TOKYO -- Japanese prosecutors are accusing Carlos Ghosn, the former chairman of Nissan Motor, of causing harm to the automaker for his own personal gain. Now comes the hard part of proving the latest allegations.
While former Representative Director Greg Kelly was released on bail on Tuesday, Ghosn remains in detention on the fresh charge of aggravated breach of trust for misusing Nissan funds. The transactions in question stem from currency derivatives gone sour in the 2008 financial crisis. Prosecutors are focused on personal financial losses being transferred to Nissan and a nearly $15 million payment using the automaker's funds.
Prosecutors say that after Ghosn suffered about $17 million in paper losses on the derivatives contract, he transferred the contract to Nissan in October 2008. The contract was later returned to Ghosn's personal asset management company, and a Saudi acquaintance helped supply credit guarantees when the lender sought more collateral, according to allegations.
On the $17 million transaction, Ghosn says he used his own money to pay Nissan for the losses, and that the company has not suffered any damages.
There was no explicit decision by Nissan's board to approve that transaction. In addition to tracking down official internal deliberations, prosecuting attorneys would need to demonstrate that Nissan suffered financial losses or other damages related to the contract.
Ghosn's payment of nearly $15 million to the Saudi acquaintance was drawn from a "CEO reserve" at Nissan and booked as promotional costs. Tokyo prosecutors believe no such services were rendered, though Ghosn maintains that the payment was proper compensation for work done on behalf of Nissan.
Investigators are apparently basing their claims mainly on documents and testimony provided by Ghosn's deputies as part of plea deals. Prosecutors need to show that the $15 million was a personal transaction instead of business-related. That would entail gathering contracts, emails and other materials indicating that the transfer was a private payback for helping out with an investment gone sour.
Ghosn denies all the allegations, going as far as saying that he has absolutely no idea why he is caught up in the case, according to a source knowledgeable about his statements at the Tokyo Detention House, where he is being held.
A breach of trust conviction must satisfy three thresholds: that Ghosn violated his official duties, that he committed the transgression to enrich himself or a third party, and that the conduct financially harmed the company. But those prerequisites are difficult to establish, and the courts have ruled against multiple indictments in the past.
What is especially hard to prove in the courts is the second element of personal or third-party enrichment. When Japan's asset bubble ruptured in the 1990s, executives at financial groups stuck with piles of toxic debt stemming from questionable lending were hit with those cases, along with managers at the clients receiving the loans.
Executives at the now-defunct Fukutoku Bank denied allegations that it sought to illegally profit from loans, and the courts eventually cleared them of the charges. An ex-president of Pacific Consultants International was also found not guilty of breach of trust surrounding a project to dispose of chemical weapons in China.
The burden of proof for breach of trust is greater than that of Ghosn's first charges of understating his compensation. In the case of Hokkaido Takushoku Bank, another defunct lender, two ex-presidents were found not guilty of breach of trust by a lower court, only to have the acquittal overturned by a higher court.
Now investigators will have to show that the transactions initiated by Ghosn were meant to unlawfully enrich himself and the Saudi businessman. Based on the track record in past cases, prosecutors could have a steep hill to climb.
Ghosn has been arrested three times since being detained Nov. 19, the first two on charges of understating compensation. His deputy Kelly was arrested as a co-conspirator the same day, though the Tokyo District Court on Tuesday approved bail of 70 million yen ($635,000), which was paid immediately. Kelly said in a statement that he will seek medical attention for a chronic back ailment, adding that he will prove his innocence in court.
Another complicated wrinkle to Ghosn's breach of trust case is the international implications. Prosecutors will need to probe overseas accounts held by the Saudi acquaintance and other parties, meaning Japanese authorities will have to depend on the cooperation of foreign counterparts.
Since the transactions in question took place a decade ago, faded memories could undermine collection of testimonies. "The hurdle solely for breach of trust is already high, and the international forum raises it even further," said a lawyer once part of the special investigations unit of the Tokyo prosecutor's office.