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People who commit financial crimes are entirely motivated by greed. -discuss critically regarding the Dutch company Royal Ahold NV Aholds Case.

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A) People who commit financial crimes are entirely motivated by greed-(re: Ahold)

  1.  A)     People who commit financial crimes are entirely motivated by greed.  -discuss critically re Aholds --3000 words

1) People who commit financial crimes are entirely motivated by greed ---(regarding the Dutch company Royal Ahold NV).  

During may 2006 a court in the Netherlands charged three management personnel of the Dutch company Royal Ahold NV (Ahold) with fraud. The three management personnel were found guilty of accounting deception that nearly sent the company into bankruptcy and the former CEO, Mr. C. van den Hoeven (Hoeven) and the former CFO, Mr. M. Meurs (Meurs) were sentenced to nine month suspended sentences and fined 200 000 euros each. The other executive J. Andreae was a given suspended sentence of four months and fined 120 000 euros and the judge found Hoeven and Meurs did not act because of personal enrichment and greed  but because they did not have a proper comprehension of accounting procedures and little understanding of promotional allowances and that the three had betrayed the trust placed in them by shareholders and damaged the reputation of all Dutch companies.

During the ten years prior to 2003 the Royal Ahold NV (Ahold) went on a buying spree worldwide. Hoeven spent 19 billion euros to purchase 50 new companies around the world and sales grew to 63 billion eurosand Hoeven  allowed all the local operations to control themselves. Ahold used the new companies purchased as the means of growth and Ahold also acquired companies in other fields outside of groceries and foods and that is when the company ran aground on the rocks (Cody 2003).

The fraud consisted of Ahold overstating pre-tax earnings by 966 million dollars and the USA subsidiary company which was called US Foodservice (USF) comprised 856 million dollars of the fraud total (SEC 2004). In February 2003, subsequent to the executives of Ahold stating that the reported earnings were not correct, the share price dropped by 65 percent and the market capitalisation dropped from 30 billion euros to 3.3 billion euros (SEC 2004).The auditor DELOITTE and  TOUCHE found irregularities and issued a letter dated February 2003 stating that it could not stand by the correctness it had certified for the previous accounts it had audited but the SEC commission stated later this was far too late and the irregularities should have been found much earlier (Economist 2003).

In 1993 Hoeven became CEO of Ahold and started the company expanding so as to compete with Walmart and bought supermarket chains all over the world and Hoeven promised in 1993 to achieve 15 percent annual growth per share in earnings and indeed achieved this every year this until 2002. In the USA, Ahold purchased the second single largest food retailer in the USA called USF amongst other retailers it also purchased. After Ahold took over USF in April 2000 KPMG was responsible for financial due diligence and found that promotional expenses had not been properly recorded and a second audit found balance sheet items were not reconciled and the whole promotional expense system from vendors was not correct (SEC 2004).

Despite these gross irregularities Hoeven and Meurs of Ahold went ahead and bought USF.In the subsequent investigation by the SEC it was found that USF had lied about earnings from 1998 onwards and in many cases had just manufactured promotional allowances. That Hoeven and Meurs went ahead with the purchase of USF despite the warnings of KPMG and then did not ever implement any new accounting procedures or replace any of the old management after the change of ownership is totally beyond comprehension. Social Learning Theory (SLT) states persons gain knowledge of crime in a similar way they gain knowledge of conforming behaviour and that is by associating with others and this may describe the crimes committed by the USF management but not the conduct of Hoeven and Meurs of Ahold who went ahead and bought USF despite the reports of irregularities.Albert Einstein stated "Two things are infinite: The universe and human stupidity; and I'm not sure about the universe" (Encyclopædia Britannica 2010).I therefore suggest that Hoeven and Meurs followed what is described as the General Theory of Stupidity by Albert Einstein and it is a truly accurate description of the conduct of Hoeven and Meurs throughout the Ahold collapse. Social Learning Theory (SLT) is stated to be principal or personal groups like groups of equals having a particularly large impression on what we learn and associating with criminal colleagues or friends is the best forecaster of criminal behaviour other than prior criminal behaviour (Croall 2001). SLT states that persons have not to be in contact directly with others to be taught by them and people may learn to start in crime from observing others and this may describe the reason for crimes committed by the USF management. Most of SLT is  involved with the three mechanisms by which persons learn to start in crime from other persons: differential reinforcement, beliefs, and modelling.

Another well-known theory on this subject is the Routine Activities Perspective (RAP) forwarded by Cohen and Felson (1979) and it is stated that crime is largely possible when encouraged criminals get together with tempting targets in the absence of competent and efficient security measures. Ahold should obviously have implemented capable and effective security measures when they acquired USF.

USF bought from vendors and sold to hotels, schools, sport stadiums, restaurants etc. and gained a large part of its profits from promotional allowances and these were rebates from vendors for selling large volumes and for promoting the vendors products. No system was ever in place by the management to determine exact promotional allowances figures and USF stated no written contracts with suppliers were ever entered into regarding the discounts (SEC 2004). Money from suppliers under promotional allowances was credited to a separate account and only totals were then deducted from accrued receivables (SEC 2004). Deloitte during the audit in 2001 stated that the promotional allowances were to be kept on an individual account basis and that it was proving impossible in the audit to reconcile the individual accounts. Deloitte stated that USF management ignored their demands and carried on with the opaque system in-place and stated that it was not possible to reconcile outstanding claims with payments already received (SEC 2004).

For year end accounts USF was supposed to send out statements of account to suppliers setting out transactions and the amount payable by the supplier to USF but in reality only letters from USF to suppliers stating allowances due to USF were sent out. All confirmations of accounts were undertaken by the purchasing department of USF for Deloitte, thus breaking every principal on which independent auditing is based (SEC 2004). Complicating the issue was the fact that USF also had 15 different computer systems from its various acquisitions which it did not integrate and there were no uniform supplier codes anywhere so that when management from USF stated in 2002 that discussions with suppliers resulted in even better allowances and that operating income was higher it was nearly impossible to check this (SEC 2004).

In 2002 USF started buying large quantities of goods from suppliers and booked the promotional allowances before the goods were sold as they realised they were not going to achieve the 15 percent growth over 2001 sales that was group policy. The upper management in USF told all regions to buy large amounts of food thus receiving discounts that varied from 10 percent to 40 percent for USF and the USF employees were made to understand their very jobs were at stake if they did not comply with the instructions to buy huge quantities (Stecklow, Raghaven and Ball 2003). In February 2003 Deloitte advised that three confirmation letters were incorrect and the figures involved were very large ( Stecklow et al 2003).Deloitte advised Hoeven that the amount ran into several hundred million dollars and on 23 February 2003 Ahold announced that the earnings were over-inflated by 500 million dollars. A forensic audit showed that the sum involved for the years 2000, 2001 and 2002 was probably as high as 856 million dollars and gross accounting fabrications were being allowed inside USF ( Stecklow et al 2003). The management at USF were blamed for having a totally opaque accounting system, for failing to track the promotional allowances, for lying about the existence of fixed promotional allowance contracts to Deloitte and supplying false letters of agreement to suppliers stipulating to Deloitte the promotional allowances that were due

( Stecklow et al 2003). The times that Deloitte did send reports to Hoeven and Meurs, they were ignored.

Four upper management of USF were charged with fraud by the SEC as they gained huge bonuses for inflating the earnings of USF and one manager was charged with insider trading (Golden, Skalak and Clayton 2006). Hoeven and Meurs resigned in the wake of this disaster and there was a loss of 1.2 billion dollars announced for trading for just the year 2002 and Table 1 below shows the problems with the accounting in 2000 and 2001. Something that is clearly evident from the Ahold affair is that there should be standard international accounting principles for all international publicly listed companies and not a set of Dutch GAAP rules and then US GAAP rules for publicly traded companies as per the case of Ahold.

Table 1:

Accounting fraud: Dutch GAAP re-statements in 2000 and 2001 and Reconciliation of Dutch and US GAAP net earnings for Ahold



                                                                         Adjustments                                                                    GAAP


Earnings   Goodwill     Provisions  Reorganization    Joint       Software  Financing  Other   Net

                                                                                                  ventures                                                    earnings

1991  125,159          -6,307                                                                                                         13,591     132,444

1992  138,422          -9,471                                                                                                         17,662     146,613

1993  155,698          -11,298                                                                                                       13,286     157,686

1994  185,842          -20,117                                                                                                       12,322     178,047

1995 207,187           -34,050                                                                                                       12,888     186,025

1996 286,982           -36,409     22,689         -36,712            -15,200      -4,300                         13,033     230,084

1997 423,754           -100,647   43,330         -19,890                                                                 -31,585    314,961

1998 547,199           -96,095     -54,535        -7,378                                                                    8,335      397,526

1999 752,107           -147,378   -28,630         -19,202                               10,109                       6,473      573,479

2000 1,115,991       -300,266    -21,434         -1,143                                -5,360                        5,821      793,609

Restated    920,000          -289,000                          -1,000           -57,000        -128,000  -64,000     61,000     442,000

2001  1,113,521       -728,210    -57,556         33,219                                -5,360      -269,970   34,164      119,808

   Restated    750,000          -214,000                           33,000          -588,000     -30,000    -311,000    106,000  -254,000

2002  -1,208,000    -3,225,000                        -26,000          119,000         117,000   -97,000    -8,000      -4,328,000

2003   -1,000           -398,000                            14,000                              -122,000   -133,000  -107,000  -747,000

Note: Table shows the reconciliation of Ahold’s net earnings in Dutch GAAP to US GAAP as originally filed with SEC and later restated in 2002 (in € thousands).   (SEC 2004)          

The collapse in the share price of Ahold is shown in table 2 below.

Table 2 ---Stock price of Ahold from 1995 to 2010  --Koninklijke Ahold NV ADR --- AHONY


Retrieved from http://www.morningstar.com/1/1/4432-ahony-koninklijke-ahold on 20th November 2010

In March 2006 after a long investigation the courts in Holland found that Meurs was to bear the most blame for the accounting fraud and that Ahold was far too concerned with just achieving the double figure growth every year and although it was made aware of the incorrect controls inside USF when the Ahold bought USF, Ahold top management did not react because of a lack of understanding of the accounting methods and principles concerned (SEC 2004, Golden et al 2006).  

The Differential Association Theory of Edwin Sutherland has had critics but it emphasizes two significant factors (Sutherland 1983). Criminal behaviour can be learned and is not related to biology or personality and “peers can be crucial models for the development of values and beliefs favourable to law violation” (Smith and Brame 1994 p. 610-611).  Sutherland also explained that activity that is criminal is not restricted to the working classes or poor but is common in the so-called upper class and the clever and learned also (Sutherland 1983). While Sutherland was the initial person to invent the term “white- collar crime” the motivations for these crimes in the modern context seem to be much more complex and involve a number of theories.

General Strain Theory (GST) followed by Rational Choice (RCT) explains the motivation for the financial crimes of USF. Theories account for the creation of a pressure or pressure cooker atmosphere which converges in GST and then funnels down at a later stage to Rational Choice as pressure is put on management and executives of companies to keep performance and revenue increasing to meet market expectations and pressure is created and general strain exists (Dahlback 2003, Croall 2001, Coleman 1987). How well the management and executives cope with that pressure or strain will determine what occurs subsequently and in the case of USF they were faced with a rational choice, to follow the ethical path or commit a crime (Dahlback 2003, Croall 2001, Coleman 1987). The pressure cooker atmosphere caused by the management of USF resulted in the choice that the risks of the crime were calculated and deemed acceptable and in a society where the penalties for financial crime are lenient many will follow this path to err on the wrong side of the law. Society views white- collar crime differently and often regards it as victimless and this attitude toward white-collar crime is a distortion of our esteem for intellect and indeed the attitude of people towards white-collar crime may be contributing to incidences of financial crime (Stotland 1977 p.179-196). Interactionist Theory states financial crime is the result of individuals trying to live up to expectations of contemporaries and acquaintances and this is where the Interactionist Theory explains that the financial crime at USF may have been from pressure to conform to the economic and cultural expectations of the society we live in. Agnew (1992 p. 47-87) identifies a number of strains persons experience in working life and states that an incapacity to lawfully attain a wanted financial accomplishment is a significant sort of strain. Many upper classes and middle classes in the U.S.A. want more wealth than they can achieve through lawful means and this may explain the cause of what happened at USF (Agnew 2001 p. 162).

In conclusion, because Ahold co-operated with the SEC in the USA, disclosed all the accounting fraud and removed all the management who had caused the problems and thereafter fixed internal controls and accounting procedures and implemented proper corporate governance the SEC did not levy any fines (SEC 2004). Ahold should have implemented these reforms when they bought USF. The Dutch court found Hoeven and Meurs did not act because of greed but because they lacked a proper understanding of accounting procedures and little understanding of promotional allowances. The corporate governance structure that was finally implemented was based on the principals in table 3 below.

Table 3: OECD principles of corporate governance most of which were totally ignored by the Ahold management prior to 2002

Corporate governance should protect shareholder rights

Basic shareholder rights include the right to elect members of the board

Shareholders have the right to participate in decisions concerning fundamental corporate change ((amendments to governance, authorization of shares, sale of the company)

Shareholders vote in general shareholder meetings (whether this is in person or in absentia)

Capital structures and arrangements that give certain shareholders a disproportionate degree of control should be disclosed

Market for corporate control should be allowed to function without anti-takeover devices

Shareholders, including institutional investors, should consider the costs and benefits of their votes

Corporate governance should ensure equitable protection of all shareholders, including minority and foreign shareholders

Corporate governance should recognize the rights of stakeholders as established by law and encourage the active co-operation between the corporation and stakeholders

Corporate governance should ensure that timely and accurate disclosure is made on all matters regarding the corporation (including financial, performance, ownership and governance)

Corporate governance should ensure the strategic guidance of the company, the effective monitoring of the management by the board, and the board’s accountability to the company and shareholders

Board should act on a fully informed basis with due diligence and in the best interest of the

company and shareholders

Board should treat all shareholders equally

Board should ensure compliance with the law

Board should fulfill certain key functions, including

- Reviewing and guiding corporate strategy; setting performance standards; monitoring

implementation and corporate performance; overseeing major capital expenditures,

acquisitions and divestures

- Selecting, compensating, monitoring and when necessary, replacing key executives and

overseeing succession plans

- Reviewing key executive and board remuneration, and ensuring a formal and

transparent board nomination process

- Monitoring and managing potential conflicts of interest of management, board

members and shareholders

- Ensuring the integrity of the corporation’s accounting and financial reporting systems

- Monitoring the effectiveness of its corporate governance practices

- Overseeing the process of disclosure and communication

Board should exercise objective judgment on corporate affairs independent, in particular, from


- Board should consider assigning non-executive members to tasks where there is the

potential for conflict of interest

- Board should devote sufficient time to their responsibilities

Board should have access to accurate, relevant and timely information

Note: Table above is based upon a summary of the Organization for Economic Co-operation and Development’s (OECD) Principles of Corporate Governance authored by the Ad Hoc Task Force on Corporate Governance in 1999.


Agnew, R. (1992) Foundation for a general strain theory of crime and delinquency.
Criminology 30(1): p.47-87.

Agnew, R. (2001) An overview of general strain theory Pp. 161-174 in
Explaining Criminals and Crime. Edited by Paternoster, R. and Bachman, R. Los Angeles: Roxbury Publishing Company.

Cohen, L. and Felson, M. (1979) Social Change and Crime Rate Trends : A Routine Activity Approach. American Sociological Review, 44 (4), 1979, p. 588-608

Cody, S. (2003) The Jay H. Retailing Initiative. Economist 2003

Coleman, J. (1987) Toward an Integrated Theory of White Collar Crime. The American Journal of Sociology, 93, (2).

Croall, H. (2001). Understanding White Collar Crime. Open University Press, Buckingham

Dahlback, O. (2003). Analyzing Rational Crime—Models and Methods. Kluwer. Dordrecht, The Netherlands:

Douglas A. S. and  Brame R. (1994). On the initiation and continuation of delinquency. Criminology 1994.

 Ahold; Europe’s Enron.(2003) Economist.  March 1st 2003

Golden, T.W. and Skalak, S.L. and  Clayton, M. (2006) A Guide to Forensic Accounting Investigation, Case Studies. The Internal Auditor Addresses Fraud, p.173.

Encyclopædia Britannica (2010)  Harper Collins Publishers, 10 East 53rd Street, New York,

Nawaz,  S. and McKinnon, R. and Webb, R. (2002) Informal and Formal Money Transfer Networks: Financial Service or Financial Crime? Journal of Money Laundering Control, 2002, p.333.

Raphael, M. (2010) Time is not right for an economic crime agency. Guardian4 June 2010

SEC (2004) SEC Charges Royal Ahold and Three Former Top Executives with Fraud; Former Audit Committee Member Charged with Causing Violations of the Securities Laws. SEC Publications (no. 2004-144)

Stotland, E. (1977) “White Collar Criminals,” Journal of Social Issues 33, No. 4 (1977), p.179-196.

 Stecklow, S. and  Raghaven, A. and Ball, D. (2003).   How a Quest for Rebates sent Ahold on an Odd Buying Spree. The Wall Street Journal. March 6, 2003.

Sutherland, E. H. (1983) White Collar Crime. Yale University Press, New Haven, Conn. USA

US Department of Treasury (2010) Financial Crimes Enforcement.
US Department of Treasury 2010 Publications Department of the Treasury1500 Pennsylvania Ave., N.W.
Washington, D.C.

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