The Emerging Repercussions of International White Collar Crime

While it may seem far-fetched that a white-collar crime occurring in Japan could influence the United States, it may in fact not be so crazy. Due to increased communications, technology and business expansion, countries are becoming more and more invested in one another. This can be realized through the emergence of foreign companies’ products on American shelves, including Olympus cameras. Additionally, investors can choose to invest internationally through direct-investments, mutual funds or stock markets.

White Collar crimes traditionally have been viewed as domestic issues, however they have crossed borders in light of the “flattening” of the world.  One of the issues countries now have to face is that some tend to be more lenient in dealing with white-collar crimes and prosecuting those crimes than others. Countries such as the United States and other Western countries have different business practices than those found in Asian countries, especially Japan. As a response to the globalization of the economy, Japan has actively sought to change its corporate governance policies in order to prevent issues such as fraud. Japan’s practices are suspected by some to simply be “window dressing,” or a way to cover up the resistance to adhering to these corporate governance changes, while expressing eagerness to the international community.

Currently, international eyes are monitoring Japan as it deals with the scandal involving top officers at Olympus Corporation. We last discussed the revelation of the scandal at Olympus in November here. On Thursday February 17, seven top officials were arrested; among the seven was the former executive vice president and the former chairman.

To review, in our prior post, we discussed how the Olympus stock on the Tokyo Exchange was suffering since the news of the scandal and cover-up became headlines. The scandal revolves around a 13-year-long cover up of 117.7 billion yen ($1.5 billion). When Olympus finally admitted wrong-doing amid accounting questions from then-President Michael Woodford, the Tokyo Stock Exchange, which Olympus stock is traded on, was forced to decide what the punishment for the company should be.

In January, it was reported that The Tokyo Stock Exchange would continue to trade Olympus stock, though there would be serious punishments. In order for Olympus to remain on the stock exchange it was placed on “security alert” and must inform the exchange on how it would correct its corporate governance issues over three years.  Additionally, Olympus was fined 10 million yen ($130,000).  Although this is a minuscule fine, it seems the most severe consequence the company is paying through the stock market is with troubling stock prices. The 52-week high for Olympus was $33.65, but hit its low of $5.41 in November. Since this incredible downturn, the stock has been less volatile, though still failing to catch up to its high. As of February 23, the stock closed at $17.50, about half of its yearly high. These numbers can indicate a general mistrust of the company, and the potential for other fraudulent activity to come to light throughout the investigation.

In spite of all of the economic fallout, the most interesting aspect of this case is that Japan has arrested seven of the members believed to be at the center of the cover-up. As discussed above, Japan is not known for strictly enforcing punishment of white-collar crimes, however each of the seven could face up to ten years in prison.  While expectations are low that this will happen, it seems this could be Japan’s chance to distinguish itself and show the world it takes these crimes seriously. If this happens, it could lead to greater trust of Japanese businesses amongst governments, companies and investors. One can hope that one-day white-collar crimes are punished and serve as a cautionary tale to those who are tempted to cheat fate.

 

 

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