THE Olympus Corporation's massive cover-up of losses allegedly was carried out for more than 10 years with the approval of successive top executives.

This abominable action runs contrary to maintaining fairness in the marketplace, and prosecutors must use all means at their disposal to get to the bottom of the matter.

Three former executives of Olympus, including Tsuyoshi Kikukawa, former chairman of the internationally renowned optical and medical instrument maker, have been arrested by the Tokyo District Public Prosecutors Office on suspicion of falsifying the company's financial statements in violation of the Financial Instruments and Exchange Law.

Through financial trickery, such as shifting the company's investment losses to overseas funds, the former Olympus executives are suspected of inflating the company's assets by as much as 110 billion yen in the settlement of accounts in both fiscal 2006 and 2007.

The reason this did not come to light earlier was primarily because of elaborate, complex window-dressing operations conducted across national borders.

The overseas funds used in the dubious movement of investment losses were found in such places as the British Cayman Islands, a tax haven. Funds used in the alleged illegal scheme were provided by a Liechtenstein bank, according to the prosecution.

Former employees of a major securities company and other professionals in financial services allegedly engineered the loss-hiding scheme and introduced the Olympus executives to overseas financial institutions. Four of these middle men have been arrested as accomplices in the alleged window-dressing.

If they advised the former Olympus executives in the window-dressing on the strength of their financial and securities expertise, these actions should be condemned as extremely malicious.

There are allegations that they may have received several billions of yen in remuneration.

The prosecution should cooperate closely with law-enforcement authorities abroad in rigorously pursuing the criminal responsibilities of those involved.

At the same time, the culpability of those who failed to stop the cover-up should be investigated.

On the basis of a report by Olympus' in-house independent investigative panel, the company has instituted a lawsuit seeking damages against 19 former and incumbent executives of the company and five internal auditors.

They include not only Kikukawa, who is alleged to have played a leading role in the window-dressing, but other executives and auditors who allegedly participated in the firm's acquisition of companies used to conceal the losses, without paying due attention to the dubiousness of the deals.

Corporate executives and auditors are, by law, obliged to exercise due care to prevent wrongdoing that could cause losses to their companies. Given that the Olympus executives failed to perform their duties correctly, it is natural they face lawsuits.

Although they have avoided being sued so far, auditing companies that deemed the Olympus financial reports as "adequate" also bear a heavy responsibility for failing to uncover the irregularities. How did they fail to detect the window-dressing operations?

To regain the international confidence of the Japanese market, Olympus must strengthen its corporate governance to prevent a recurrence of these irregularities.

The Tokyo Stock Exchange, for its part, has decided to allow Olympus to keep its stock listed on the First Section, but the company should not believe the TSE's generosity has allowed it to get off the hook.

The Yomiuri Shimbun/ANN