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As he enters his second week in a Japanese prison, a picture is beginning to emerge of the allegations behind former Nissan Chairman Carlos Ghosn’s stunning downfall.
While few specifics of the financial misconduct allegations against Ghosn, who was arrested in Tokyo on November 19, have been made public by Nissan or the Japanese authorities, media reports detailing the behavior being focused on by prosecutors are slowly filtering out. The Wall Street Journal reported on Sunday that Ghosn told colleagues that he didn’t need to inform regulators about tens of millions of dollars in compensation that was to be paid out at his retirement, potentially shedding light on a key issue in the alleged violations.
Ghosn, who hasn’t made any public statements since he was detained, denies wrongdoing in connection with the allegations, broadcaster NHK reported on Sunday.
The French-Brazilian executive said he was acting appropriately by not including 8 billion yen ($71 million) of so-called deferred compensation in Nissan regulatory filings, the newspaper reported, citing people familiar with Nissan’s internal investigation into Ghosn’s financial affairs. Japanese rules on reporting executives’ future pay leave some room for interpretation, and that ambiguity could provide Ghosn with a line of defense against allegations of wrongdoing, the newspaper said.
Tokyo Jail
A charismatic globetrotter who was the architect of Nissan’s global automotive alliance with Renault SA, Ghosn is now entering his second week in a Tokyo jail, subject to the strictures of a criminal-justice system that lacks many of the protections defendants receive in the US and Europe. Prosecutors may hold him for up to about three weeks without charge, and in that time his lawyer will probably not be present during what are likely to be lengthy and repeated interrogations.
Prosecutors are almost certain to proceed to an indictment after making such a high-profile arrest, Nobuo Gohara, a lawyer and former prosecutor who specialises in financial law, told reporters in Tokyo on Monday.
“There’s a point of no return that’s been reached as far as the public prosecutor’s office is concerned,” Gohara said. What’s more, plea bargains in Japan are permitted only to incriminate others, so there’s no possibility that Ghosn will be able to admit some wrongdoing in exchange for a lighter sentence.
The allegations against Ghosn include under-reporting his income and misusing company funds. Nissan provided Ghosn with six residences, including homes in Tokyo and New York, a company official said on Thursday, asking not to be identified discussing private information. The carmaker also hired his sister on an advisory contract, even though the role had no substance, the official said.
Another Nissan board member, US citizen Greg Kelly, is also in detention. He served as a representative director, a title that carries added authority, and was a “mastermind” behind Ghosn’s compensation arrangements, Nissan Chief Executive Officer Hiroto Saikawa said last week.
Pay Rules
Decisions over executive pay at Nissan were subject to considerably less oversight than at other large companies, thanks in part to Japanese rules that allow wide leeway over how compensation is set.
The company’s corporate governance report explains that "the chairman of the board" - that is, Ghosn, until he was fired on Thursday - "determines the compensation of each director," without the input of an independent advisory committee. That determination, the company said, is based on comparisons with other companies as well as consultation with the two representative directors, one of them Kelly. (The other is Saikawa).
“There are what I would call unusual provisions concentrating power in the chairman and the representative directors, which basically is Ghosn," said Bruce Aronson, a corporate governance expert and former law professor at Tokyo’s Hitotsubashi University. “You read newspaper articles about how he was a micro-manager and how he amassed power, but I’m a little bit surprised to see they formally adopted it into their governance system.”
Ghosn is assembling an elite team of lawyers. In Tokyo he’s hired Motonari Otsuru, the former director of the same Tokyo prosecutors’ office department that’s now investigating him, according to the Asahi Shimbun newspaper. In the US, he’s hired Paul Weiss Rifkind Wharton & Garrison, a prominent Wall Street firm that’s worked with clients including Glencore and Steve Cohen, the billionaire founder of hedge fund SAC Capital.
Based on Japanese prosecutors’ track record, he’ll need them. Japan has one of the highest criminal conviction rates in the world, and prosecutors typically try to use interrogations to extract signed confessions from defendants. If convicted, Ghosn could face up to 10 years in prison, prosecutors said last week.
"Once you are indicted, you are 99.9% likely to be given a guilty verdict," Gohara said.
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