Olympus May Have Breached U.S. Overseas Corruption Law

TOKYO--In an early test of its avowed intent to enhance regulatory compliance after a multi-billion dollar accounting scandal, Olympus Corp. (7733.TO) said it has informed the U.S. Department of Justice of possible expense accounting irregularities in a doctor training program in Brazil that could test the rules of the Foreign Corrupt Practices Act.

The news was enough to snap investors' brittle confidence in the ability of new management to steer the still-troubled camera and medical equipment maker toward lasting profitability.

Olympus shares were down by as much as 7% in Tokyo, weighed by the possibility of an impact on the firm's business in the U.S., as well as concerns about a new lawsuit by a shareholder seeking redress for the loss of value in its Olympus holding.

Triggered by the dramatic resignation of former CEO Michael Woodford last October, admissions by Olympus officials that they covered up $1.5 billion in investment losses landed the firm in one of Japan's biggest corporate scandals in years and generated intense debate about the state of corporate governance in the country.

An Olympus spokesman Wednesday confirmed a report by Bloomberg quoting chairman Yasuyuki Kimoto as saying his company first raised the Brazil issue with the DOJ "four to five months ago." The potential problem may be related to the way the company handled doctors' expenses for travel, meals or entertainment at a training facility operated by Olympus in Brazil.

"We might agree to some sort of violation of the Foreign Corrupt Practices Act in Brazil...We understand the DOJ is trying to gather lots of information on us," Mr. Kimoto said in the interview, according to Bloomberg.

The Foreign Corrupt Practices Act of 1977 makes it illegal to bribe government officials to secure or retain business, and requires companies whose securities are listed in the U.S. to keep accurate books and records.

The Olympus spokesman Wednesday said the company "would like to decline comment further" at this stage on its findings in Brazil, or what it has told the DOJ, because an investigation is still ongoing.

As economic growth slows in developed countries, multinationals are looking to expand in emerging markets, where violations of the FCPA are a greater concern, according to Lesli Ligorner, a Shanghai-based partner at Simmons & Simmons.

In 2011, the U.S. Securities and Exchange Commission took civil action in 20 cases of FCPA violations, compared with 17 cases in 2007. The Department of Justice can choose to prosecute companies for FCPA violations as well, although cases can take years to investigate.

Gina Talamona, a spokeswoman for the DOJ, declined to comment on the Olympus findings in Brazil.

Shares in Olympus closed 6.8% lower at Y1,380, compared with the benchmark Nikkei Stock Average's 0.6% drop.

Concerns were exacerbated by Japanese medical-equipment maker Terumo Corp.'s (4543.TO) move to file a damage compensation lawsuit against Olympus.

The suit by Terumo, which holds a 2.1% stake in Olympus, comes despite it having proposed a merger with Olympus in an apparent bid to counter Sony Corp.'s (6758.TO) leading position among a group of bidders for a stake in the scandal-hit camera maker. Olympus has said it is looking for a partner to invest about Y50 billion to shore up its finances.

Despite seeking to coax Olympus into a broader deal, Terumo said Wednesday it has filed lawsuit with the Tokyo District Court to seek an unspecified amount of compensation suffered from the steep falloff in the value of Olympus shares it holds as the accounting scandal unfolded. In its darkest days, Olympus saw as much as 80% of its market value wiped out as the implications of the cover-up by former Olympus officials reverberated around the Tokyo market.

Terumo said it was forced to book a loss of Y8 billion in the business year ended March, including a Y6 billion securities valuation loss.

A separate spokesman at Olympus said the company has not received a legal complaint.

-Kathy Chu and Kenneth Maxwell contributed to this story.

Write to Hiroyuki Kachi at [e-mail]

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