Birkenfeld, on the other hand, was charged with conspiracy to commit tax fraud, pleaded guilty, and received

a sentence of 40 months in prison, beginning in January 2010. While he does not dispute his relationship with
Olenicoff, Birkenfeld maintained that his involvement was only as a referral to another UBS specialist. As such,
he felt strongly that his jail time was unjust given his altruistic services to the U.S. government in providing
evidence against UBS. The Department of Justice officials who indicted Birkenfeld stated that if he had fully
disclosed the nature of his relationship with Olenicoff, it's unlikely that he would have been prosecuted, which
brings us back to the question of Birkenfeld's true motives in coming forward as a whistle-blower-was it really
altruism, or was he looking for a way to handle the mess that the Olenicoff case had created for him?
ln either event, there was a definite silver lining in Birkenfeld's cloud. As a key figure in the qui fam lawsuit
between the U.S. government and UBS. he was eligible for up to 30 percent of the money recovered from UBS.
On Septembe r '11,2012, the IRS announced that he would receive $104 million for his assistance in the UBS case.
Birkenfeld was unable to be present at the press conference announcing the award since he was under house
arrest until November 2012. One last ironic fact in Mr. Birkenfeld's battle with his former employer and the U.S.

government-his award was taxable.

Birkenfeld was adamant that his prison sentence was unfair when compared to the fact that no one else
(e.g., Olenicoff or UBS bankers) went to jail. Did he have a point?
2^ Why did UBS elect to settle with the U.S. government?
3. Given that there was an immunity agreement in place, what did the Department of Justice gain from
prosecuting Birkenfeld?
4. Critics are concerned that even with the large qui tam award, Birkenfeld's prison sentence will
discourage other tax whistle-blowers from coming forward. ls that a valid concern? Why or why not?
1.

SourcesrJanetNovack,"BankerChargedwithHelpingBillionaireDodgeTaxes," Forbes,May13,2008;KenStier,"WhylstheUBSWhistle-Blower

Headed to Prison? " Ilme 0ctober 6, 2609; Stephen M. Koh n, "Whistleblowing: A G et- Rich- Ouick Sche me?" Forbes,December 4, 2009; H aig Simonia n,
"The Price of a Whistleblowe r," FiniancialTimes, February 9,2010; Ken Stier, "U.S. vs. Swiss Tax Cheats: A Whistleblower lgnored," Time,Februaty 13,

2010;DavidVoreacos,"BankerWhoBlewWhistleoverTaxCheatsSeeksPardon," Bloomberg,June24,20l0;CBS,"ACrackintheSwissVault,"
60Minutes,Augrst15,2010;and TheEconomist,"TheUBsWhistleblowerBradley'swinnings,"Septembet15,2012.

Thinkin Criticall
hP OLYMPUS: PAYING A PRICE FOR DOING WHAT'S RIGHT?
Movies like Sitkwood and The lnsider have portrayed whistle-blowers as lone heroes on the front line or in
middle management, working against corrupt organizations at great personal risk to their own well-being. At
Olympus Corporation, the Japanese camera and
medical equipment manufacturer, the story was
dramatically different. The whistle-blower in this
case was recently appointed Chief Executive Officer (CEO) Michael Woodford.
As the former head of both UK and U.S. opera-

tions for Olympus, Woodford's appointment as

CEO in February 2011 was recognized as both the
summation of a meteoric rise of a talented young
executive and as a sign that the insular corporate culture of 'Japan, lnc." was finally changing.
Woodford had benefited greatly from the tutelage

152

Suslness Ethics fiaw

and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months
at the helm even more distressing.

As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that
Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and

afoodcontainercompany-hadcostOlympus$1 billion,buttheirassetshadalreadybeenwrittendowntojust
a

i
t

fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corpora-

tion. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman
lslands. ln addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion
in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going
into a Cayman lslands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious
enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit
report subsequently declared that the company's directors had done nothing wrong.
ln an October 11,2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear
accounting irregularities had destroyed "$1.3bn of shareholdervalue" in what he described as "a catalogue of
calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign
as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing
" Woodford from his position as CEO.
Woodford's personal account of the daysthatfollowed histermination reads like a spy novel. Fearing for his
life on the basis of a personal belief that the accounting scandal involved members of the yakuza-the Japanese
mafia-Woodford left Japan for the United Kingdom very shortly afterward. lt was later reported that Woodford
was able to provide sufficient evidence to warrant investigation into his claims by the FBl, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the
company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order
to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate
Governance Committee and to release five years'worth of revised financial accounts. Kikukawa finally admitted to
fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will
-'''face up to 10 years in jail for his role in the scandal.
ln June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford
of 1.2 billion yen ($15.4 million) for unfair dismissal. but the financial impact of the scandal may be far from
over. The stock price had plum.meted by as much as 80 percent in the immediate postscandal period, and in
November 2012,the company announced that 48 mostly foreign institutional investors and pension funds had
filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the
revelation of accounting irregularities.

1.

What accounting irregularities did Michael Woodford uncover at Olympus?

2.

How did the executive leadership respond to Woodford's revelations?

3.

Critics argue that Woodford could have been more effective if he had taken a longer-term approach to
addressing the accounting scandal. rather than the "showdown" approach he took with Kikukawa. ls that
a fair assessment? Why or why not?

4. Can Olympus

recover from this scandal? Why or why not?

Sources:The Economist,"Ihe 0lympus Scandal: Paying a Price for Doing What's Right," November 24,2012;Bill Powell, "A Botten Picture at 0lympus,"
D ecember 12,2012, and " S c a ndal at 0 lym pus: The CEo Who Knew T0o M uch," Ilma October 28,2011; Michael Woodford , Exposure: lnside
the 0lynpus Scandal: How lWent fron CE0 to Whistl.eblowerlPortf olio, November 2012); Yuri Kageyama, "0lympus Whistleblower Wins Millions in

Iime,

Settlement," BloombergBusinessweek,JuneE,20l2;andAssociatedPress,"0lympuslnvestorsSeek$240MillionCompensation,"Novemberl3,20l2.

ehapter 7 I Blowiug the Whistle

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