UK Bribery Act

The recent revelations regarding dubious accounting practices at Japanese company Olympus graphically highlight the consequences which can follow from a lack of business integrity.

The story started with an article in the Japanese magazine Facta in August this year which questioned certain acquisitions made by the company. In October, Michael Woodford, its CEO, was fired for questioning the company’s accounting practices. This triggered a substantial fall in the value of the company’s shares on the Tokyo Stock Exchange.

Mr Woodford subsequently stated to the press that he may have been fired for raising questions about payments and advisory fees paid for acquisitions made by the company before he took charge, but the company strongly denied these allegations. However the controversy quickly raised intense interest not only from the media, but attracted the attention of regulatory agencies in Japan, the US and the UK.

Investment firms subsequently cut the credit rating of Olympus and the future existence of the company is in jeopardy. In November Japan’s Financial Services Agency, the US Federal Bureau of Investigation and Securities and Exchange Commission and the UK’s Serious Fraud Office all launched investigations into Olympus. Shareholders have seen the value of their investment drastically reduced in a matter of a few weeks, and the company may ultimately face delisting from the TSE. In the meantime, three directors of Olympus have either been fired or have resigned.

The scandal relates to an alleged practice of using acquisition payments to cover up substantial losses incurred on the company’s investments. The amounts in question reportedly run to hundreds of millions and possibly billions of pounds. Recent comments from Japanese officials suggest that as much as $4.9 billion could be missing and that some of this money may have ended up in the hands of Japanese organized crime syndicates for assisting the company with the deception.

Undoubtedly there will be many more revelations and negative consequences as the story unfolds, but so far it is a salutary reminder that quick fixes to hide embarrassing business results can be potentially catastrophic for a company and its stakeholders in the longer term – shades of Enron once again!