Japan tries to limit Olympus fallout

Japan’s leadership is stepping up efforts to contain the reputational damage from the Olympus scandal for fear the issue could damage confidence in the country’s financial markets.

Members of the ruling Democratic party are pressing regulators to do their utmost to ensure the system is transparent, said one DPJ parliamentarian.

On Friday, the financial regulator confirmed it was examining the Olympus case, in an unusual acknowledgement of an investigation into a publicly listed company.

Shozaburo Jimi, financial services minister, said the regulator was looking into the maker of cameras and medical devices, which this week admitted it used fees related to acquisitions to hide losses on investments dating back to the 1990s.

Allegations of irregularities came to light after Michael Woodford was dismissed as Olympus’s chief executive last month and went public with his concerns about the fees. This week, Olympus said almost $1.2bn (£755m) in fees related to acquisitions were used to hide losses incurred on securities investments over two decades.

Yoshihiko Noda, the prime minister, said last month he was worried the affair would give the impression Japan was a country that did not follow the rules of capitalism.

Mr Jimi said: “It is troubling to see investors, both domestic and abroad, question the fairness and transparency of the Japanese markets. I am determined to take every measure necessary, if any issues for improvement [of fairness and transparency] were to be identified through untangling of this case.”

The regulator is expected to investigate whether Olympus managers falsified the accounts when they hid the investment losses.

Following a series of scandals, Japan doubled the penalties for accounting fraud to up to 10 years in jail, and the fine for individuals to up to Y10m (£82m). The fine for companies rose to up to Y700m from Y500m.

However, the penalties for corporate wrongdoing are still considered lax in Japan. If a corporate crime is not aimed at enriching an individual, Japanese law is relatively lenient, said Hideaki Kubori, a lawyer with expertise in corporate governance issues.

In a similar case, two executives of Kanebo, a cosmetics group, who were charged with falsifying its accounting reports to hide more than Y80bn in losses, received suspended sentences of up to two years.

Mr Woodford has taken his concerns to the UK Serious Fraud Office and the US Federal Bureau of Investigation, which is investigating the matter.

Police declined to comment on reports they were looking into Olympus, which also declined to comment. Olympus shares closed down 5 per cent, having touched positive territory earlier in the day.