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Nissan's Ghosn crisis

Ghosn's multimillion-dollar discretionary fund draws scrutiny

Managed in Dubai, Nissan's 'CEO reserve' dispensed $63m to associates

Yachts at a dock in Dubai. Nissan's "CEO reserve" was managed out of the Middle Eastern city.   © Reuters

TOKYO -- The breach-of-trust allegations against former Nissan Motor Chairman Carlos Ghosn have turned a spotlight on the automaker's CEO reserve, the discretionary fund from which Ghosn paid some $63 million to associates in the Middle East.

The fund, managed through Dubai-based subsidiary Nissan Middle East, was set up around December 2008 at Ghosn's request, according to a source familiar with the matter. It was apparently understood within Nissan as meant to cover large, unexpected expenses, such as providing monetary support after natural disasters.

But Ghosn's use of the fund has raised questions as to whether he was exploiting personal connections for Nissan's benefit or diverting company assets for his own purposes.

Ghosn paid $14.7 million from the fund to a company run by Saudi businessman Khaled al-Juffali in four installments between 2009 and 2012, booked as "promotional costs." Around the same time, businesses in Oman and Lebanon run by two other Middle Eastern acquaintances received $32 million and $16 million, respectively, from the reserve.

The then-CEO "cleverly appropriated company funds," a Nissan executive argued, though the official acknowledged that "we bear some responsibility for not having been able to stop it."

As chairman and CEO of Nissan Motor, Carlos Ghosn paid tens of millions of dollars from a discretionary fund to companies run by acquaintances.   © Reuters

Shortly before the reserve was established, Ghosn's personal asset management company suffered 1.85 billion yen ($17.1 million at current rates) in paper losses on a currency swap contract with Tokyo-based Shinsei Bank in the wake of the global financial crisis. He shifted the position -- and the loss -- to Nissan in October 2008 when the bank requested more collateral.

Al-Juffali helped Ghosn secure a roughly 3 billion yen credit guarantee to satisfy the collateral demand, and the contract was moved back to Ghosn's asset management company in February 2009. Tokyo prosecutors allege that the money al-Juffali's business received afterward was intended as thanks or compensation for this assistance. They suspect that similar personal motivations may lie behind the payments to the companies in Lebanon and Oman.

That may not necessarily be the case, given that the parties involved have business ties with Nissan.

The automaker formed a joint venture in October 2008 with al-Juffali's Al Dahana, an auto retailer and distributor. Al-Juffali was named chairman of the venture. The Omani and Lebanese companies are Nissan dealers. The payments may simply indicate that Nissan was trying to step up its Middle Eastern promotional efforts during the period in question.

Ghosn asserts that the payments to al-Juffali were legitimate compensation for his efforts on Nissan's behalf, including lobbying of the Saudi government and royal family as well as resolving trouble with local dealers.

The Tokyo District Court is slated to disclose the reasons for Ghosn's detention at a hearing on Tuesday. Ghosn is expected to appear and state his position.

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