Japan's J-SOX targets corporate crime

The nation's version of the Sarbanes-Oxley Act is intended to hold executives accountable and protect investors.

By Yuriko Nagano | Contributor to The Christian Science Monitor

from the March 1, 2007 edition

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TOKYO - Scandals at Japanese corporations are prompting the government to curb white-collar crimes in a more, well, American way.

Japanese companies have been tainted in recent years by accounting scandals reminiscent of Enron. In response, the government has approved its own version of the Sarbanes-Oxley Act of 2002.

The new guidelines, known informally as J-SOX, are intended to make executives accountable for actions they take and to protect investors with greater transparency.

"The new guideline is a departure from the traditional Japanese business style based on trust and belief that humans are fundamentally good," says Shinji Hatta, a professor at Aoyama Gakuin University in Tokyo. Mr. Hatta chairs the government committee that crafted the guidelines.

The law doesn't go into effect until April 2008. But companies are expected to start implementing it this April as, experts say, such rules have become a worldwide standard with publicly traded companies.

What's unique about the Japanese guidelines is that they give pointers on reporting requirements, but leave executives room to interpret what should be covered.

That provision is a response to perceived shortcomings of the US law. But, says Nobuhito Utsunomiya, consulting-service business unit manager at NTT Data Corp., "J-SOX's strength of not being specific is ... creating confusion. Corporations and auditors are having a hard time agreeing on ... an acceptable level of implementation."

The wake-up call for reform came with the Seibu Railway scandal. The company was delisted from the stock exchange for falsifying financial records.

Other spurs came from the Livedoor and Murakami Fund scandals, still on trial, which rocked the nation with accounts of inflated profits through stock transactions and insider trading.

The rise in accounting fraud is due in part to a more profit-driven American style of business over the past decade, says Hatta.

As regulators impose the law, however, they hope to avoid some of the pitfalls of the US version of the act. J-SOX asks companies to take a top-down risk approach, forcing executives, for example, to take responsibility for their company's accounting.

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