Argument

Ghosn’s Flight Leaves CEOs Thinking Twice About Japan

A controversial case has put an unwelcome spotlight on the Japanese justice system.

Carlos Ghosn
Pedestrians walk past a screen showing images of former Nissan Motor Co. chairman Carlos Ghosn in a news program in Tokyo on Jan. 9. Takashi Aoyama/Getty Images

The dramatic year-end escape of the auto titan-turned-fugitive Carlos Ghosn, the former chairman of Renault, Nissan, and Mitsubishi Motors, has captured the Japanese popular imagination. All the required elements are there—high-stakes skullduggery, shady international operatives, and bureaucratic slip-ups—in a saga that has seldom been off Japan’s front pages since his equally surprising sudden airport arrest in November 2018 and subsequent fraud charges. But behind the drama of Ghosn himself, the growing problems at Nissan and Renault and the unwanted global attention on Japan’s justice system have meant there are no shortage of losers and few winners.

The most obvious loser remains Ghosn himself, having exchanged what appeared to be almost certain incarceration for a life of limited freedom in Lebanon, with unclear prospects to undertake the globetrotting for which the CEO, who holds French, Lebanese, and Brazilian nationality, was once renowned. While Lebanon does not, in principle, extradite its citizens, a so-called red notice issued by Interpol means that Ghosn would face greater risk of arrest in other countries. Another key loser is the international reputation of the Japanese police and courts—irksome for a country that likes to tout the rule of law to show how it differs from rivals like China.

But Ghosn arguably had some reason to flee. His arrest and subsequent 130 days held in custody before trial, coupled with marathon interrogations without an attorney, have refocused widespread international criticism of a justice system that, while nominally presuming innocence, delivers guilty verdicts with mechanical precision. His flight has now been seized upon by both opponents and supporters of the Japanese system, prompting a hardening in attitude that will likely scuttle any calls for reform. Meanwhile, two of the companies he once ran have themselves been preoccupied with the crisis. Both Renault and Nissan are down over 30 percent since Ghosn’s arrest in November 2018.

Right after Ghosn held a marathon televised news conference in Beirut earlier this month after his late December arrival, Japanese Justice Minister Masako Mori gave her own late-night news conference, defending Japan’s justice system and saying that Ghosn should come back to “prove his innocence.” She had to backtrack slightly afterward to acknowledge that under Japan’s legal system, it is not up to someone to prove that they are not guilty. But the comment is emblematic of Japan’s mixed approach to justice, which some experts say still relies on the premise that the state and prosecutors are usually right. “The prosecution has too much authority and the defense has too little. This would not be the situation if Japan had a bona fide adversarial system, but the fact of the matter is that the balance of power in Japanese courts is skewed,” the legal scholar Keiichi Muraoka said in a January 2019 interview.

Of course, Ghosn isn’t the first person—or even the first foreigner—to feel railroaded by Japan’s legal system. But there’s a big difference when it involves one of the world’s best-known CEOs. While the prospect of arrest is remote for most foreign business executives in Japan, Ghosn’s plight is a vivid reminder of the fact that when things go wrong in Japan, they go seriously wrong. Writing in Chief Executive magazine, Yale School of Management professor Jeffrey Sonnenfeld said that many executives privately cheered Ghosn’s actions. Amid what Sonnenfeld described as increasing concerns for global executives, “Japan’s treatment of Ghosn stands out for its brazen ruthlessness, even more so because it happened in one of the world’s most advanced democracies.” The editorial pages of the New York Times and the Wall Street Journal also found rare common cause by suggesting that Ghosn deserved the benefit of the doubt. There has been no sign of a sudden exodus among expats in Japan (unlike in 2011, when many fled in the wake of the Fukushima earthquake and nuclear crisis) but the risk adds to other negatives, especially the issue of taxation on worldwide income and wealth for anyone staying beyond five years.

It’s all a far cry from when Ghosn first arrived in Japan in 1999, as part of Nissan’s newly formed alliance with the French automaker Renault. Ghosn’s decisive leadership and a cash injection by Renault for a 37 percent stake in the nearly bankrupt Nissan turned its fortunes around. By 2002, Ghosn was a global hero, named Asian business executive of the year by Fortune. In 2016, Mitsubishi Motors was added to the alliance, making it by 2018 the second-largest automaker in the world, with Ghosn the CEO of all three groups.

The case against him began as a fairly technical matter of taxation. Whistleblowers (or backstabbers depending on your viewpoint) compiled what they said was evidence that Ghosn had worked with others to boost his compensation without the proper disclosures. Utilizing a newly introduced plea bargain system, they went to prosecutors, who duly opened a case against Ghosn, the senior Nissan executive Greg Kelly, and the company itself. They then took Ghosn and Kelly into custody as they flew in for meetings that came at the request of company officials in Tokyo.

From here the model began to fall apart. Ghosn was meant to apologize, plead guilty, and likely pay a fine. He could have noted in his defense that many officials within the company, including the board of directors, had at the very least been negligent in approving the measures, which related to future compensation. A later investigation by the head of audit within the company and reported on by the Wall Street Journal identified some 80 people who were involved. The case would have likely closed, with prosecutors chalking up another victory.

Instead Ghosn dug in his heels and claimed total innocence. In response, the prosecutors dug further and found questionable payments to business partners in Oman and Saudi Arabia, raising the issue of whether Ghosn had used company funds to line his own pocket. This is a much more serious case known as “breach of trust,” and Ghosn has had a more difficult time knocking down these allegations.

At this point, Ghosn and his attorneys managed to turn the story in a new direction with a focus on his treatment and the use of what’s referred to as “hostage justice,” in which prosecutors wear down a defendant into confessing even when innocent in order to end their ordeal. Family members said that Ghosn was held in a small cell with no heating, was denied blankets he asked for, could not have pen and paper, and was subject to questioning, with no attorney present, for up to seven hours in a day. (By some accounts, his situation was better than many Japanese inmates. A rather harrowing 1995 account from Human Rights Watch can be found here.)

Justice Ministry officials have quibbled with this figure, saying that questioning averaged no more than four hours daily. Even after Ghosn got out on bail of $14 million, his activities were tightly controlled, and he made much of the fact that he was not allowed to see his wife, Carole Ghosn, who has herself now been charged in the case. Ghosn’s lawyers also complained that the prosecution refused to hand over 6,000 items such as emails from Nissan, saying they were confidential information, demonstrating that the process of judicial discovery in Japan is a long way from U.S. standards.

In the end, Ghosn said he determined that he could never have a fair trial, noting the oft-quoted fact that 99 percent of criminal cases brought to trial in Japan end in a conviction. He is far from alone in attacking the judicial system. Human rights groups, the United Nations, and Japan’s own Federation of Bar Associations have all called for changes to the draconian rules that allow detention for 23 days with no charge, limited access to lawyers, and the use of harsh interrogation techniques to extract the confessions on which most convictions rest. While there have been some reforms in recent years, such as the recording of interrogation sessions to limit compelled confessions, the bar association believes much more needs to be done, saying in an October 2019 statement that “the interrogation-centered investigation and the detention of suspects, dubbed ‘hostage justice,’ continue to be the bedrock of Japanese criminal proceedings.”

At the same time, the Ghosn case has also provided ammunition the system’s defenders, who can now paint him as a fugitive from justice. Masakazu Toyoda, a Nissan outside director from the Japanese Ministry of Economy, Trade, and Industry, when asked about Ghosn’s claim that Toyoda himself was part of a conspiracy against the executive, simply said “I don’t have time to deal with a one-man show by someone who violated the law and escaped justice.” Officials also now defend locking up Ghosn for long periods simply by saying that his escape proves their concern that he was a flight risk.

The affair has also cast fresh attention on the “forgotten man” in the case, former Nissan executive Greg Kelly, who is charged with helping Ghosn. Japanese media have drawn the comparison between the rich executive with global friends and the 63-year-old American who says he was arrested when called to Japan for a company meeting. Ghosn has himself championed Kelly’s plight and the outcome of his trial on the question of the compensation plans, which will now serve as a proxy in the case against his former boss. It’s not certain how Ghosn’s departure will influence his case. On the one hand, prosecutors will want to show there was wrongdoing. At the same time, their methods will be under wider scrutiny in the international arena, with the observation that none of the Japanese executives involved, such as interim CEO Hiroto Saikawa, are in the dock to share the pain.  

But even as they dig in their heels, Japan’s justice officials are going to find the international temperature rising as a partly liberated Ghosn continues to roll out information he says proves that the fix was in place long before his arrest. The Justice Ministry has this week published a cheery Q&A document about how the Japanese system is fine, a clear sign that it is nervous about what is to come. While he has so far avoided naming specific government officials, Ghosn has claimed that he has evidence of direct collusion by the government with Nissan and is reported to be planning a second news conference shortly. That will certainly not be good news for the Japanese ministries trying to attract more foreign investment and senior executives into the country.

William Sposato is a Tokyo-based writer who has been following Japan’s economy and financial markets for more than 15 years.

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