Nissan Chm. Ghosn Nabbed for Allegedly Underreporting Pay

November 20, 2018

Tokyo--In a development that surprised not only Japan but also France and other parts of the world, Tokyo public prosecutors arrested Nissan Motor Co. <7201> Chairman Carlos Ghosn on Monday for allegedly violating Japan's Financial Instruments and Exchange Act by underreporting his executive remuneration by about 5 billion yen.

The special investigation squad of the Tokyo District Public Prosecutors Office also arrested Nissan representative director Greg Kelly. The squad stopped short of clarifying whether Ghosn, 64, and Kelly, 62, have admitted to their allegations.

The pair is suspected of falsely reporting in financial statements that Ghosn received about 4,987 million yen in executive remuneration from Nissan in the five years to March 2015 and submitting the documents to the Kanto Local Finance Bureau in the city of Saitama, north of Tokyo, although the leader of the major Japanese automaker was actually paid some 9,998 million yen in the period, according to the prosecutors office.

On Monday, the special squad searched Nissan's headquarters in Yokohama, the capital of Kanagawa Prefecture, south of Tokyo, and other places.

After receiving a whistleblowing report, Nissan conducted an internal investigation for months and found several cases of serious wrongdoing by Ghosn, such as misappropriation of company money for his private matters and investment for a falsely stated purpose, in addition to the underreporting of his executive pay, according to the company. Nissan also detected Kelly's deep involvement in the misconduct by Ghosn, who hails from major French automaker Renault SA.

Nissan, held 43 pct by Renault, reported these findings to the prosecutors office.

Ghosn is at the core of the three-way alliance, which also includes Mitsubishi Motors Corp. <7211> of Japan. He serves as chairman and representative director of Mitsubishi Motors and as chairman and chief executive officer of Renault.

Nissan will submit to a meeting of its board Thursday a proposal to remove Ghosn from the posts of its chairman and representative board director. It also intends to dismiss Kelly as representative director.

Mitsubishi Motors will also propose the dismissal of Ghosn as its chairman to its board of directors. The board is expected to meet on the matter within this week.

Ghosn will be relieved from the posts of chairman and representative director promptly as his arrest concerns governance and compliance, the company said. Mitsubishi Motors will also investigate whether Ghosn has committed any wrongdoing at the company, it added.

Dispatched from Renault to Nissan to help reconstruct its faltering operations, Ghosn became chief operating officer of the Japanese firm in June 1999 and Nissan president in June 2000.

Ghosn assumed the concurrent post of Nissan CEO in 2001 and became chairman later.

He stepped down as Nissan president and CEO in April 2017 to focus on his job as chairman.

Kelly joined Nissan North America Inc., a unit of Nissan, in 1988 and became corporate vice president of Nissan in April 2008 before assuming the post of Nissan senior vice president the following year. He has been serving as representative director since 2012.

In a statement released on Monday, Nissan said that it "has been fully cooperating with" the prosecutors' investigation.

Nissan said it "deeply apologizes for causing great concern to our shareholders and stakeholders," adding, "We will continue our work to identify our governance and compliance issues and to take appropriate measures."

At a press conference in Brussels on Monday, French President Emmanuel Macron said that he is very carefully watching the stability of the alliance of Renault, Nissan and Mitsubishi Motors.

Nissan President Hiroto Saikawa offered an apology to people who have supported the company for a long period of time, at a press conference held at the company headquarters the same day. Nissan "can never tolerate the wrongdoing by Ghosn," Saikawa stressed. "I feel strong anger and disappointment."

Noting that the concentration of power in Ghosn has led to the misconduct by the leader, Saikawa said, "We'll withdraw from the system of relaying excessively on a specific person."

While refraining from going into details about Ghosn's misconduct as the prosecutors' investigation is going on, Saikawa said that Nissan will set up a third-party committee to proceed with its own probe.

In a statement, Renault said that it aims to protect its interest within the three-way alliance while waiting to receive detailed information from Ghosn, adding that the company will convene a meeting of its board of directors as soon as possible.

Nissan, which was established in 1933, plunged into financial difficulties following the collapse of Japan's bubble economy in the early 1990s.

After coming under the wing of Renault in 1999, Nissan achieved a V-shaped recovery thanks to the leadership of Ghosn.

In October 2016, Nissan became the top shareholder of Mitsubishi Motors, which had been driven into a corner on the back of its fuel economy data manipulation scandal.

In the year to March 2018, Nissan posted a group net profit of 740 billion yen on sales of 11.95 trillion yen. The company has a group workforce of about 140,000. Jiji Press