INVESTMENT OFFICE NEEDS TO PULL FINGER
On ‘Not Of Good Character’ Complaints
By Murray Horton, political activist and writer since 1969; organiser for the Anti-Bases Campaign (ABC, and also for the Campaign Against Foreign Control of Aotearoa (CAFCA)
A very unusual thing happened just before Christmas 2017 – the Overseas Investment Office (OIO) declined an application from China’s HNA Group to buy finance company UDC Finance (owned by ANZ).
The reason given was that the OIO could not determine from the information provided who is the “relevant overseas person” intending to make the purchase.
And, therefore, the OIO cannot apply the test in section 18 in the Overseas Investment Act to determine whether that person is of good character. But what if the OIO had been able to determine who is “the relevant overseas person” behind HNA Group and could therefore apply the good character test?
The OIO’s Record On Good Character Is Not Reassuring
The good character test is one of the few conditions imposed on foreign buyers in the Overseas Investment Act. It only applies to individuals owning or controlling a company; the corporate misdeeds of the company itself are not covered. That sounds good in theory but Campaign Against Foreign Control of Aotearoa (CAFCA) is at pains to point out that we have been making “not of good character” complaints for more than 20 years and not one of them has ever been upheld by the OIO (or its predecessor the Overseas Investment Office).
We (CAFCA) have been making a media fuss recently about this “good character” test (actually, we’ve been doing so for many years). A mainstream business journalist asked me what it is that CAFCA wants changed in it. That set me to thinking, and here is a slightly edited version of what I sent her.
The major thing CAFCA wants is the “good character” test to be extended to the transnational corporations themselves, not being simply confined to the person or people owning and/or controlling them. And to actually have a definition of “good character” in the Overseas Investment Act Here are the recommendations on this subject that we made in our submission to the 2005 Overseas Investment Act (which is the current law. The submission was written by CAFCA’s Bill Rosenberg):
“The term ‘good character’ should be defined in the Bill. Its definition should reflect court interpretations, but should be wider than criminal convictions, including adherence to common ethical standards, and absence of acts that would be illegal in New Zealand or which have given rise to adverse civil court findings”.
“The practice of relying on certificates of adherence to criteria provided by applicants, persons controlling investments, their legal representatives, or other associated persons, should be prevented by the legislation. The Ministers and Regulator should be required to be satisfied on the basis of evidence before granting approval”.
“In addition, the ‘good character’ criterion, and indeed the other three ‘core’ criteria common to all investment (that relevant individuals have business experience and acumen; financial commitment; not individuals of the kind referred to in section 7(1) of the Immigration Act 1987) apply only at the time the decision on an application is made. Unless an explicit condition is attached to a consent, an individual investor could subsequently exhibit bad character, poor business practice, lack of sufficient financial backing, and so on, without any review of the approval being possible”.
A current example of “subsequently exhibiting bad character” is US TV broadcaster Matt Lauer, who was approved by the OIO to buy prime South Island land in 2017 and was subsequently fired by his TV network for having sexually harassed female colleagues. I suggest you ask the OIO what it plans to do about him, because it hasn’t made public any intentions.
And there needs to be a statutory time limit in that Act for the OIO to resolve good character complaints. In December 2016 CAFCA complained about Chinese-owned Agria Corporation, which owns 50% of PGG Wrightson. It took 13 months before we got a response – note, not a decision (with no indication of when we can expect one).
Over the course of more than 20 years we have made “not of good character” complaints against the persons owning and/or controlling companies ranging from the former Waste Management (now Trans Pacific Industries) to some of the (then) owners of Wharekauhau Lodge. There are plenty of good character cases to choose from and by no means all of them involved complaints from CAFCA (we weren’t involved in the very high-profile Kim Dotcom one nor when Brierley’s wanted to sell its stake in Sealord to foreign fishing companies). The only time I’m aware of the OIO actually turning down an application on good character grounds involved May Wang, the person in charge of Natural Dairy, the original applicant to buy the Crafar Farms.
To give just two examples of CAFCA’s good character complaints over more than 20 years, here is an extract from a 2010 article from our Foreign Control Watchdog on the subject of the OIO (and its predecessor, the Overseas Investment Commission [OIC]) and good character. The article was written by Quentin Findlay. He is the “I” and “me” in the below article extract. Bear in mind that this was written in 2010 but is still highly relevant).
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” (CAFCA 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”, http://www.stuff.co.nz/business/industries/3053003/No-Cedenco-links-so-far-in-US-investigation-OIO, 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 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 (ADM)
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 men 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).
For plenty more on “not of good character” complaints, click on the CAFCA site at http://www.sitelevel.com/query?query=good+character+complaints&crid=0c76d290&B1=SiteLevel+Search and you’ll find pages of links to numerous Foreign Control Watchdog articles on the subject over many years. It’s a roll call of transnational corporate villains.