[EDITORIALS]Come clean on settlementsThe government has decided to exempt companies with settlements based on inflated figures from criminal punishments if they correct their settlement by March of next year, the deadline to submit financial statements for the fiscal year 2006. This gives the companies who have arbitrarily inflated their business by manipulating financial books a last chance to get transparent.
From early last year until late this year, the Financial Supervisory Service has been offering incentives, such as exemption from supervision and the easing of regulations, to companies who come clean about their inflated holdings in a bid to encourage the voluntary correction of such settlements. So far, only a small number of companies have reported their inflated settlements because the companies still have to take penal responsibilities even though they are to be exempted from administrative punishment by the financial authorities.
This time, a major obstacle that blocked confession of the practice has been removed, as Minister of Justice Kim Sung-ho promised the criminal liabilities will also be lifted. Companies that have had hard times because of their malpractices can now unload their heavy burdens. In this respect, this announcement by the government is very good news to companies who were under heavy regulation.
In fact, to write settlements based on inflated figures is to deceive investors, an unforgivable criminal act. When a company manipulates its financial books at will, financial institutes can’t have trustworthy references to look at when lending money to the company and investors cannot invest into such a company. Earnest and transparent accounting is one of the basic factors that back the market economy.
However, the deep-rooted malpractice of inflating settlements cannot be eliminated overnight. If the government punishes every company that writes their books in deceitful ways, the companies will be damaged severely, probably creating chaos in the entire economy. That’s why such temporary incentives are offered for a limited period of time. That is a confession ritual in which companies confess their wrongdoings of the past and promise they will not do the same again in the future. There is one thing to remember, however, when exempting companies from criminal punishments for now; Past wrongdoings will not be questioned, but if a company makes untrustworthy financial statements in the future, they will be severely punished, without exception.