation to the Cedenco and SK Foods situation. Simply, it appears that it does not matter what character “good or bad” an overseas investor brings into New Zealand, so long as they bring investment. It is meaningless. As a consequence, the OIO is prepared to look the other way and approve their claims. Indeed, most (99%) of claims appear to be approved by the OIO and those few that are declined are done either because of financial issues, as was the case of the aborted attempt by Cheung Kong Infrastructure Holdings to buy New Zealand Steel Mining Ltd, or because others, such as Ministers of the Crown have stopped the sale in the case of Auckland Airport Limited.
The OIO is not a good protector of New Zealand interests because it and its predecessor were never established to be. Over the past 25 years New Zealand governments, whether they have been Labour or National, have allowed increasingly more land, resources and infrastructure to be sold into private overseas hands. The OIO is simply a means by which these sales can be provided with a veneer of respectability – a means by which a sceptical public can be pacified. A decade on from Archer Daniels Midland and with changes in the wind to water down even the feeble legislation governing overseas investment, a monkey with a rubber stamp would appear to be an over-investment.
For more details about the 1990s’ criminal behaviour of Archer Daniels Midland which led to CAFCA making the “not of good character” complaint to the OIC, see the reviews of “The Informant!” and “Rats In the Grain”, elsewhere in this issue. Ed.
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