Accounting scandals: Justice for all

James Kallman, PT Grant Thornton Indonesia, Management Consultancy, Jakarta

Never mind a trial, just throw them in jail. This was the suggestion of one viewer who e-mailed CNN in response to WorldCom's disclosure that the not insignificant sum of US$ 3.8 billion had been wrongly allocated in its books.

While this denies due process of law, it's hard to argue against the sentiment. Following hard on the heels of Enron, here's another massive American company that has been caught fiddling the books. If al-Qaeda's intention was to destroy the bastions of capitalism by their attack on the World Trade Center in New York, they seem to have been given ample assistance since by the economic "terrorists" that exist within the U.S.'s own financial system. For terror is what they are starting to cause in financial markets around the world. Everyone is now beginning to wonder how many more Enrons and WorldComs are out there. The problem is, no one really knows.

However WorldCom's new management did turn the culprits in, even though it will likely sound the death-knell for a company that was providing a great public service in helping break the monopoly within the American telecommunications industry. Since then Xerox are but the latest to announce that newly revealed accounting "mistakes" will necessitate them also restating their financial figures for the past year or two.

Investors in the stock market, not just in the U.S., but globally, would take the latter view. To them WorldCom was just another example of devious corporate practices designed to cheat, steal and lie to the general public. The initial response was to send the already nervy U.S. markets tumbling to levels below those recorded post Sept. 11, though they have since recovered somewhat.

It may indeed be just a coincidence that the firm of Andersen were again the auditors in the WorldCom affair, but investors are not fond of coincidence.

There will doubtless be even more strident calls for further regulation of the accounting industry, as well as other organs within the financial world. The answer is not so much more regulation though, as stricter implementation of the penalties that already exist for crimes such as fraud, theft and misappropriation of funds, including terms of incarceration for aiding and abetting in such crimes.

There might be an initial outcry that company executives and accountants are not violent, hardened criminals deserving of such punishment, but these mavericks can be far more of a danger to a larger section of society than drug dealers.

In the main though, accountants and company executives are mild-mannered men and women to whom the thought of lengthy terms of imprisonment is both abhorrent and frightening. While fines and suspensions may prove a temporary nuisance, imprisonment would bring with it not only ostracism within their own social circle but also seriously damage any hopes of ever gaining lucrative future employment. With such a deterrent, the enticement to turn a blind eye to malpractice would quickly lose its allure for most.

Such ideas hold true not only in the U.S. but all around the world, for white-collar crime is on the increase in many countries. The proposed legislation of the Bush administration that Chief Executive Officers be held accountable in law for the correctness of their stated company finances holds merit, though some will argue that to make it retroactive is unfair.

Unfair to whom one might ask; to the CEO's who haven't got time to re-cook the books or to the millions of investors robbed of their life savings?

Indonesia is but one country that would benefit from the implementation of similar legal processes that make company executives fully responsible for their actions. This should include a tightening of the noose on accountants, to follow the money trail and bring to justice those who brought the nation almost to its knees.

However, this cannot be accomplished without revision of the legal system to ensure laws are written in language that does not allow for "creative interpretation", and that judges and other legal officers adhere strictly to the full letter of the law without fear or favor.

In the wake of the Manulife decision however, there remain doubts in the international business world about whether Indonesia really wants to play on a level field. Until these fears are dispelled and Indonesia demonstrates that it is serious about tackling white collar crime and creating a corporate culture of transparency and accountability, much-needed foreign investment is not likely to flow in.

For once it seems that the U.S. and Indonesia are in the same boat; who has the better helmsman and sailors remains to be seen.