Legal experts have called for an overhaul of UK corporate laws to hold companies to account after the Serious Fraud Office (SFO) dropped its prosecution of Japanese optical giant Olympus Corporation.
More than two years after charging Olympus and its UK subsidiary Gyrus Group with making false and misleading statements, SFO prosecutors offered no evidence against the two companies at London’s Southwark Crown Court.
The case was brought after Michael Woodford, Olympus’s British former chief executive, blew the whistle on an alleged $1.7bn (£1.1bn) accounting fraud.
Mr Woodford publicly raised concerns about unusual payments to consultants two weeks after taking on the role at the company. He referred the case to the SFO, which charged the companies with making false and misleading statements to auditors between 2010 and 2011.
Reports of the attempts to hide losses in mid-October 2011 triggered an 82 per cent drop in the company’s shares in a month. Court documents alleged shares were issued “for a fraudulent purpose” to conceal the extent of losses in securities and other trading at the Japanese firm. They also claimed Olympus made a statement about the Gyrus financial situation to its auditors which was “misleading, false or deceptive”.
Gyrus, a UK firm which makes medical equipment, were taken over by the Japanese firm for £1.4bn in 2008. Lawyers for the firms argued that Olympus and Gyrus were not covered by the categories of “persons” covered under the 2006 Companies Act, so no offence could have been committed by them.
The SFO said it decided to offer no evidence after a Court of Appeal ruling in February that English law does not consider a company misleading its auditors to be a crime. A lawyer for the SFO said there was “insufficient evidence” for a realistic chance of conviction.
The ruling could not be reported until Tuesday for legal reasons. “The SFO could not have prosecuted individuals in this case because Japan does not extradite its nationals,” it said in a statement.
Legal experts familiar with the case, however, criticised the SFO saying they were aware very quickly the legal basis of the charges they had brought were unsafe. One judge ruled the case was “inevitably doomed” as a matter of law. Simpler alternative charges were available to prosecutors they insisted.
They contrasted the failure of the British prosecution with the way the company was dealt with in Japan where Olympus was subsequently fined ¥700m (£3.7m) and three executives pleaded guilty in 2013 to covering up losses at the maker of endoscopes and cameras and given suspended jail sentences.
Olympus initially denied wrongdoing, but then admitted it had been covering up huge investment losses. Three former Olympus executives were given suspended jail sentences in 2013. Former chairman Tsuyoshi Kikukawa and executives Hisashi Mori and Hideo Yamada admitted charges of falsifying accounts to cover up losses.
Critics of the SFO say it is the latest in a series of blunders including the collapse of cases against businessmen Victor Dahdaleh and property developers, the Tchenguiz brothers. The Home Office has reportedly considered abolishing the organisation.
However many legal experts said the case highlighted the need for better and clearer laws to hold firms operating in the UK to account. Investigators and prosecutors are being hampered in their bid to bring misbehaving firms to court by muddled and archaic laws which fail to reflect how modern corporations operate. Barry Vitou, the head of law firm Pinsent Mason’s corporate law group, said: “The outcome of this case once again highlights the urgent need for a complete overhaul of corporate liability law in the UK.”
Slaughter and May, the Japanese company’s legal advisers were unavailable for comment.
A lawyer for Olympus said the company planned to make a statement to the market in Japanese trading hours.