Japan: What are Tobashi schemes and what is Olympus scandal?

Tobashi is Japanese for “fly away”. It describes the practice where external investment firms typically sell or otherwise take loss-bearing investments off the books of one Client Company at their near-cost valuation to conceal investment losses from the clients’ financial statements. In that sense, the losses are made to disappear, or ‘fly away’. (Wikipedia). This was used in Japan’s Olympus Corp. and led to a scandal which is called Olympus Scandal.

How it happened?

• As per various media sources, Olympus Corp. should have reported about 130 billion yen ($1.7 billion) in losses for the year that ended in March 2001. Instead, the company posted just 900 million yen in losses, listing them as “extraordinary expenses. The idea was to get around the new accounting rules and conceal the losses on its financial instruments such as Balance sheets. It continued to balloon since the collapse of the asset-inflated bubble economy.
• The scandal surfaced amidst the controversial removal of the newly-appointed chief executive officer of the company and it was revealed that Olympus Corporation had been operating a tobashi scheme in which US$2 billion was said to have been siphoned off to cover bad investments made up to 20 years ago. The scandal has been “one of the biggest and longest-running loss-hiding arrangements in Japanese corporate history” as per Wall StreetJournal. The company admitted that the money had been used to cover losses on investments dating to the 1990s and that it had adopted “inappropriate” accounting practice.
• It wall started when Michael Woodford, the Liverpool-born 51-year-old officer of the company was fired. He had worked for the Olympus group for 30 years before being promoted to president in April this year, making headlines as one of only a handful of foreigners to head a major Japanese company.
• On October 14, he had been fired and he left immediately for Britain and went public with his suspicions about the company’s past mergers and acquisitions and he campaigned for Olympus to come clean. Woodford has made it clear he would be prepared to return to run the company if asked to do so by shareholders, but says he is not begging for his job back.