'No evidence of corruption' in Saudi sheep scandal


The Auditor-General has found no evidence of governmental corruption in the Saudi sheep scandal, which saw 900 sheep flown to the desert to appease an aggrieved Saudi businessman.

Lyn Provost has been investigating for more than a year following revelations taxpayers had forked out $11.5 million for the deal.

The test for corruption was based on whether there was an abuse of power for private gain or an offence against the Crimes Act by either Ministers or officials.

Foreign Affairs Minister Murray McCully said he had been the centre of "defamatory" statements during the course of the scandal and he's pleased with the report.

"The Auditor-General has found quite clearly that there was no bribery, no corruption, no facilitation payments and that all of the payments were made lawfully," he said.

"She has provided some very clear findings. Some I very much appreciate, others suggest the process should have been better. I accept all of them good and bad."

Despite no evidence of corruption, the report found the partnership deal between the government and the Saudi businessman was used as a "guise" to settle the investor's grievance.

Tensions had been festering for a number of years between the government and Saudi Arabia businessman, Sheikh Hmood Al Ali Al Khalaf.

Mr Hmood had invested heavily in New Zealand farms over many years through his various companies under the umbrella of the Al Khalaf Group.

Export of live sheep to Saudi Arabia focused largely on slaughter and consumption. That came to a stop in 2003 with the government moving away from live sheep exports.

That decision began "poisoning" trade negotiations and diplomatic relations, according to the report.

The Auditor-General also criticised Ministers and officials who continued to send "mixed messages" regarding New Zealand's position on the matter.

"New Zealand officials suggested to Sheikh Hmood and his companies' representatives that the export of sheep for slaughter would resume," she said.

A lack of progress around the recommencement of live sheep exports for slaughter saw the issue escalate in 2010 with diplomatic relations under significant strain.

Negotiations to settle the issue included a request from Mr Hmood to be paid compensation of $24 million.

In February 2013 a Cabinet paper outlined the options available to the government. The result was a $4 million contract for services purchased directly from the Al Khalaf Group with another $6 million of goods and services gifted from New Zealand companies.

"In my view, settlement of a grievance was provided under the guise of a contract for services," Ms Provost said. 

"Importantly, the contract does not specifically reflect the settlement component relating to the grievance."

Mr McCully claims there were limited options on the table.

"The word 'problematic' is the word used by the Auditor-General and I acknowledge that. I'd simply say that I didn't have very many non-problematic options available," he said.

Ms Provost says the contract was signed off by Cabinet based on information that had "significant shortcomings" and lacked analysis.

Part of the Cabinet paper included legal advice obtained by the Al Khalaf Group that it could pursue a claim against the government for up to $30m. It also advised that New Zealand exports into the Gulf states could double to $3 billion if a free trade agreement was signed, a major blockade of which was said to be the tension with Saudi Arabia. 

But the Auditor-General says there was no independent assessment or analysis of those claims by New Zealand. 

"Based on these significant shortcomings, I am concerned at the lack of robust analysis and the quality of information that was provided to Cabinet on this matter," she said.

Labour Party MP David Parker has accused Mr McCully of misleading Cabinet.

"The Auditor-General found he told them that there was a $23 million dollar legal risk and provided no evidence to back that up because there is no evidence to back that up," Mr Parker said.

"The Government will claim that this report exonerates them because McCully is found not to have been guilty of the criminal act of corruption, that is not the test by which Ministers' should be judged."