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Ghosn prosecutors finally catch a fish

While investigators now probe serious charges, their approach raises concerns

| Japan
Carlos Ghosn, pictured after making bail on Mar. 6, has yet to speak publicly. (Photo by Akira Kodaka)

Carlos Ghosn's rearrest, this time on allegations that appear more serious than the initial charges, creates the strong impression that from the start this has been a fishing expedition in search of a crime.

With the early casts, the best the prosecutors could find were minnows, in the form of the alleged misreporting of the former chief's compensation from his employer, Nissan Motor, and charges that Ghosn used Nissan's credit to backstop his liabilities on a currency swap contract.

Now the investigators seem to have hooked what looks like a real fish -- claims of aggravated breach of trust concerning payments by Nissan to an Omani distributor that were funneled back into companies controlled by Ghosn.

Criminal investigations, of course, are not supposed to be open-ended fishing expeditions to uncover unsuspected crimes. In the U.S. and other advanced countries, prosecutors are bound by rules of conduct that prevent them from poking into the lives of innocent citizens just to see what "turns up."

The question of what kind of information is sufficient to launch a fair investigation is not black and white. But in Japan the prosecutors' discretion is exceptionally wide and so should be used with great care. The Ghosn case shows that almost any business person suspected of even a minor infringement of corporate laws could be targeted.

Normally, a criminal investigation starts when a victim reports a crime or a dead body is discovered. In Ghosn's case, the complaint was not submitted by victims claiming Ghosn had hurt them, but by fellow Nissan executives alleging that their boss had damaged the company.

Behind their complaints lay their alarm at his plans to merge Nissan with the French group Renault, which holds a 43% stake in Nissan. Nissan executives spent months scouring company files looking for evidence they could take to the prosecutor. Ghosn claims they did so to oust him and scuttle the merger. He denies any wrongdoing.

The evidence of wrongdoing Nissan executives were able to deliver to the prosecutors was not overwhelming, but enough to launch an open-ended investigation to find more. The initial charges provided a pretext to detain Ghosn for three months, interrogate him on a daily basis and see what he might confess to.

Unfortunately, for a long time the best the prosecutors could find were minnows. The first set of charges was that Ghosn was criminally liable for Nissan's failure to disclose in its periodic securities reports a portion of his compensation that was to be deferred until after his retirement.

The second set of charges related to a currency swap contract between Shinsei Bank and Ghosn. Ghosn asked Nissan, with the Nissan board's consent, to backstop his liabilities under the contract for a period four months in 2009. Nissan's risk under the guarantee was minimal to begin with and it was never actually called. The facts surrounding the charges had been well known, not only within Nissan but by government agencies, for a decade.

Outside Japan, minor charges of this nature would never have led to criminal arrest and extended detention and interrogation, as they did in Ghosn's case. They would have been handled as an internal Nissan matter, or at most in a legal proceeding culminating in warnings or possibly a fine. Yet the prosecutors agreed to escalate the evidence handed to them by Nissan to a full-blown criminal prosecution against Ghosn with the possibility that, if convicted, he would serve years of hard time in prison.

During Ghosn's three-month detention, there were various reports of seeming improprieties by Ghosn that, if anything, sounded more serious than the minor charges officially lodged against him. News reports told of lavish wedding parties at Versailles, mansions in Brazil and Lebanon, consulting contracts for his sister, "paying himself" $9 million. Yet none of these has so far led to arrests or indictments.

The most recent charges are more serious because, if the reported facts are true, Ghosn diverted Nissan money into his own accounts. Neither of the initial charges involved anything close to actual embezzlement -- dipping into the company till for personal gain.

If the facts turn out to be true, and we do not know for now, then a criminal case against Ghosn is warranted.

But the suggestion that the prosecutors may have finally come across evidence of a substantial crime, does not change the fact that this was a fishing expedition from the start. Authoritarian regimes tolerate open-ended investigations of citizens without a good reason to suspect them of specific wrongdoing -- not liberal democracies like Japan. Yes, open-ended investigations sometimes turn up something. But that should not make us comfortable with random investigations of innocent people to see what emerges.

Whether Ghosn will be returned to Kosuge Prison for further detention following the latest arrest will be another interesting test of the Japanese criminal justice system. Theoretically, detention for purposes of interrogation is not permitted by the Japanese constitution. Detention is warranted only if a suspect is likely to flee or destroy evidence. Ghosn has already established to the satisfaction of a Japanese court that he is not likely to flee or destroy evidence. If Ghosn is detained again, prosecutors should have to establish he is likely to tamper with evidence relating to the new charges, or perhaps that he has violated the conditions of his current release by, for example, opening a Twitter account and announcing a press conference.

Prosecutors are probably now heaving a sigh of relief that they seem to have caught a real fish. It should not exonerate them from having engaged in a fishing expedition.

Stephen Givens is a corporate lawyer based in Tokyo.

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