OLYMPUS: Bringing It Into Focus–A Special Breach Of Trust? UPDATE

In the last week, the New York Times, the Financial Times(article in Japanese)  and Reuters have reported heavily on suspicious transactions at Olympus Corporation, one of Japan’s oldest and most distinguished camera and optical equipment makers. The board forced out acting CEO,  Michael Woodford, after he became too diligent in doing his due diligence on questionable financial transactions at the company. Olympus claimed he was forced out for cultural differences. In one sense, they were correct. If Mr. Woodford was Japanese, he would have understood his promotion involved an implicit exchange of power for shutting up about things no one wants to talk about it. He just doesn’t get it.

Yes, the world is always made complicated by honest men with a sense of justice and duty–to themselves and to their shareholders or to some greater good. The whole scandal emerged first in the Japanese media. Yes, despite what you have been told good investigative journalism does exist in Japan. The magazine FACTA, has been following the story for months and ZAITEN, also ran a long feature on how Olympus’s money bleeding investment arm, ITX,  had been amputated quietly–but not so perfectly that  the huge pools of financial blood were not noticed. The mainstream Japanese media has chosen to ignore the story, probably because HUMALABO, the cosmetics and supplements maker, which Olympus now owns—is also a huge advertiser, especially in newspapers.

In year 2008, something happened at Olympus that turned the company from an entity focussed on seven major business areas, into a company completely out of focus, blurred by a total of seventeen business areas, to include real estate, investments, consulting, waste disposal, labor dispatch, and running travel agencies. Igari Toshiro, former prosecutor turned anti-yakuza crusader, who was Japan’s greatest expert on white-collar organized crime aka the keizai yakuza (経済ヤクザ）and many veteran organized crime detectives have stated that one of the first signs that a company has been infiltrated by anti-social forces is a sudden and totally new change in company direction–especially into areas like waste disposal, labor dispatch (temporary staffing), and real estate—all areas where anti-social forces have carved out a large niche for themselves.

Olympus invested at current exchanges, what would be over 700 million dollars into three companies, in 2008 circa the time of their transformation into Super Olympus–and later wrote down the value of those investments by three quarters in the same year.  The three companies shared addresses and office space with several other companies with different names but sometimes the same employees, creating a web of real and paper companies that make tracking the money very difficult. One of the auditors involved is considered a corporate blood brother (企業舎弟・kigyoshatei) to the Yamaguchi-gumi, Japan’s largest crime group, by law enforcement and regulatory agency sources. In short, what happened at Olympus has all the earmarks of anti-social forces gaining entry into a company and draining it of cash. The Yubitoma case in 2007, the taking of Lehman Brothers Japan for 350 million by a yakuza connected firm Asclepius in 2008, and other cases bear a striking resemblance to what seems to have happened at Olympus.

When the board of a company continues to make decisions that negatively impacts the financial situation of the company, it is the duty of the CEO under the The Companies Act (会社法）to address these acts of corporate malfeasance and if need be, make the shareholders aware of the problem and possibly file criminal charges. It would appear, based on all that has surfaced, that Mr. Kikukawa, who ran Olympus during the periods where the suspicious transactions took place, and possibly other directors as well, may be guilty of the crime of an aggravated breach of trust . (会社法第960条・取締役などの特別背任罪）The law essentially says the following, “when a director (executive officer etc), for the purpose of promoting such person’s own interests or the interests of a third party or inflicting damage on a Stock company, commits an act in breach of such persons duties and causes financial damages to such Stock Company, such person shall be punished by imprisonment with hard labor for not more than ten years or a fine of not more than ten million yen or both.  If this is what Mr. Kikukawa and other board members have done, then under the The Companies Act (会社法), Mr. Woodford would be an accomplice to a crime by remaining silent.

I’m certainly not the judge and jury in this matter. However, as a reporter who has been covering organized crime since 1994, I feel confident in saying that if there hasn’t been a takeover or collusion of the company by anti-social forces, there is certainly a level of corporate malfeasance here that has already drawn the attention of the Japanese law enforcement agencies and regulatory agencies. It is drawing world attention as well. Investigations will come. No one can be sure what will be found until the digging is done.

The Neojaponisme Blog has a very interesting catalog of the players involved in the transactions. It begins like this: