Carlos Ghosn. Picture: REUTERS/ISSEI KATO
Carlos Ghosn. Picture: REUTERS/ISSEI KATO

Tokyo — Soon after Carlos Ghosn was taken into custody last autumn, kicking off a bizarre legal odyssey that’s transfixed the automotive world, some wondered whether the financial crimes he’d been accused of were serious enough to warrant the shocking arrest of Nissan Motor’s fabled chair.

Turns out that was just the opening act. The initial arrest last November — over what some viewed as a relatively minor charge of understating compensation — was a tactical move to buy time to analyse money flowing to and from Oman, according to people familiar with the matter. Additional charges followed. Nissan executives have since been co-operating with Tokyo prosecutors and received plea agreements in at least two instances, according to the people, who asked not to be named discussing a private matter.

The ousted automotive titan is now facing far more serious charges that he enriched himself via a web of complex financial transactions involving business partners in Oman and Saudi Arabia, as well as in his ancestral home of Lebanon, where he’s still lionised as a visionary.

With prosecutors confident they could make a case, they arrested Ghosn again on April 4, just weeks after he’d been released on bail. In the latest allegation, Ghosn is accused of siphoning off $5m out of a total $15m in funds that Nissan sent to an overseas distributor between 2015 and 2018, according to Japanese prosecutors. That figure excludes more than $15m that Nissan found Ghosn to have sent there in prior years, according to people familiar with the matter.

Representatives for the Japanese prosecutors’ office and Nissan declined to comment beyond what they’ve said publicly.

In Lebanon, where he has investments in real estate and vineyards, Ghosn still has plenty of defenders in the country, where his image has graced national postal stamps

While Japanese authorities didn’t disclose the name of the distributor, an investigation by Renault and Nissan has found payments made under Ghosn that allegedly went to Suhail Bahwan Automobiles, Nissan’s exclusive distributor in the sultanate, according to people familiar with the matter. Some of those transfers may have gone toward things such as a yacht and a start-up run by Ghosn’s son, according to their findings.

“The new charges are more substantive and serious,” said Stephen Givens, a professor of law at Sophia University in Tokyo. “Things could change for Ghosn’s prospects if it turns out he was actually embezzling Nissan’s money.”

Defiant Ghosn

For his part, Ghosn continues to deny all charges of financial wrongdoing. In a statement, he said his latest arrest was “outrageous and arbitrary” and that he “will not be broken”. And in a French TV interview just before his detainment, the former Renault CEO, who’s a French citizen, called on President Emmanuel Macron’s government to “defend me and preserve my rights”.

Ghosn rose to the top of the automotive industry thanks to his turnaround of Nissan, once given up for dead under the weight of heavy losses, in the early 2000s. He built one of the industry’s biggest car alliances, which includes Renault and Mitsubishi Motors. Until last year, he was a Davos Man business celebrity admired for his knowledge of five languages, cosmopolitan upbringing in Lebanon and Brazil, as well as gold-plated business connections.

In Lebanon, where he has investments in real estate and vineyards, Ghosn still has plenty of defenders in the country, where his image has graced national postal stamps. “It’s a conspiracy and I felt that they wanted someone else to replace him,” said Racha Nassif, an administrator at a private school. “I’m very proud of him still.”

In his upcoming Japanese trial, Ghosn’s past triumphs will mean little as prosecutors bring forth evidence detailing his business dealings with two prominent Middle East business partners: Khaled Juffali, the scion of a powerful business family and chair of one of Saudi Arabia’s biggest conglomerates; and Omani billionaire Suhail Bahwan, who controls Nissan’s sole distributorship in the sultanate.

In both instances, prosecutors have charged Ghosn with aggravated breach of trust, legal jargon for abusing one’s corporate position for personal gain, under Japan’s Companies Act.

In the case of Juffali, prosecutors alleged in December that Ghosn improperly shifted personal investment losses to the Japanese car maker. A key issue is a derivatives transaction that a company linked to Ghosn made with a Japanese bank. It unraveled when the yen soared during the 2008 financial crisis, saddling Ghosn with $16.7m in unrealised losses, and prompted the lender to demand more collateral.

Saudi connection

Prosecutors allege that Ghosn first transferred his position to Nissan and later shifted the investment back onto the books of his affiliated company, with Juffali providing a letter of credit to satisfy the bank. Prosecutors are also scrutinising $14.7m in payments Nissan made to companies controlled by Juffali.

Both Ghosn and Juffali, who hasn’t been charged with any crime, deny any wrongdoing. “The $14.7m in payments over four years from Nissan were for legitimate business purposes to support and promote Nissan’s business strategy in the Kingdom of Saudi Arabia, and included reimbursement for business expenses,” according to a statement issued in January on behalf of the Khaled Juffali Company by its New York-based public relations firm.

Juffali played a key role in settling a dealership dispute with a local partner that had depressed Nissan’s Middle East sales, and helped get government approval for a joint venture called Nissan Saudi Arabia, according to the statement. He also helped Nissan get approval and funding for a new plant in Saudi Arabia, it said.

The transactions to Oman and Lebanon may have then been used for the personal benefit of Ghosn and his family, according to people familiar with the matter

The Juffali family is one of the most powerful in the region and are direct descendants of Khalid ibn al-Walid, whose Meccan tribe played a pivotal role in the early history of the country.Founded in 1946, EA Juffali & Brothers has evolved into one the kingdom’s most prosperous businesses by teaming up with international partners, including IBM, Massey Ferguson, Siemens, Robert Bosch and Michelin, according to its website. Ghosn and Juffali have known each other for years.

Mega-showroom

In Oman, Suhail Bahwan Automobiles, which is Bahwan International Group Holding’s flagship company, has been Nissan’s distributor since 2004. A year later, the partnership paved the way for the opening of what was then Nissan’s largest showroom in the world.

Renault has said it’s uncovered suspicious payments to companies in the Middle East. The transactions to Oman and Lebanon may have then been used for the personal benefit of Ghosn and his family, according to people familiar with the matter, who asked not be be named because the details aren’t public.

A Paris-based spokesperson for the Ghosn family denied any wrongdoing by Ghosn and said reports on Oman payments, use of the airplanes and the start-up are part of a smear campaign to make the former executive look greedy. A spokesperson for Suhail Bahwan Automobiles couldn’t be reached for comment.

As Nissan investors prepare for an April 8 extraordinary shareholder meeting to formally kick Ghosn off the company’s board, several unsettling questions hang over the car maker. What is Ghosn’s legal exposure in France, where prosecutors have been given evidence about the suspicious payments in the Middle East, not to mention possible financial misconduct tied to the executive’s Marie Antoinette-themed wedding celebration at the Château de Versailles?

If it turns out that Ghosn did use Nissan’s business partners in the Middle East to move millions of dollars for personal use, how did this bypass the company’s financial controls and attention of top executives in the region and back at headquarters? How long will former Ghosn protégé and current Nissan CEO, Hiroto Saikawa, run the company?

“There must be strong evidence that they had to take him in again,” Koji Endo, a senior analyst at SBI Securities, said of Ghosn. “It will take an immense length of time for this case to be settled with his re-arrest and all the convoluted problems.”

The answers, should they come, seem likely to found in the desert sands of the Arabian Peninsula.

Bloomberg