Literature on asset stripping has almost exclusively presented the problem as one belonging to transitional economies with poor corporate governance (Section 2). However, illegal asset stripping can also take place in market economies. The purpose of this paper is to document and analyse the occurrence of such a scheme, in which solvent shell companies in Denmark were stripped of their assets leaving the companies with nothing but tax debt. The illegal asset-stripping schemes took place in Denmark in the period from 1987 to 1994, and the following legal showdown is just about to be finally settled. It is estimated that approximately 1,600 cases resulted in a loss of around DKK 2 billion (approximately 266 million by the current rate of exchange) in tax revenue for The Danish Tax and Customs Administration (DTCA)1. It was equivalent to approximately 0.2 per cent of the Danish GNP at the time, and the great losses caused the then Minister of Taxation to call the asset-stripping schemes for “the greatest robbery in Danish history” ( Mynderup, 1996 ). The Danish asset-stripping case contributes to fraud knowledge in two ways. First, it provides evidence that asset stripping may be a problem in mature market economies too, thus adding asset stripping to the detailed fraud overview presented by Wells (2005) . Second, the case may contribute with knowledge about the circumstances, under which asset stripping can become a problem in a mature market economy with strong corporate governance.
The paper is organised as follows. In Section 2, the literature on asset stripping is reviewed. It defines the concept and shows that it is mainly considered a problem in transitional and developing economies. Section 3 outlines the research method, and Section 4 presents the Danish asset-stripping case in details. Section 5 analyses the case according to the theory of the fraud triangle to explain why it occurred, and Section 6 concludes and discusses the perspectives of the findings.
Although this paper deals with asset stripping as a type of fraud, it is important to keep in mind that asset stripping is not always a fraudulent activity. Asset stripping is commonly defined as the process of buying a company where the market capitalisation is below the underlying asset value with the purpose of selling off the assets individually for a profit2. As such, asset stripping may release hidden value and improve the accuracy by which businesses are valued, thus creating more efficient financial markets. The positive version of asset stripping is based on the assumption that the stripped company continues as a going concern. Under insolvency law, asset stripping is usually illegal because it denies creditors the real value of the stripped assets when the original company is liquidated. As a point of departure, asset stripping is therefore not illegal, nor does it create unjust advantages. Nevertheless, the concept is often used pejoratively, possibly because the asset stripper is seen as a person who focuses on the immediate profits and has little or no concern for the purchased company's employees or other stakeholders.
In his typology of occupational fraud and abuse, Wells (2005) does not discuss asset stripping although it may be seen as either an “asset misappropriation” of “inventory and all other assets” or as a “conflicts of interests” type of corruption, depending on the characteristics of the particular scheme. This is possibly due to Wells' focus on personal enrichment as evidenced in his definition of fraud as “the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets” ( Wells, 2005, p. 8 ). Fraud is broadly defined by the International Standard on Auditing 240 as “an intentional act involving the use of deception to gain an unjust or illegal advantage” (ISA 240, paragraph 6), which means that asset stripping is fraudulent to the extent that it creates an unjust or illegal advantage to someone other than the stripped company and its legitimate creditors.
Reportedly, the stripping of assets to gain unjust or illegal advantages has been a major problem in countries that are making a transition to market economy. In eastern Europe and China, managers of state-owned companies have been known to sell the assets under their control, leaving behind nothing but debt to the state ( Hoff and Stiglitz, 2004 ; Ding, 2000 ; Karklins, 2002 ). Accordingly, Campos and Giovannoni (2006, p. 684) define asset stripping as the process by which:
[…] insiders in state owned enterprises will be able to sell their assets at a price that is lower than the price buyers would have to pay anyone in the private sector, possibly in exchange for a bribe.
Asset stripping is considered to be inherently easier in state-owned enterprises because they have weaker corporate governance, and because civil servants are considered more vulnerable to the influence of asset strippers. However, asset stripping may also be a result of the process of privatisation of state-owned enterprises. According to Hoff and Stiglitz (2004) , asset stripping in Russia was the result of the Big Bang privatisation in the early 1990s before the institutions to secure the enforcement of property rights were in place. This led to massive insecurity, which caused asset stripping and capital flight out of Russia3. Having stripped assets, management in turn got an interest in prolonging the absence of the rule of law, making the system self-reinforcing. Consequently, China and Russia are characterised by poor regulatory oversight of poor financial systems ( McCusker, 2004 ).
Asset stripping is most likely to take place in relatively large firms with political power, because the cost for governments of intervening against them (in terms of lost bribes and political support) is larger than the benefits of reclaiming the stripped assets ( Campos and Giovannoni, 2006 ). Furthermore, the study shows that firms with intermediate levels of potential profitability are most likely to strip assets. In firms with relatively low efficiency, the payoff appears to be too low for asset stripping to occur, and in firms with relatively high payoff, there is apparently no need run the risk of stripping the assets. These findings led Campos and Giovannoni (2006) to suggest that asset stripping may well be a problem in developing countries too, a suggestion that is backed by Medeiros' (2009) account of privatisation in Latin America.
Although asset stripping is considered a serious problem in transitional and developing economies, asset-stripping schemes may also be a problem in market economies. Studies in transitional economies have shown that asset stripping is likely to take place in large and powerful companies with intermediate profitability. That may very well turn out to be true to some extent for mature market economies as well. A large private company may certainly hold a great deal of political power, in particular when its products or services are vital to society. However, in these cases corporate governance systems are usually in place and the quality or price of the service is often regulated. Regulated companies have incentives to strip their assets to unregulated subsidiaries, thereby transferring revenue to them. Such a case of asset stripping by a regulated utility holding company, AT&T, was studied by White and Sheehan (1992) . The case describes how AT&T attempted to strip the lucrative Yellow Pages operations in favour of an unregulated subsidiary with the purpose of depriving the local telephone service revenue pot from the Yellow Pages' profits. The revenue pot was used to keep local telephone rates low, and thus asset stripping would give AT&T an unjust advantage at the expense of its customers. In another study, Eddey (1991) state that “corporate raiders” are often suspected of having asset stripping as a motive in connection with hostile takeovers of companies, but finds little evidence of this in Australian data from the late 1980s. Apart from these two studies, database research4 of asset stripping in mature market economies does not reveal any further research on the subject. Whether this is attributable to the absence of asset stripping in market economies or simply is caused by the general neglect of research on corruption in the private sector ( Chaikin, 2008 ) remains an open question. The Danish case which is described in Section 4 points to the latter explanation.
The research is conducted as a longitudinal single case study ( Yin, 1994 ), where the case unit is the asset-stripping schemes in the private sector in Denmark. Accordingly, the case starts in the mid-1980s and ends in 2009 with the last verdict of a prominent asset stripper. There are two rationales for using the single case approach. First, the asset-stripping schemes known in Danish as “selskabstømning” has not been documented internationally since Kruse's (1995) very brief initial call of attention to the problem5. Although asset stripping in transitional economies is fairly well documented, the number of case studies in developed market economies is scarce as documented in Section 2. Consequently, the single case approach may be justified as a revelatory case ( Yin, 1994 ), documenting a new type of asset stripping and thus supplementing the knowledge about the circumstances, under which asset stripping may be problematic in mature market economies. Second, the single case approach is justifiable because it allows us to test or develop the common categorisation of fraud types...