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Hi Blog. Debito.org has been holding back on commenting on the Carlos Ghosn arrest. A former president of Nissan and Mitsubishi, Ghosn was a hero in many circles for saving the formerly struggling Japanese automakers and making them world players again. (Disclosure: I’ve owned a number of Nissans, and found their quality improved over the years.) So imagine everyone’s surprise (not the least his) when he’s returning from an overseas meeting last November and suddenly gets arrested at Haneda Airport (along with a fellow NJ associate), and thrown in the clink without trace for the standard 48 hours without charge, then a couple of ten-day periods before re-arrest and repeat.
The reason Debito.org has been holding back is because, well, actually, what happened to Ghosn after arrest is not all that surprising from a jurisprudential perspective. This could happen to anyone regardless of nationality (excepting the general denial of bail for NJ). And I personally have to admit feeling just a shade of schadenfreude for a filthy-rich one-percenter getting taken down a peg.
Truth is, I wanted to see if he’d get the standard treatment afforded most perps in Japan — a few weeks, months, or even more than a year of disappearing while being put under constant duress until you sign a confession (aka “hostage justice“). Plus the standard treatment given NJ under arrest — an additional presumption of a lack of human rights for foreigners. More on all that in my book Embedded Racism, Ch. 6, “A Chinaman’s Chance in Japanese Court”. I did comment on Ghosn for The Japan Times in my annual year-end round-up Just Be Cause column (published version here, “Director’s Cut” here).
Well, Ghosn has gotten the treatment. Except for the fact he’s been able to communicate with the media in high-profile interviews. More on that below. So here’s Debito.org’s long-awaited comment about the Ghosn Case (from that “Director’s Cut”):
DEBITO.ORG COMMENTS: The former CEO of Nissan and Mitsubishi motors (but remaining as CEO at Renault), Ghosn was arrested last November and indicted in December for inter alia allegedly underreporting his income for tax purposes. As of this writing, he remains in police custody for the 23-day cycles of interrogations and re-arrests, until he confesses to a crime.
This event has been well-reported elsewhere, so let’s focus on the JBC issues: Ghosn’s arrest shows how far you can fall if you’re foreign. Especially if you’re foreign.
One red flag was that the only two people arrested in this fiasco have been foreign: Ghosn and his associate, Greg Kelly. Kelly is now out on bail due to health concerns. But where are the others doing similar malfeasances? According to Reuters, Kobe Steel underreported income in 2008, 2011, and 2013, and committed data fraud for “nearly five decades.” Same with Toray and Ube Industries, Olympus, Takata, Mitsubishi Materials, Nissan, and Subaru.
Who’s been arrested? Nobody but those two foreigners.
And Japan’s judicial system has a separate track for NJ suspects, including harsher jurisprudence for NJs accused of crimes, lax jurisprudence for NJ victims of crimes, uneven language translation services, general denial of bail for NJ, an extra incarceration system for subsequent visa violations while in jail, and incarceration rates for NJs four times that for citizens. (See my book Embedded Racism, Ch. 6.)
Most indicative of separate and unequal treatment is that some of the accusations, which fall under a statute of limitations of seven years under the Companies Act, are still applicable. Prosecutors have argued that statutes do not apply to Ghosn because he spent time overseas. Apparently even the passage of time is different for foreigners, because the clock stops if they ever leave Japan!
It’s Debito.org’s view that this is a boardroom coup. The Wall Street Journal has reported that Ghosn was planning to oust a rival, Hiroto Saikawa, who has since taken Ghosn’s place as CEO. A similar thing happened to at Olympus in 2011, when CEO Michael Woodford broke ranks and came clean on boardroom grift. He was fired for not understanding “Japanese culture,” since that’s the easiest thing to pin on any foreigner.
But in Woodford’s case, he was fired, not arrested and subjected to Japan’s peculiar system of “hostage justice” police detention, where detainees are denied access to basic amenities (including sleep or lawyers) for weeks at a time, and interrogated until they crack and confess, with more than 99% conviction rates.
The good news is that finally overseas media is waking up to what Japan’s Federation of Bar Associations and the UN Committee Against Torture have respectively called “a breeding ground for false charges” and “tantamount to torture.” Funny thing is, if this had happened in China, we’d have had howls much sooner about the gross violations of Ghosn’s human rights.
(Source on “statute of limitations does not apply:” “Japan’s Companies Act has a statute of limitations of seven years. Prosecutors argue this does not apply due to the amount of time Ghosn has spent outside the country.”
Other irregularities noted in the JT by Glen Fukushima: https://www.japantimes.co.jp/opinion/2018/12/20/commentary/japan-commentary/seven-questions-ghosn-nissan/)
Well, the news is now Ghosn’s case has been picked over by the media (the charges are being called “thin soup” below). And Ghosn’s high-profile status has enabled him to get a high-profile interview with the Nikkei newspaper below (for fifteen minutes, with a five-minute extension). Few if any other people incarcerated in this system have this much ability to draw attention and make their case to the public.
Moreover, since Ghosn’s Japanese language abilities are probably not at the level of the language in his interview, it’s reasonable to assume the interview was in English. In my direct experience in dealing with other incarcerated foreigners, if they talk with anyone they must do it with a guard present, and they must speak in Japanese at all times so the guard can understand what’s being said. Ghosn’s ability to get around that rule seems to be another trapping of his privilege.
That’s a bit annoying. But if it eventually shines light on an abuse of the Japanese judicial system in specific (i.e., uneven enforcement of the law), and shames Japan into reforming its “hostage justice” interrogation system in general, then some good may come of it.
In the end, the Ghosn Case, on top of the the Woodford Case, remain excellent reasons why foreigners shouldn’t hope to become executives in Japanese companies. One boardroom coup later by the nativists, you could be in jail for being CEO while foreign. Debito Arudou, Ph.D.
NISSAN’S GHOSN CRISIS
Exclusive interview: Ghosn says ‘plot and treason’ led to arrest
Ex-Nissan chief claims rivals wanted to ‘get rid’ of him
Nikkei Asian Review, Nikkei staff writers, January 30, 2019
In his first interview since being detained on Nov.19, ousted Nissan Chairman Carlos Ghosn claimed that certain people had “distorted reality” for the purpose of “getting rid of him.”
TOKYO — Former Nissan Motor Chairman Carlos Ghosn told Nikkei in an exclusive interview Wednesday that he had “no doubt” that the charges against him were the result of “plot and treason” by Nissan executives opposed to his plan for deeper integration between Renault and its two Japanese alliance partners.
Speaking on the 10th floor of the Tokyo Detention House, dressed in a black fleece jacket and gray sweatpants, Ghosn acknowledged that “there was a plan to integrate” Renault, Nissan and Mitsubishi Motors. The plans had been discussed with Nissan President Hiroto Saikawa in September, he added.
In his first interview since being detained on Nov. 19, Ghosn claimed that he had wanted to include Mitsubishi Motors CEO Osamu Masuko in the talks, but “Saikawa wanted it one-on-one.”
Once the three automakers were more closely integrated, Ghosn wanted to ensure there would be “autonomy under one holding company,” he said, adding that this plan was in line with how he had operated the alliance in past years.
Allies of Ghosn’s have argued that some Nissan executives feared a further concentration of power under his leadership, prompting them to cooperate with Tokyo prosecutors.
Nikkei had been requesting a one-on-one interview with Ghosn since his arrest last year. The approval was granted this week.
Ghosn was allowed by the Tokyo District Court to speak with Nikkei. Media interviews with prominent business leaders in detention are extremely rare in Japan.
“We don’t have much time. Let’s get started,” Ghosn said at the beginning of the interview from behind the acrylic glass partition. As the end of the allotted 15 minutes approached, he asked the officer for “a little more” time, and was granted a five-minute extension.
The Brazilian-born tycoon has dismissed accusations that his 19-year reign at Nissan was a “dictatorship,” saying this was a narrative created by rivals who wanted to remove him. “People translated strong leadership to dictator, to distort reality” for the “purpose of getting rid of me,” he added.
Ghosn has been held without bail for more than 70 days since Tokyo prosecutors arrested him on allegations of financial misconduct.
He was charged with underreporting his salary over several years, and aggravated breach of trust for allegedly transferring to Nissan personal trading losses from foreign exchange contracts.
The breach-of-trust charges center on $14.7 million in payments to a company run by Saudi businessman Khaled al-Juffali.
He denied the accusations and claimed “the executive in charge of the region signed [the approval].”
The payment was made from Ghosn’s “CEO reserve,” a pot of money that he was free to decide how to spend. He said the “CEO reserve is not a black box” and “four officers signed” for the payment to al-Juffali.
Ghosn is also accused of receiving 7.82 million euros ($8.9 million) in improper payments through Nissan-Mitsubishi B.V., a Netherlands-based joint venture between the two Japanese companies. He said the venture was established for “synergy and not for payment,” adding that the claims of improper payments were a “distortion of reality.”
Ghosn said his purchase of luxury properties in Rio de Janeiro and Beirut — which Nissan alleges were paid for improperly through a subsidiary — were approved by the legal department. Pointing to a former loyalist and long-time executive in the legal department, Ghosn said: “Hari Nada has done all this.”
He justified the houses on the grounds that he “needed a safe place where [he] can work and receive people in both Brazil and Lebanon.”
“[Have I] done [something] inappropriate? I am not a lawyer, I don’t know the interpretation of [such] facts,” Ghosn said, showing his frustration over Nissan’s internal investigation.
“These are known by everybody, why didn’t they tell me?”
Ghosn, whose second bail request was rejected Jan. 22, insisted that he was not a flight risk and he would not destroy evidence.
“I won’t flee, I will defend [myself],” he added. “All the evidence is with Nissan, and Nissan forbids all employees to talk to me.”
When asked about life in the detention center, Ghosn said “there is up and down.” As for his health, he simply said he was “doing fine.”
After his arrest, Ghosn appeared to have envisioned attending a Renault board meeting in Paris, explaining his position, and holding a news conference. But his prolonged detention in a Tokyo jail frustrated those plans.
Nissan dismissed Ghosn from his position as chairman in November. An extraordinary general meeting of shareholders scheduled in mid-April is expected to remove Ghosn as a director.
Ghosn resigned as chairman and CEO of Renault, and former Michelin chief Jean-Dominique Senard was appointed as the chairman.
The three members of the alliance are expected to revisit how it is operated in the absence of Ghosn’s leadership. “I cannot speculate about the future of the alliance,” Ghosn said.
The French government, Renault’s largest shareholder, has previously requested Ghosn make the relationship between the two automakers “irreversible.”
Following Ghosn’s arrest, France also informed Tokyo of an intention to press ahead with integration. Saikawa, in contrast, has insisted there is “no need for now to discuss [it].”
Interviewed by Nikkei commentator Atsushi Nakayama and Nikkei staff writers Akito Tanaka and Yosuke Kurabe.
Ghosn charges are thin soup — case for ex-Nissan boss
Prosecutors fail to make a strong case against car maker’s former chief
By Stephen Givens, Nikkei Asian Review, January 29, 2019
Two months after his arrest at Haneda Airport and confinement at Kosuge detention center, we now have a good picture of the criminal case against Carlos Ghosn-and it looks like pretty thin soup.
As reported in the media, the evidence shows not criminal malfeasance, but at most lapses in judgment and corporate protocol that ultimately did not result in any actual harm to Nissan Motor or its shareholders or personal enrichment of Ghosn.
The criminal case turns on a series of technical and subjective judgments about whether the words of the relevant statutes and regulations apply to the transactions in question.
By any objective measure, the misconduct alleged was less serious than the corporate misfeasance that is routinely overlooked in Japan or handled by noncriminal administrative wrist-slapping.
The first, and for many weeks the only, criminal charge brought against Ghosn was that Nissan’s periodic securities filings disclosed just the currently payable portion of his compensation. They failed to report the portion deferred until after his retirement.
Ghosn’s motive for not wanting to report his full compensation currently-that it was embarrassingly large in relation to that of other Japanese CEOs and Ghosn’s Nissan colleagues — does not constitute serious criminal intent.
Further, the evidence indicates that Ghosn tried in good faith to structure the deferred compensation in a way that would permit him legally not to report it currently under the rules, which require current reporting of director-level compensation only to the extent the right to receive it has become “clear.”
Though the documentation has not been made public, it appears that it was structured as some kind of post-retirement consulting arrangement that would, at a minimum, require Ghosn to provide Nissan with services after retirement to collect the compensation.
It is hard to imagine that Nissan would have failed to report Ghosn’s deferred compensation over many years without professional legal advice that it did not need to be currently reported because Ghosn’s right to receive it was conditional.
It is equally hard to understand why Nissan’s Japanese management, having condoned the deferred compensation arrangement and its nonreporting for years, is now using it as the lead card in the criminal case.
Beyond this, criminal liability under the Financial Instruments and Exchange Act for false disclosure is explicitly predicated on the requirement that it be “material”- that is, it would have a significant impact on an investor’s decision to sell or buy Nissan shares.
For investors, the amount of Ghosn’s unreported deferred compensation, about $10 million per year, is clearly very small compared to Nissan’s $90 billion in annual revenues.
Meanwhile, Japan’s weak securities disclosure standards permit Nissan not to reveal information that would be much more relevant to investors, such as the terms of the “alliance” contracts between Renault, Nissan’s major shareholder, and Nissan.
It does not inspire confidence in Japan’s justice system that Ghosn’s guilt or innocence on the this charge will hinge on semantic distinctions over the meanings of “clear” and “material.”
The second criminal charge against Ghosn is for two, related claims of “aggravated breach of trust” under the Companies Act. This vaguely-worded statute imposes criminal liability on directors of a company who for personal gain “commit an act in breach of such person’s duties and causes financial damages” to the company. Typically this statute is applied to cases of embezzlement-executives taking company assets.
The first prong of the breach of trust charge has been loosely characterized in the press as “the shifting of Ghosn’s personal foreign exchange losses to Nissan” but details of the transactions disclosed by Ghosn’s lawyers show it to be less pernicious than advertised.
Ghosn entered into a foreign exchange hedging transaction with Shinsei Bank to protect his yen-denominated Nissan compensation against the risk of depreciation. Like many others he failed to anticipate the financial crisis of 2008, which sent the yen soaring and reduced the value of the Nissan securities he had offered Shinsei Bank as collateral.
Shinsei Bank asked Ghosn for additional security. Ghosn considered offering the value of his uncashed Nissan retirement allowance-but doing so would have required him actually to leave Nissan at a time he was a vital part of the management. Instead, he asked Nissan to guarantee his downside risk on the hedge, but pledged to fully cover the liability.
Critically, Ghosn’s request for help with his unexpected difficulty received formal approval by the Nissan board. Admittedly the Securities Exchange Surveillance Commission (SESC), deemed the transaction improper a few months later and ordered Nissan to get rid of the hedging contract.
So, Nissan carried a contingent liability — fully guaranteed by Ghosn — as an accommodation to its CEO for approximately four months. Nissan suffered no actual loss and was never at risk because it was fully covered by Ghosn’s retirement allowance. The transaction was not concealed; it was approved by the Nissan board and reported to the SESC, which saw no reason to request a criminal probe a decade ago.
So, you may ask, where is the crime? According to news reports, it turns out the prosecutors are not satisfied with the drafting of the board resolution. They are quibbling that the board resolution did not mention Ghosn by name and only referred generically to “foreign board members” as beneficiaries of the transaction. Moreover, the prosecutors are claiming the resolution was not specific on how Nissan was to be protected with 100% certainty against possible loss. Ghosn’s criminal liability turns almost entirely on the wording of a board resolution that Ghosn himself surely did not draft.
The second prong of the breach of trust charge relates to the subsequent transfer, in compliance with the SESC’s order, of the Shinsei Bank contract from Nissan to companies controlled by Saudi national Khaled Juffali. Nissan affiliates in the Middle East paid Juffali’s companies $14.7 million over four years for variety of “support activities” in the region. The prosecutors claim that Nissan’s money was paid for Juffali’s guarantee of Ghosn’s personal contingent liability.
It seems unrealistic, however, that anyone would pay $14.7 million of Nissan money for a guarantee of a contingent liability worth at most $16.7 million-a huge overpayment.
This strongly suggests that Juffali’s companies were being paid for doing more than simply backing Ghosn’s Shinsei liability. The more commercially-likely scenario is more innocuous, one in which Ghosn asked a friendly business counterparty to assume an essentially riskless contingent liability as a favor in the context of a long-term business relationship. This represents the kind of mutual exchange between companies with long-term relationships practiced daily by the Japanese corporate establishment.
No question, a more scrupulous and careful executive would have avoided pushing the gray boundaries of the law. But nothing we know that Ghosn allegedly did smells like a serious crime deserving prison. That he remains in confinement while the prosecutors argue semantics to deprive him of his freedom places Japan’s criminal justice system in an awkward light.
Stephen Givens is a corporate lawyer based in Tokyo.
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