Ghosn’s fate may hang on complex financial web in Middle East

Tokyo: Soon after Carlos Ghosn was taken into custody last fall, kicking off a bizarre legal odyssey that’s transfixed the automotive world, some wondered whether the financial crimes he’d been accused of were serious enough to warrant the shocking arrest of Nissan Motor Co.’s fabled chairman.

Turns out that was just the opening act. The initial arrest last November — over what some viewed as a relatively minor charge of understating compensation — was a tactical move to buy time to analyse money flowing to and from Oman, according to people familiar with the matter. Additional charges followed. Nissan executives have since been cooperating with Tokyo prosecutors and received plea agreements in at least two instances, according to the people, who asked not to be named discussing private matters.

The ousted auto titan is now facing far more serious charges that he enriched himself via a web of complex financial transactions involving business partners in Oman and Saudi Arabia, as well as in his ancestral home of Lebanon, where he’s still lionised as a visionary.

With prosecutors confident they could make a case, they arrested Ghosn again on April 4, just weeks after he’d been released on bail. A Tokyo court on Friday approved his detention through April 14. In the latest allegation, Ghosn is accused of siphoning off $5 million out of a total $15 million in funds that Nissan sent to an overseas distributor between 2015 and 2018, according to Japanese prosecutors. That figure excludes more than $15 million that Nissan found Ghosn to have sent there in prior years, according to people familiar with the matter.

Representatives for the Japanese prosecutors’ office and Nissan declined to comment beyond what they’ve said publicly.

While Japanese authorities didn’t disclose the name of the distributor, an investigation by Renault SA and Nissan has found payments made under Ghosn allegedly went to a business in Oman, according to people familiar with the matter. Some of those transfers may have gone toward things like a yacht and a start-up run by Ghosn’s son, according to their findings.

“The new charges are more substantive and serious,” said Stephen Givens, a professor of law at Sophia University in Tokyo. “Things could change for Ghosn’s prospects if it turns out he was actually embezzling Nissan’s money.”

Defiant Ghosn

For his part, Ghosn continues to deny all charges of financial wrongdoing. In a statement, he said his latest arrest was “outrageous and arbitrary” and that he “will not be broken.” And in a French television interview just before his detainment, the former Renault CEO, who’s a French citizen, called on President Emmanuel Macron’s government to “defend me and preserve my rights”.

Ghosn rose to the top of the auto industry thanks to his turnaround of Nissan, which was almost given up for dead under the weight of heavy losses in the early 2000s. He built one of the industry’s biggest car alliances, which includes Renault and Mitsubishi Motors Corp. Until last year, he was a Davos Man business celebrity admired for his knowledge of five languages, cosmopolitan upbringing in Lebanon and Brazil, and gold-plated business connections.

In Lebanon, where Ghosn has investments in real estate and vineyards, he’s viewed as something of a national hero and managerial wunderkind. “He is looked upon as an icon and an ideal of proper management, so what is being reported is surprising to many,” said Yusuf Sidani, a professor of ethics and leadership at the American University of Beirut’s Suliman S. Olayan School of Business.

Ghosn still has plenty of defenders in the country, where his image has graced national postal stamps. “It’s a conspiracy and I felt that they wanted someone else to replace him,” said Racha Nassif, an administrator at a private school. “I’m very proud of him still.”

In his upcoming Japanese trial, Ghosn’s past triumphs will mean little as prosecutors bring forth evidence detailing his business dealings with prominent Middle East business partners. Personal relationships between multinationals and business tycoons are not unusual in the Middle East, where facilitators can be key to navigating local customs and regulations. “Business in the Middle East is highly personalised, and in the Gulf in particular there are business families whose success is tied to their ability to attract outside business,” said Gary Grappo, a former US ambassador to Oman and current distinguished fellow at the University of Denver’s Centre for Middle East Studies. “It’s a small group of families whose business interests tend to go back decades,” he said.

But Japanese prosecutors have charged Ghosn with abusing those relationships by committing aggravated breach of trust — legal jargon for abusing one’s corporate position for personal gain under Japan’s Companies Act.

Prosecutors allege that Ghosn first transferred his position to Nissan and later shifted the investment back onto the books of his affiliated company. Prosecutors are also scrutinising $14.7 million in payments Nissan made.

Such questionable payments would raise eyebrows even in the Middle East, despite its reputation for opaque transactions. “I am not aware of any cultural understanding that says under the table dealing or kickbacks are acceptable,” said Sidani, who author of book published in 2018 called “Business Ethics in the Middle East.”

As Nissan investors prepare for an April 8 extraordinary shareholder meeting to formally kick Ghosn off the company’s board, several unsettling questions hang over the automaker. What is Ghosn’s legal exposure in France, where prosecutors have been given evidence about the suspicious payments in the Middle East, not to mention possible financial misconduct tied to the executive’s Marie Antoinette-themed wedding celebration at the Chateau de Versailles?

If it turns out that Ghosn did use Nissan’s business partners in the Middle East to move millions of dollars for personal use, how did this bypass the company’s financial controls and attention of top executives in the region and back at headquarters? How long will former Ghosn protégé and current Nissan CEO, Hiroto Saikawa, run the company?

“There must be strong evidence that they had to take him in again,” Koji Endo, a senior analyst at SBI Securities, said of Ghosn. “It will take an immense length of times for this case to settle with his re-arrest and all the problems convoluted.”