Ghosn Indicted in Tokyo as Pay Scandal Escalates

(Bloomberg) -- Carlos Ghosn and Nissan Motor Co. were indicted in Japan Monday for understating the high-flying car executive's income by $43 million, as Tokyo prosecutors pushed ahead with the criminal investigation that has shaken the global auto industry.

Former Nissan representative director Greg Kelly was also indicted, three weeks after he and Ghosn were arrested in Japan and accused of financial crimes.

Under the Japanese system, indictment allows prosecutors to lay formal charges. While a detainee may be able to apply for bail, Ghosn -- who was ousted as Nissan's chairman shortly after his Nov. 19 arrest -- will likely remain behind bars because he was also re-arrested on new allegations of understating income that pertain to a different time period, prosecutors said in Tokyo Monday.

In the first sign of blowback from the scandal for Nissan, the company was also indicted for breaching Japan's financial instruments and exchange law by under-reporting Ghosn's compensation, prosecutors said. The carmaker now finds itself ensnared in the scandal enveloping Ghosn, after it accused the 64-year-old of the income-reporting violations and misusing company assets -- including Nissan-owned houses -- following an internal probe.

The shock arrest of Ghosn has escalated tensions between Nissan and partner Renault SA, whose car alliance -- the world's largest -- has been held together by the executive for almost two decades. While Renault named an interim replacement following the arrest, Ghosn technically remains the chairman and chief executive officer of the French carmaker while it seeks more information and evidence about the accusations.

Monday's charges by the prosecutor's office didn't have any mention of the houses or misusing company money. Ghosn denies the charges, his lawyers said previously amid a continuous leak in various media outlets about his alleged wrongdoings, including passing on his trading losses to the automaker.

Ghosn was indicted for understating his salary by 4.8 billion yen ($43 million) during the five years until March 2015, and the re-arrest is for suspected income understatements of 4.2 billion yen for the three years until March 2018, prosecutors said.

Nissan said it takes the indictments “extremely seriously” and that it will strengthen its corporate governance and compliance. The company will file amended financial statements for past periods once it has finalized the corrections related to Ghosn's compensation.

Yokohama, Japan-based Nissan faces a potential fine of no more than 700 million yen. Shares of Nissan declined 2.9 percent in Tokyo and have lost 6 percent since Ghosn's arrest.

Here's how Ghosn's legal process could play out:

• Ghosn will remain in custody as prosecutors continue to investigate additional suspected crimes.
• A trial typically takes place about 40 to 50 days after indictment. Ghosn's trial is likely to take place at the Tokyo District Court or a similar tribunal, where cases are argued in front of three judges.
• Should he want to, Ghosn is likely to be able to appeal the verdict twice, first to high court and then supreme court.
• If convicted, Ghosn could face up to 10 years in prison, prosecutors have said.

Japan has one of the highest criminal conviction rates in the world, and prosecutors typically try to use interrogations to extract signed confessions from defendants. Fewer than 1 percent of cases in Japan's district and county courts resulted in a not-guilty verdict or the defendant being released in 2017, according to prosecution data.

Ghosn's Jail Time May Stretch to Months in Japan's Legal System

Growing Distrust

Nissan, which Ghosn helped resurrect by uniting it with Renault in an alliance almost two decades ago, conducted a months-long probe into Ghosn's financial reporting and alleged misuse of company assets. When announcing Ghosn's indictment, prosecutors made no mention of other alleged violations besides under-reporting of income.

The timing of the company's probe prompted some analysts to say the scandal may have been manufactured in order to block a merger that Ghosn was advocating between Nissan and Renault. Chief Executive Officer Hiroto Saikawa has denied that such a motive was behind the investigation.

Still, Saikawa and other Japanese executives within Nissan have spoken strongly against a merger. Saikawa, a former protege of Ghosn's, is now potentially succeeding him as Nissan's chairman after already taking over as CEO last year. Ghosn remains the chairman of the Amsterdam-based Renault-Nissan-Mitsubishi Motors Corp. alliance.

The Big Winner From Carlos Ghosn's Arrest? His Protege

Renault appeared to have been blindsided by Ghosn's arrest and the allegations that have drifted out.

Executives are suspicious of Nissan's motives, demanding to see proof from the Japanese carmaker of the accusations against Ghosn, people familiar with the matter have said. Nissan offered up a presentation summarizing his alleged transgressions, but Renault declined, requesting the presence of lawyers and the full report on the allegations, the people said.

Renault and Nissan have complicated cross-shareholdings, and poor relations would make operations difficult. The French carmaker is the largest shareholder in Nissan and has voting rights, while the Japanese company is the second-largest shareholder in Renault, with no votes. Nissan is keen to achieve a more equal power balance but its demands have been stonewalled by Renault and the French state.

To contact the reporters on this story: Kae Inoue in Tokyo at kinoue@bloomberg.net;Ma Jie in Tokyo at jma124@bloomberg.net

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net, Ville Heiskanen

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