Tokyo prosecutors have formally indicted Carlos Ghosn, the former Chairman of Japanese automaker Nissan Motor with financial misconduct for under-reporting his income.
Prosecutors have also charged Nissan Motor Corporation with complicity and misconduct, which makes the company culpable for the financial misconduct scandal that has shocked the industry.
Ghosn, one of the world’s most well known automotive executives, was arrested by Tokyo police on Nov. 19 on suspicion of conspiring to inaccurately report his income over an eight-year period so that he could defraud the government of taxes. Ghosn has been held in a Tokyo jail since his arrest for questioning, but had not been officially charged until now.
Greg Kelly, Nissan’s Representative Director was also arrested at the same time as Ghosn, and has also been held in the same Tokyo detention center as Ghosn. Prosecutors announced on Monday that they were also indicting Kelly for financial misconduct for conspiring with Ghosn to hide financial information from regulators and the Nissan board.
Ghosn and Kelly have not been allowed by prosecutors to make any public statements, and they have not made any statement through their lawyers, but Japanese media have reported that both Ghosn and Kelly deny the allegations against them.
Nissan, indicted for filing false financial statements, said it takes the charge seriously. A spokesman for the company said: "Making false disclosures in annual securities reports greatly harms the integrity of Nissan’s public disclosures in the securities markets, and the company expresses its deepest regret."
Japan’s securities watchdog, the Securities and Exchange Surveillance Commission (SESC) has ordered Nissan to update and file new financial reports for the years in question and has said the financial misconduct crime carries a maximum fine of $6.2 million USD.
The role of Hiroto Saikawa, the Chief Executive at Nissan is also being looked at and one person familiar with the case said: “It becomes difficult to overlook Saikawa’s role in all of this. That becomes the main focus now."
The arrest of Carlos Ghosn’s marks a dramatic fall for a leader once hailed for rescuing Nissan from the brink of bankruptcy. If convicted of the crimes he’s being charge with, he could face up to 10-years in prison.
Ghosn’s arrest has also cast a harsh spotlight on the Japanese legal system and its ability to hold people in detention for “indefinite periods” of time. Ghosn and Kelly have both been kept in a small cell with only a bed and toilet and are only allowed to shower and shave twice a week.
Under Japanese law, people can be detained “indefinitely” while being investigated and human rights organizations around the world have said the harsh detention facilities and austere regime are designed to make people “break” and accept the charges of prosecutors and sign documents admitting their guilt. This “system” is what leads prosecutors to have a 98% conviction rate.
Asked about criticism that Japanese prosecutors often try to force confessions from suspects, Shin Kukimoto, Deputy Prosecutor at the Tokyo District Public Prosecutors Office said no such method was being used with Ghosn and Kelly.
Kukimoto said: "Questioning is by no means being conducted in a way that forces confession," he told a news conference. "It’s my understanding that both of them are being treated appropriately at the Tokyo Detention Center."
The arrest of Ghosn and Kelly has shaken up the foundations of the Renault-Nissan alliance. The key question is whether and how the ownership structure of the alliance might change. Ghosn, before his arrest, had been advocating for a deeper tie-up including a possible full merger between Renault and Nissan.
Renault holds a 43% stake in Nissan, while Nissan has a non-voting 15% stake in the French automaker. Many executives at Nissan believe that the equity positions are unequal and are against a deeper merger. They point to the fact that while Renault did save Nissan from financial problems years ago, the current situation is that Nissan dwarfs Renault in global sales and that while cross investments are okay, Nissan should never merge fully with Renault.