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Olympus wriggles around bribery timing technicality

Wed, 2 Nov 2011 10:51 GMT

Source: reuters // Reuters

(Business Law Currents) Allegations of controversial payments made by international companies are pushing the jurisdictional envelope of the UK Bribery Act, which came into effect in July of this year.

The application of the UK Bribery Act and its potential effect on foreign businesses outside the United Kingdom has been the subject of much debate. Banning facilitation payments in a myriad of forms such as entertainment expenses or even inappropriate advisory fees, the Bribery Act goes above and beyond back alley cash payment transactions. Deliberately broad provisions of the legislation cast a wider net of potential liability than the bribery laws of other jurisdictions such as the United States or China.

In particular, Japanese camera parts maker Olympus Corp seems to have marked itself as a prime candidate for UK Bribery watchdogs looking to test out the legislation’s reach over foreign companies. A recent corporate governance scandal at the company has uncovered a number of controversial payments paid by the company in connection with a US $2 billion acquisition of Gyrus, a British medical equipment maker, in 2008.

As reported by Reuters, multiple acquisitions, including Gyrus has resulted in US $1.2 billion of ambiguous charges and write-offs from Olympus. Of the charges, US $687 million in advisory fees paid have come under regulatory scrutiny from watchdogs in Japan as well as the SEC and the FBI in the United States.

According to Reuters news sources, the fees amounted to 36 percent of Gyrus’s acquisition price, an astronomical figure compared to the industry average of less than 2 percent for advisers in M&A deals. Further fueling suspicions of wrongdoing, one of the advisory firms is now a defunct entity domiciled in the Cayman Islands.

Patent records in the United States have also revealed a possible conflict of interest between Olympus and the company’s investment in a cookware company.

Section 7 of the Bribery Act states that it is an offense for “a relevant commercial organization to fail to prevent bribery.” As defined by the legislation, “a relevant commercial organization” includes incorporated entities or partnerships that carry on a business or party of a business in the UK, regardless of where the entity is formed or incorporated.

While the company is neither incorporated nor headquartered in the United Kingdom, it could nonetheless find itself ensnared in bribery scrutiny due to its acquisition of Gyrus, a British entity. Regulators could very well argue that the purchase of Gyrus constitutes carrying on part of a business in the UK.

The acquisition aside, Olympus maintains a number of offices, customer service and support centers within the United Kingdom, further satisfying the Bribery Act’s requirement of carrying on business operations within the UK.

Although Olympus’ recent misfortunes may very well fall under the scope of the UK Bribery Act, the company could squirm free on a technicality. The Gyrus acquisition was completed in 2008, prior to the enactment of the UK Bribery Act. As a result, the extended overseas reach of the legislation is unlikely to apply to Olympus.

Moreover, UK prosecutors would bear the burden of proof in any potential lawsuit, as opposed to Olympus bearing the burden of proving it had adequate controls in place to prevent bribery, as required by Section 7 of the Bribery Act. However, Olympus is not completely in the clear. Given that Gyrus was formerly a UK company, British watchdogs could still launch a formal probe into the transaction, adding to a growing list of inquisitive law enforcement officials and shareholders that are closing in on the company.