Air firm’s fine ‘slap on wrist’
A $74,000 fine handed to a Hamilton aircraft manufacturer for breaching United Nations sanctions by supplying parts to North Korea has been criticised as lightweight.
The recent prosecution of Pacific Aerospace for the exportation of luxury goods to North Korea – in this case aircraft parts – is the first of its kind for New Zealand.
But it’s in part the prosecution of a Chinese company, and one which broke no law in China.
Geopolitical risk consultant Dr Paul Buchanan said the fine was ‘‘a slap on the wrist’’, and would be of little consequence for the company’s Chinese partner.
‘‘It’s a warning shot to Chinese investors. Because of the lightness of the penalty, they may simply see it as the price of doing business.’’
Pacific Aerospace pleaded guilty to three charges of indirectly exporting to the Democratic Republic of Korea and one charge of erroneous export entry in October, and was handed a
$74,805 fine in a reserved judgment released by Manukau District Court on Thursday, June 7.
Pacific Aerospace, which has been building planes in Hamilton for over 50 years, unfurled a Chinese flag when it struck a joint venture deal with stateowned Beijing Automotive in
2014.
Buchanan said such deals brought access and much needed cash to a New Zealand company looking to enter the Chinese market.
For a Chinese company, it could provide market-ready technology – like Pacific Aerospace’s
P-750 aircraft. But there were often strings attached.
‘‘There’s a pattern here. Even if it’s not sinister, it legitimates them where eyebrows might be raised. The use of a Western store front allows them to slip under the radar.’’
Soon after the $75 million joint venture deal was signed by John Key and lauded by government officials in 2014, senior figures from Beijing Automotive joined Pacific Aerospace’s board. They included the state-owned company’s deputy general manager, Suping Cai, and chairman Heyi Xu – described by the Financial
Times as a ‘‘department-level Communist party cadre’’.
The board of seven now has four Chinese members.
High-ranking Chinese officials involved at the top of Pacific Aerospace showed clear ‘‘foreknowledge’’ of the North Korea transaction, Buchanan said.
Details revealed in court show 18 months after the deal was signed, Pacific Aerospace’s Chinese counterparts advised New Zealand staff of another company, Beijing Freesky Aviation, wanting to buy a plane for North Korean tourism purposes.
A subsequent UN Security Council report into the transaction said it highlighted a trend whereby luxury items in manufacturers’ countries were transferred to third countries with different criteria for luxury goods prior to their end use in North Korea.
Pacific Aerospace was not prosecuted for providing the plane, and such a transaction does not breach Chinese law.
‘‘The Chinese play by a different set of rules. They reject the sanctions regime, and they could say that once the plane got to China, it was a matter of Chinese domestic law that surrounded the circumstances of its on-sale,’’ Buchanan said. ‘‘It was fairly low risk from [Pacific Aerospace’s] perspective.’’
Low risk, because it almost went unnoticed. Almost a year after the plane was sold, a Singaporean photographer attending the Wonsan Air Festival snapped a photo of the P-750 XSTOL bearing North Korea’s flag.
Pacific Aerospace’s relationship with its Chinese business partners has flourished since. In October 2016, as the plane’s appearance was made public, industry news site Exporter
Today reported that Pacific Aerospace’s joint venture had opened a purpose-built aircraft manufacturing site on a 10 hectare site at Changzhou Airport.
Last week, Pacific Aerospace released a statement reiterating recent commercial successes.
A Customs spokesperson said appropriate action had been taken, and the matter would not be pursued further.
Buchanan said the case was a wake-up call for New Zealand firms in sensitive industries, particularly when considering Chinese investment.
‘‘It’s a warning shot to Chinese investors . . . they may simply see it as the price of doing business.’’ Dr Paul Buchanan