Asia Business Channel

Carlos Ghosn re-arrested and will remain in detention for an extended period

 

Carlos Ghosn, the former chairman of Nissan Motors, who had expected to be released from detention this week, has been re-arrested by prosecutors on new charges of suspicion of aggravated breach of trust, dashing the hopes that he would finally be released from detention over earlier charges that have been filed against him.

The Tokyo District Court on Dec. 20 rejected prosecutors’ request to extend the detention period in relation to Ghosn’s arrest and he had expected to be released on Friday. However, the latest re-arrest means his stay at Tokyo Detention House will now be extended for at least 10 days.

Ghosn, 64, has been detained since Nov. 19, when he was first arrested on suspicion of violating the Financial Instruments and Exchange Law by under-reporting his remuneration as Nissan chairman. He was rearrested on the same suspicion, and is now accused of under-reporting a combined 9.1 billion yen ($81.4 million) over an eight-year period.

Related to the new charges, he Tokyo District Public Prosecutors Office suspect Ghosn violated the Companies Law by having the automaker cover some of his personal expenses, thereby causing financial damage to the company.

According to the Special Investigation Department that made the latest re-arrest, Ghosn signed a contract for currency derivatives trading between the company handling his asset management and a bank. However, that trading led to huge losses.

Prosecutors suspect that in October 2008 Ghosn switched the rights to the contract from the asset management company to Nissan, forcing the automaker to shoulder $16.65 million USD (1.85 billion JYN) in losses. The rights to the contracts were later returned to the asset management company. Ghosn then had a Nissan subsidiary deposit a total of $14.7 million USD (1.63 billion JYN) to a company managed by an individual who provided credit guarantees during the switch in the rights.

Throughout this time, Ghosn was the chief executive officer and representative board member of Nissan. Prosecutors suspect Ghosn breached his trust as a Nissan executive by causing it financial losses in pursuit of his own personal gains.

The asset management company suffered the loss owing to the sharp rise in the yen caused by the collapse of U.S. investment bank Lehman Brothers in autumn 2008. The bank demanded that Ghosn offer additional collateral, but Ghosn instead proposed to transfer all of his rights concerning the contract, including the loss, to Nissan.

The Japan Securities and Exchange Surveillance Commission became aware of this transaction and informed the bank that the move could be considered a possible aggravated breach of trust.

The Tokyo court said in a statement on Friday that the lawyer for Ghosn's former deputy Greg Kelly, who was arrested along with Ghosn, has requested his client's release. Kelly's detention extension was rejected along with Ghosn's.

The dramatic turn of events came hours after Ghosn, through his lawyer and quoted by Japanese public broadcaster NHK, vowed to restore his good name in court and to hold a news conference after his release. Ghosn was quoted as saying: "Things as they stand are absolutely unacceptable. I want to have my position heard and restore my honor in court."

Nissan said after Ghosn’s initial arrest that it unearthed multiple instances of possible wrongdoing in an internal investigation that was triggered by a whistleblower. The internal probe is ongoing, and has included allegations of diverting company funds to pay for personal expenses. Investigators are reportedly looking into the use of overseas subsidiaries in alleged financial misconduct.

The Ghosn case has put Japan's criminal justice system under international scrutiny and sparked criticism for some of its practices, including keeping suspects in detention for long periods and prohibiting defense lawyers from being present during interrogations, which can last eight hours a day.

The case also marked a dramatic fall for the leader of the Nissan-Renault-Mitsubishi alliance who was once hailed for rescuing Nissan from the brink of bankruptcy. Nissan executives have since called for changes in the Nissan-Renault alliance that would weaken the clout of controlling shareholder Renault. While Nissan ousted Ghosn from his role as chairman shortly after the initial arrest, Renault has so far not replaced him.

 

 

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