Why Monday is a crucial day in the Carlos Ghosn legal drama

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Ghosn has been locked in this Tokyo detention center since his Nov. 19 arrest on allegations of financial misconduct at Nissan. Photo credit: REUTERS

TOKYO — Ousted Nissan boss Carlos Ghosn faces a landmark day in his Japanese judicial ordeal on Monday when prosecutors must decide to either indict or free the jailed auto executive.

Ghosn has been locked in a Tokyo detention center since his Nov. 19 arrest on allegations of financial misconduct at Nissan Motor Co., the company he rescued from near bankruptcy almost 20 years ago and was leading as chairman until dismissed late last month.

He was arrested along with top aid Greg Kelly, an American director on Nissan’s board who has been fingered by the company as the “mastermind” behind the scheme.

Neither man has been officially charged, and both deny any wrongdoing, according to lawyers, people close to their families and Japanese media reports.

Under Japan’s legal system, both can be held for 22 days without charge on the grounds of the original arrest. That deadline comes Monday, when they must be officially indicted or set free.

What could happen? 

But that comes with a huge caveat.

Japan’s system also allows for so-called re-arrest. That maneuver allows prosecutors to arrest suspects again on different grounds and start the detention clock all over again.

The cycle of detention can last a long time. Muneo Suzuki, a former lawmaker in Japan’s lower house of parliament, was arrested on bribery allegations in 2002.

He spent 437 days in detention before eventually being found guilty and sent to prison.

In the Nissan case, prosecutors are widely expected to indict Ghosn and Kelly on Monday for allegedly violating Japan’s Financial Instruments and Exchange Act and also re-arrest them on additional charges, Japanese media report. Nissan, as a corporate entity, is also expected to be indicted for allegedly breaking the same law.

Prosecutors originally picked up Ghosn and Kelly to scrutinize his alleged under-reporting of compensation in the 2010-2014 fiscal years. The Dec. 10 indictment would cover that period.

The re-arrest would cover additional under-reporting in the fiscal years 2015-2017.

Internal investigation

Nissan’s internal probe of the matter accuses Ghosn of hiding some 9 billion yen ($ 79 million) in deferred compensation over those eight years in a setup that would have him paid later.

Nissan has been cooperating with investigators, the company has added.

A person familiar with the matter said Nissan had been preparing for the possibility of charges against it since the allegations against Ghosn and Kelly first emerged last month.

Prosecutors say deferred compensation needed to be fully reported by Nissan in securities filings, even though the amount hadn’t been paid out yet, because it was a future liability against the company, a person familiar with the matter said. An internal probe by Nissan has identified some $ 80 million in unreported deferred compensation promised to Ghosn, the person said.

News that the company may also be indicted adds a new wrinkle to the unfolding scandal.

Nissan responsibility

CEO Hiroto Saikawa apparently signed documents relating to plans to pay Ghosn’s deferred compensation after he retires in the form of a consultant fee, the Nikkei said.

But Saikawa apparently didn’t understand that the document was designed to set up deferred payments, and prosecutors believe he was not involved in misstating regulatory filings, it said.

Prosecutors face hurdles in trying to convict Ghosn, said Masaru Wakasa, a former deputy at the Tokyo prosecutor’s special investigation.

They must prove that the amount and timing of future payments are definite, Wakasa said. They must also show that there was an obligation to report the payments in financial statements.

That gives Ghosn’s defense team some wiggle room to fend off charges, Wakasa said.

But Wakasa added that Japan’s methodical prosecutors will likely have already attained a ruling from the country’s Financial Services Agency that such financial reporting is necessary; otherwise they wouldn’t be as confident as they apparently are in pursuing the case.

“Financial statements are an important tool to report to stakeholders, so making a false report in a financial statement is tantamount to deceiving stakeholders. So, this can constitute an actual crime,” Wakasa said. “The investigation is now leaning in the direction prosecutors are aiming.”

Re-arrest likely

Prosecutors are likely to re-arrest Ghosn on further charges on Monday and then re-arrest him again after that period elapses later in the month, Wakasa predicted.

“Chances are high that he will stay in detention until at least the end of this year,” he said.

Japan has no pre-indictment bail system, so if Ghosn is rearrested, his detention will continue.

If he were indicted and not re-arrested, Ghosn could qualify for bail, raising the prospect of Ghosn being freed before trial. But it is expected that his passport would be confiscated to prevent him from leaving the country. That has spurred speculation by some in Japan that the embattled executive could hole up in the French embassy in the interim.

Under that scenario, Ghosn, a French citizen, would possibly have greater access to legal resources and potentially better diplomatic cover from future arrests or investigations.

— Naoto Okamura contributed to this report. 

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