British executive's confession led to Ghosn remuneration saga, problems still abound for Nissan

TOKYO -- "I can't stand it anymore," broached a British senior managing director and executive officer of Nissan Motor Co. to his Japanese colleague in May this year. "Tell me all about it," replied a senior Japanese executive.

A licensed lawyer, the Briton of Malay descent began to divulge a string of confessions about former Nissan Chairman Carlos Ghosn's alleged underreporting of massive remuneration and misappropriation of corporate funds, as well as the director's own involvement in the arrangement. The British executive's revelations led to the arrest of Ghosn six months later.

The man became head of the chief executive officer's office in April 2014, which was in charge of supporting Ghosn's duties as chairman. The office was right next to "Ghosn's Room" on the 21st floor of the Nissan global headquarters in the city of Yokohama, just south of Tokyo.

His promotion to the senior post assisting Ghosn, which some Nissan employees said behind his back "was beyond our wildest dreams," was apparently the result of his long-time involvement in the former chairman's alleged wrongdoing. This was alongside former representative director Greg Kelly, who was arrested on suspicion of breaking the Financial Instruments and Exchange Act with Ghosn in the remuneration scandal. But why did he decide to throw away his high rank and let out the secret?

Before the officer began the confession, Nissan auditors started to ask questions about a Dutch subsidiary of the carmaker established in 2010. A number of expensive houses had been bought for Ghosn in the Lebanese capital of Beirut and other overseas locations through the company, and a secret team had begun a probe into the questionable transactions. "The executive officer is a naturally honest person, and he began to tell us everything when contacted by the investigative team," explained an individual associated with Nissan.

The in-house investigators also got the cooperation of a senior Japanese official from the Nissan secretariat who had been serving the chairman for many years. With the executive officer and the secretary on their side, the investigators were able to accelerate their probe, amassing evidence supporting the allegations by Tokyo prosecutors that Ghosn and Kelly did not report 5 billion yen of the chairman's remuneration from fiscal 2010 through 2014.

Why did former Nissan chairman have to hide his income? A possible factor was criticism in France aimed at pricey executive remuneration at French carmaker Renault S.A., for which Ghosn also serves as CEO. "I guess he tried to evade criticism in France," offered a Nissan executive officer.

When Ghosn won another term as Renault CEO at a shareholder meeting in Paris in June 2018, the internal probe by Nissan entered a critical phase. An individual involved in the investigation recalled that everything was carried out in secrecy. "Because of the nature of the matter, we would have been fired if the former chairman heard about what we were doing," said the individual. "A very limited number of people worked behind closed doors." Keeping the secret was made easier by the absence of the former chairman, who showed up at the corporate headquarters just several days a month.

--- Six months of investigation in secrecy

"Call Nissan lawyers," Ghosn was quoted as saying by people familiar with the situation when he was asked by officials from the special investigation unit of the Tokyo District Public Prosecutors Office to come with them on a voluntary basis on the evening of Nov. 19. The executive, who just arrived at Haneda Airport on a business jet from Lebanon, did not know that the corporation he had led for nearly 20 years already turned their backs on him.

Meanwhile, Kelly was heading to a hotel in Tokyo in a company car after he arrived less than an hour earlier than Ghosn at Haneda on a separate business jet. As the car was on the expressway, the driver received a call: "Please stop at a parking area nearby." When the driver followed the instructions, officials from the prosecutor's office approached Kelly and asked him to come with them voluntarily. Ghosn and Kelly were then arrested inside the Tokyo District Public Prosecutors Office located in the Kasumigaseki district in central Tokyo.

"That day was the only chance to carry out the arrests," explained a senior prosecution official. The two men often stayed overseas, and arresting just one could end with the other not returning to Japan. "If that day was missed, information about the probe could have been leaked and the whole case could have been ruined."

The special investigation unit started a secret investigation into the alleged underreporting case after receiving a tip from Nissan. In July, many prosecutors were busy probing a bribery case involving two senior officials from the Ministry of Education, Culture, Sports, Science and Technology, but a limited number of investigators continued the Nissan probe behind the scenes.

The investigation had a breakthrough in autumn, when the prosecutors succeeded in striking a plea bargain with both the foreign executive officer involved in Ghosn allegedly hiding part of his remuneration and the senior Japanese official at the secretaries' office. Two lawyers who formerly served as prosecutors represented them. The two individuals are said to have played an important role in signing a document stating that the former chairman would receive a part of his massive remuneration following his retirement from Nissan.

The Tokyo prosecutors apparently promised a lenient criminal punishment to the two in return for provision of evidence such as relevant documents supporting the underreporting allegations. Judging that their evidence against Ghosn was strong enough to convict him even if he denied the charges, the special investigation unit began to recruit prosecutors outside their team with a good command of English in preparation for the "D Day" for arresting Ghosn.

The last hurdle the prosecutors had to clear was finding a date when both Ghosn and Kelly would be Japan. The former chairman was scheduled to visit Japan on Nov. 19 for a talk session with Tokyo Gov. Yuriko Koike two days later. Kelly, meanwhile, was only visiting Japan "several times a year," according to a senior Nissan executive. So the company, which was cooperating with prosecutors, approached Kelly and asked for his attendance at a meeting in Japan.

Kelly, who has a medical issue with his neck, was scheduled to receive an operation at a hospital in the United States on Dec. 7. He was initially reluctant to visit Japan, saying he wanted to attend the event via video conference. But Nissan managed to persuade him to come, saying the subject of the meeting would be Ghosn's remuneration.

Most Nissan employees had no idea about the allegations against the former chairman. Several days before his arrest, a Nissan executive was surprised by a revelation from a foreign executive officer about suspicions surrounding Ghosn, as well as the possibility of his arrest.

The two defendants were arrested without knowing they were subjects of a criminal investigation. But Ghosn and Kelly are apparently eager to fight the charges slapped on them by prosecutors. The former chairman retained lawyer Motonari Otsuru, who used to lead the special investigation unit at the Tokyo prosecutors office. Kelly is represented by Yoichi Kitamura, a U.S. law school graduate who won a not guilty verdict for a Japanese man in a high-profile case for the suspected murder of his wife for insurance money in Los Angeles in the early 1980s.

Otsuru led investigations into highly publicized criminal cases involving top businessmen in the 2000s, and was known for his strong-arm style. Now, he will face Hiroshi Morimoto, the current chief of the special investigation unit. Morimoto used to be a "promising leader" among the young prosecutors under Otsuru. Since becoming the special unit's chief, Morimoto has prosecuted a bid-rigging case involving major contractors over the construction of maglev bullet train lines, as well as the bribery case involving two former education ministry officials. The Nissan case is, in a sense, a face-off between former mentor and his one-time protege.

--- Ghosn lost support for favoring Renault

There has been a persistent observation that the case against Ghosn was a "coup d'etat" staged by other Nissan senior officials -- a view denied by the Japanese automaker. According to internal Nissan records, President Hiroto Saikawa learned about the Ghosn case as late as October from an auditor cooperating in the probe against the former chairman. Saikawa was considered one of "Ghosn's children," those well regarded by the former chairman. But he announced his parting from Ghosn when he told a press conference following the top executive's arrest on Nov. 19, "This is a good opportunity to free ourselves from too much reliance on a single individual."

Despite the denial of resistance against Ghosn, distrust of the former chairman was boiling up within Nissan surrounding his policy of seeking managerial integration with Renault, an alliance partner.

Around February this year, Ghosn stopped denying the possibility of a Nissan merger with Renault. It was a direction pushed by the French government, Renault's leading shareholder, and Ghosn could not resist Paris' request if he wanted to be renamed as CEO of the carmaker at the expiration of his term that June. A Nissan executive said the condition set by French President Emmanuel Macron for Ghosn to continue in his position was to "make the relationship between Nissan and Renault irreversible by 2022." Here, "irreversible" meant the integration of the management of the two companies.

Ghosn used to be on Nissan's side, serving as a "seawall" protecting the Japanese automaker from demands from Renault or the French government, according to a former Nissan executive. He won an agreement with Paris in 2015 to respect the independence of Nissan's management. Nissan officials called the arrangement a "nuclear button." A breach of the agreement would have enabled the Japanese to buy more Renault shares to counter the influence of the French carmaker.

Because of this former posture held by Ghosn, an announcement in March of greater integration among Nissan, Renault and Mitsubishi Motors Corp. of equipment procurement and car development came as a major shock for Nissan officials. The step brought the Japanese carmaker much closer to managerial integration than previous measures. "The chairman is serious about integration with Renault, but the company depends on Nissan for development and funds," fumed a male Nissan employee at that time.

Following the announcement, support for the former chairman within Nissan deteriorated rapidly. His failure to face up to criticism over a car inspection irregularities scandal that broke out in fall last year, and his remarks shifting responsibility to Saikawa did not help improve the situation.

Now one month has passed since the arrest of the "charismatic manager." Nissan has dismissed Ghosn as its chairman, and is now engaged in a tug of war with Renault over his successor. The arrest of the former chairman has even led to secret negotiations between the leaders of the Japanese and French governments behind the scenes.

At a Dec. 17 press conference, President Saikawa was asked about his view of the developments, and if there was any miscalculation made on his part. The president emphasized, "We had to put a stop to the serious wrongdoings immediately, and that decision was not wrong." Yet, Nissan still faces a number of serious issues to overcome, including how to maintain their relationship with Renault and the French government and how to improve their corporate governance system, which failed to stop Ghosn and the others. The road ahead for Nissan is far from a smooth ride.

(Japanese original by Kenji Tatsumi, Kazuhiro Toyama and Kim Suyeong, City News Department; Naoya Matsumoto, Shiho Fujibuchi and Toru Yanagisawa, Business News Department; and Kohei Misawa, London Bureau)