Ghosn’s Legal Odyssey and What It Says About Japan

(Bloomberg) -- Carlos Ghosn was a jet-setting captain of industry, the C-suite superhero who helped save struggling automakers in France and Japan. That’s why his arrest in Japan on allegations of financial misconduct on Nov. 19, 2018, while he was chief executive of Renault SA and chairman of Nissan Motor Co., came as such a shock. After serving two lengthy stints in jail before being released on bail, all the while professing his innocence and saying the deck had been stacked against him, Ghosn managed to slip out of the country and find sanctuary in Lebanon, where he was raised and has citizenship. Scrutiny of his actions, and the fairness of Japan’s legal system, continues.

1. What are the allegations?

Ghosn, 65, was indicted in Tokyo on charges of under-reporting about $80 million in compensation and income during the fiscal years 2010 to 2014 at Nissan. Ghosn’s pay had been called out before in Japan, where executive compensation is a touchy topic. He’d had a high profile in Japan since 1999, when Renault entered into its partnership with Nissan. Assigned to turn around Nissan, Ghosn reduced purchasing costs, shut factories, eliminated 21,000 jobs and invested the savings into 22 car and truck models in three years.

2. Why the focus on 2010 to 2014?

Starting in 2009, when Japan required companies to make executive compensation public, Ghosn’s reported pay fell to roughly half what he had been making before, but his deferred pay ballooned, according to people familiar with the investigation. Japanese law requires remuneration to be reported in the year it’s fixed, even if the payout happens later. (There are similar rules in Europe.) Ghosn also faces three counts of breach of trust, two of which allege that he used foreign corporate entities in 2017 and 2018 to funnel $5 million from Nissan into accounts that he controlled and used to purchase a yacht and support a technology investment fund started by his son, Anthony. The charges carry a maximum sentence of 10 years in prison. (In September, Nissan and Ghosn settled claims by U.S. regulators that they failed to disclose more than $140 million in pay to Ghosn. His attorneys said they wanted to put that matter behind them to focus on the criminal case in Japan.)

3. Will he ever be put on trial?

Unclear. Lebanon could try him on the allegations from Japan, though Ghosn is regarded by many Lebanese as a national hero. (Ghosn has citizenship in Brazil, where he was born, as well as in Lebanon and in France, where he revived Renault as executive vice president from 1996 to 1999.) Japan may attempt to get him back, though it doesn’t have an extradition treaty with Lebanon -- which, in any case, doesn’t extradite its citizens. Japanese authorities are exploring whether Lebanon would make an exception. It’s also possible that Ghosn could face other charges in Lebanon stemming from business trips he made to Israel. In Japan, Ghosn had been out on bail since last April under stringent conditions -- including that he not leave the country -- while preparing his defense. He had pleaded not guilty to all charges, and his trial was expected to start in the first half of 2020.

4. Who else has been charged?

Nissan has been indicted for under-reporting Ghosn’s income and faces around $6 million in potential fines if convicted. The company said it would strengthen its corporate governance and compliance and file amended financial statements once it has finished the corrections. Former Nissan executive Greg Kelly -- known as Ghosn’s gatekeeper and confidant -- was indicted for allegedly helping him under-report income but was released on bail on Dec. 25, 2018. Kelly has denied the allegations through a lawyer. Days after Ghosn fled to Lebanon, Japanese authorities obtained a warrant to arrest his wife, Carole Ghosn, for allegedly giving false testimony in court. She was with her husband in Lebanon.

5. What does Ghosn say?

“I have not fled justice -- I have escaped injustice and political persecution,” he said in a Dec. 31 statement announcing his arrival in Lebanon. He called the Japanese justice system “rigged” and said he had been deprived of “basic human rights,” including the presumption of innocence. Ghosn previously accused the Japanese government and Nissan of conspiring against him; his lawyer, Junichiro Hironaka, released a video in which Ghosn said “backstabbing” Nissan executives wanted him out because they feared their “autonomy” was under threat. A Paris-based spokeswoman for the Ghosn family has said the reports of payments through intermediaries were part of a smear campaign. In court in early 2019, Ghosn said the agreements for deferred pay were non-binding “draft proposals” and so didn’t need to be disclosed. His French lawyer said Ghosn didn’t get the deferred pay and there is no certainty he ever would have. Addressing a press conference in Lebanon in January, Ghosn said he would stand trial “in any country where I believe I can receive a fair trial,” but didn’t think that was the case in Japan. He said his lawyers told him he might have had to spend five more years in the country before his case would be resolved.

6. What explains Ghosn’s tension with Nissan?

By the time of his arrest, Renault’s decades-old partnership with Nissan had become strained, and Nissan’s then-CEO, Hiroto Saikawa, was trying to rebalance what he and others at the Japanese company viewed as a relationship increasingly tilted in favor of the French carmaker and its most powerful shareholder, the French state. Ghosn had been pushing for an outright merger, which Saikawa and others opposed. Nissan ousted Ghosn as chairman three days after his initial arrest, and the alliance’s other Japanese partner, Mitsubishi Motors Corp., removed Ghosn soon after. The swiftness of those moves fueled conspiracy theories that Ghosn had been the victim of a palace coup in an attempt to curb French influence. (Saikawa has called such theories absurd. In a further twist, he was forced out by the board in September after a scandal over his own pay.) In his video, Ghosn said Nissan executives were mismanaging the company and feared for their jobs. Nissan spokesman Nicholas Maxfield said: “The sole cause of this chain of events is the misconduct led by Ghosn.”

7. What has Renault done?

France’s largest carmaker said it alerted French authorities after finding some of Ghosn’s expenses “involve questionable and concealed practices and violations of the group’s ethical principles.” Results of an audit ordered by Renault and Nissan of their joint subsidiary, Amsterdam-based RNBV, were sent to French prosecutors in July. That report identified 10.9 million euros ($12 million) in questionable spending by Ghosn and others. A spokesman for Ghosn said all the expenses were “authorized and tied to legitimate business purposes.” Ghosn stepped down as Renault chairman and chief executive on Jan. 23, 2019.

8. What is Ghosn’s gripe with Japan’s legal system?

After his first arrest, Ghosn spent more than 100 days in jail and was released on bail of 1 billion yen ($9 million) -- among the highest ever in Japan -- only to be rearrested a month later on new charges. He was granted bail again after three weeks. Initial conditions included restrictions on the use of his mobile phone and the internet. He could only use a computer offline at his lawyer’s office and had cameras monitoring his house. His second release had similar conditions, which the court said were “meant to prevent the destruction of evidence.” While Ghosn was in jail, his wife criticized what she called his “harsh treatment” and said he’d lost 15 pounds (7 kilos). She said the family wasn’t allowed to contact him and that he underwent hours of questioning daily with only limited opportunities to confer with his legal team. Speaking for more than two hours in Lebanon in January, Ghosn called the legal system “anachronistic” and “inhumane,” citing his solitary confinement, hours of interrogation and lack of prescribed medication.

9. Is this how Japan’s legal system is supposed to work?

For the most part, yes. Suspects in Japan routinely endure lengthy pre-trial detentions and repeated grillings by prosecutors without a lawyer present. Periodically rearresting a suspect on suspicion of new charges allows prosecutors to keep the suspect in custody while attempting to build a case or secure a confession. Bail is the exception more than the rule, and judges are less likely to grant bail to those who fight the charges. Legal experts say this is all a strategy to secure a confession. Tight budgets and a culture of wanting to save face mean that prosecutors usually pursue only those cases they are sure to win. In 2015, a trial was requested in just 7.8% of cases overseen by the public prosecutor’s office. That helps explain why more than 99% of cases that go to trial end with a conviction; in England and Wales, for comparison’s sake, the conviction rate is 87%.

10. Is there anything wrong with that?

Maiko Tagusari, secretary-general of the Center for Prisoners’ Rights, said the Ghosn case has highlighted “serious failings” in Japan’s criminal justice system. In 2017 Amnesty International said it had “raised concerns about the lack of rules or regulations regarding interrogations” during pre-trial detentions. The Japan Federation of Bar Associations has called for recording of interrogations. In response, the Japanese government says there are “strict judicial reviews at each stage” to balance the human rights of suspects with the needs of investigators.

The Reference Shelf

• Japan’s Supreme Court outlines the nation’s criminal justice system.
• Ghosn’s escape might make bail even harder to get for foreign suspects in Japan’s legal system.
• Renault and Nissan, without Ghosn, were the worst carmaker stocks of 2019.
• A look back at Ghosn’s rise and fall and at how the global alliance he built moved on without him.
• A legal essay in the Japan Times about Ghosn’s arrest.

--With assistance from Isabel Reynolds, Tara Patel, Kaye Wiggins and Ania Nussbaum.

To contact the reporters on this story: Lisa Du in Tokyo at ldu31@bloomberg.net;Kae Inoue in Tokyo at kinoue@bloomberg.net

To contact the editors responsible for this story: Emma O'Brien at eobrien6@bloomberg.net, Laurence Arnold, Paul Geitner

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