The Carlos Ghosn case – a look into the economic warfare behind the legal case

Translation of an interview given to the Algerian Center for Economic Diplomacy (CADE), on January 10, 2020

CADE – The Carlos Ghosn case is by now world famous. Could we go back to the sequence of events?

Nicolas Michelon – Carlos Ghosn is arrested in Tokyo on November 19, 2018 as he gets off the plane, following an internal investigation by Nissan that is now known to have been launched at least in early 2018. It is interesting to note (and this will be the first of a long series of calendar coincidences) that this internal investigation was able to be conducted thanks to the addition in the first quarter of 2018 in the Japanese legislative arsenal of a completely new US-inspired plea-bargain deal, allowing an accused person to benefit from immunity from prosecution if they collaborate in the investigation and contribute to the prosecution of higher echelons. This is precisely what was used to ensure the active collaboration of 2 of Nissan executives (1 Japanese, Mr. Toshiaki Onuma, and 1 foreigner, Mr. Hari Nada).

The evening of his arrest, Nissan CEO Hiroto Saikawa gives a press conference in which he announces the arrest of Mr. Ghosn in harsh and final terms, far from the usual prudence in these conditions: no “It would seem that …”, “Justice informs us that …”, “Mr. Ghosn may have …”. He even speaks of “serious mistakes” and “betrayal”. The very evening of his arrest, Nissan seems to have absolutely no doubt about the guilt of Mr. Ghosn…

Three days later, on November 22, Nissan’s board of directors suspends Carlos Ghosn from his functions, followed by Mitsubishi’s on November 26. The speed of this decision-making process is admirable, especially since Mr. Ghosn still remains to be formally charged of any crime!

On December 10, Carlos Ghosn is indicted for a 1st count: failure to disclose part of his income (in this case, the part which constitutes the deferred income he would receive upon retirement).

On December 21, he is arrested again (while still interned in Kosuge prison since his 1st arrest at Tokyo airport), for a second count: he allegedly temporarily charged Nissan for the losses incurred on his personal investments (foreign exchange positions), while freeing up the additional collateral required by his bank to cover for these losses. He is formally indicted for this on January 11, 2019.

On February 7, 2019, Renault in turn joins the “party”, leaking the accusation that Mr. Ghosn misused corporate funds in the “Chateau de Versailles case”.

On March 6, after several attempts by his lawyers, they obtain bail for their client. Mr. Ghosn is placed under house arrest pending the start of his trial.

On April 3, Mr. Ghosn opens a Twitter account on which he announces that he is preparing a press conference in the coming days, during which he plans to present his version of the facts to the media and the public and to name the persons within Nissan responsible for this affair.

The next morning, in the early hours, he is arrested again, officially “for violating the conditions of his bail”, and again interned at Kosuge prison. He is then charged with a third count: the misappropriation of commissions paid by Nissan to an Oman-based distributor, commissions redirected to a Lebanese structure of which his wife, Carole Ghosn, is supposed to be a director, according to the Prosecutor.

On April 8, Nissan’s board of directors removes Carlos Ghosn from his last position as administrator, followed by Mitsubishi’s board of directors.

On April 25, Mr. Ghosn is again released on bail and placed under house arrest, on the condition that he has no contact with his wife, officially to be avoid their tampering with evidence.

He flees Japan on December 31, 2019, joining Osaka – Kansai International Airport by train, then by private jet to Istanbul, where another private jet awaits him to take him to Beirut.

On January 8, he gives a press conference in Beirut in which he presents his version of the case as well as some of the elements of his defense.

CADE – Who are the key players in this case and what are the issues hidden behind each stakeholder?

NM – The stakeholders in this case can be broken down into 3 categories: the actors within Nissan, the French institutional actors and the Japanese institutional actors.

Within Nissan, the names are known: Hari Nada and Toshiaki Onuma (both members of the legal department), Hiroto Saikawa naturally (the CEO of Nissan at the time when the case started ; he was removed from office in December 2019 ), but also Hitoshi Kawaguchi (Vice-President of Nissan, then in charge of public affairs) and Hidetoshi Imazu (auditor). Last but not least, Masakazu Toyoda, an independent director appointed to the Nissan board of directors at the start of 2018 and a former executive of the powerful Ministry of Economy, Trade and Industry (METI). Difficult not to consider him as the man of the Japanese government in charge of monitoring Nissan … For these Nissan executives, the problem is simple: they do not want an irreversible merger with Renault, and certainly not under the conditions desired by the French State, namely with a minority stake for Nissan and without voting rights. These conditions were, however, resisted by Carlos Ghosn himself, who did not believe in them and preferred an alliance structure guaranteeing significant autonomy for each of the entities but under a single alliance structure being the sole share issuer. The growing hostility of the French authorities towards Mr. Ghosn seems to have sent a very clear signal to Nissan: the alliance is moving towards an irreversible merger, whether Carlos Ghosn wants it or not.

French institutional stakeholders are mainly Emmanuel Macron, Minister of Economy from 2014 to 2016, who forced the Florange Bill onto Renault, a breaking point in the relationship between Renault and Nissan. The Florange Bill, introduced by his predecessor Arnaud Montebourg at the time of the acquisition of Arcelor’s furnaces in Florange by the Indian Mittal, allows the public shareholder that is the French State to have double voting rights in the board of directors of the companies in which it is a shareholder. To ensure that the Renault board of directors could not oppose it, Macron increased the State’s stake in Renault temporarily from 15 to 20% without notifying Renault. This decision greatly worsened the personal relationship between Mr. Ghosn and Mr. Macron, especially since the latter (perhaps in anticipation of his candidacy for the Presidency?) doubled down by condemning Carlos Ghosn’s double remuneration and threatening to “legislate” on this issue. The divorce between the two men was then complete, hence the deafening silence of the Elysée Palace since the beginning of the Ghosn case. In his press conference on January 8, 2020, Mr. Ghosn explicitly said that he “did not expect anything from France”.

Finally, the Japanese institutional players are the Special Investigation Department (Tokubetsu Sôsabu) of the Tokyo District Public Prosecutor’s Office, in charge of the prosecution of Mr. Ghosn. This department is feared and respected in Japan for its impressive “hunting bag”: a Prime Minister, Ministers and Vice-Ministers, as well as leaders of political parties and heads of large corporations. Also involved is the former Minister of the Economy (METI), Hiroshige Seko, whose nationalist positions are a mystery to no-one and from whose office it is said that emails gave the signal for the launch of the internal investigation against Carlos Ghosn. Finally, there is the question of the involvement of Yoshihide Suga, Chief Cabinet Secretary. Elected from the 2nd district of Kanagawa (where Nissan’s world headquarters are located), he is a member of Nippon Kaigi, Japan’s most powerful political lobby with clear, outspoken nationalist views. Seen from Japan, the consequences of the implementation of the Florange Bill are catastrophic. The Japanese consider that France is seeking to impose on them an unacceptable capitalistic “Treaty of Versailles”, no longer reflecting the true balance of financial and technological power largely in favour of Nissan. It should be remembered that Nissan then controls 15% of Renault without voting rights, while it generates more than half of the consolidated profits of the alliance, nearly 2/3 of world sales and its residual value (excluding cash and cross shareholdings) is almost 18 times that of Renault!

The stakes for the Japanese side, whether within Nissan or within the government, is therefore clearly to destabilize the keystone of the Renault-Nissan-Mitsubishi alliance that is Carlos Ghosn in order to weaken French interests and regain control of 2 major strategic assets: Nissan (the 2nd largest Japanese automaker) and Mitsubishi (the 8th).

CADE – Carlos Ghosn’s escape from Japan seems to change the balance of power in this case. What are the legal and diplomatic consequences of his escape? What are the key elements that Carlos Ghosn brings forward in his press conference?

NM – Carlos Ghosn’s escape, as incredible and romantic as it may be, does not change the bottom line, which is that this case remains a matter of economic warfare between Japan and France. Mr. Ghosn himself confirms this in his press conference on January 8, 2020: he was targeted for the only reason that he was the keystone of the Renault-Nissan-Mitsubishi alliance and that, by dismissing him, the Japanese would manage to weaken French interests and regain control of Nissan and Mitsubishi.

He also confirmed very clearly that the episode of the Florange Bill marks the breaking point in the Franco-Japanese relationship. He also confirms that, and this is my firm belief from the start, that whoever was at the head of the alliance, the Japanese objective of destabilization would have been the same. Only the strategy would have changed, depending on the weaknesses of the targeted character. But the outcome would have been the same.

From a legal and political point of view, one might be surprised by several points: how could Carlos Ghosn escape so easily? Why was he watched in Tokyo by a private company paid by Nissan, which is siding with the prosecution in this case? Why were the video surveillance recordings of his home only presented to the judge once a month? Almost 10 days after his escape from Japan, there is no dismissal to be found, neither at the Ministry of Justice, at the Tokyo Metropolitan Police, nor at the immigration services. No resignation either… Only a Red Notice from Interpol has been sent to the Lebanese authorities at the request of Japan, but these notices are non-binding… Finally, an arrest warrant has just been issued by Japan’s Ministry of Justice against Carole Ghosn, for perjury, but Lebanon has no extradition treaty with Japan…

Therefore, did the Japanese State have an interest in letting Carlos Ghosn go, or at least in leaving the cracks wide enough for him to flee, in order to get rid of an individual who could only bring embarrassment in a trial now that he has been permanently removed from the alliance? What he revealed at his press conference in Beirut, and all that he can reveal from now on, will be as a fugitive and can thus be considered as slander more easily than if the same arguments were being made in a court of law with the support of his Japanese lawyers. It is naturally only an assumption at this stage, but it does not seem to me the most eccentric one. The future, and what the Japanese authorities will and will not do, will probably give us clues in this respect…

CADE – In your opinion, what outcome can we expect from now on?

NM – It now seems much too late to foresee a positive outcome to this case for either side, given that the Japanese and French sides both seem to have gone overboard, some in their over-kill aggressiveness, others in their blatant passivity.

For the Japanese, if their strategy aimed at ousting Carlos Ghosn from the alliance and weakening the French influence results in an undeniable success, one must question the cost of this victory and it sure seems to be a Pyrrhic one : since the arrest of Mr. Ghosn, the market capitalization of the Nissan group has shrunk by almost $ 12 billion and the image of the manufacturer has been permanently tarnished, especially since the purge of many of the executives close to Mr. Ghosn continued for many more months, parasitizing decision-making processes.

The image of Japan in general has also been sullied, both in terms of its legal system and recent measures taken to improve corporate governance. The mysteries of the Japanese judicial system remain difficult for the public to understand, and the infamous “99.4% conviction rate”, even if poorly understood, does not help. In terms of corporate governance, the changes in the structure of Nissan’s board of directors, with the multiplication of the number of independent directors, should not deceive us: the number of independent directors with significant conflicts of interest or profiles totally unsuited to the role (such as that of Mrs. Keiko Ihara, whose only merit seems to be that she is the first woman to compete in the 24 Hours of Le Mans…) suggests that many will only be there to give more weight to the Nissan executives’ vote.

Finally, for the French side, the results are horrendous. Renault’s influence has been permanently weakened and the insistence in favoring a consensual decision-making process with the Japanese seems completely illusory. Thierry Bolloré, for a time appointed to replace Mr. Ghosn, was also quickly dismissed due to his doubts about the success of the “business as usual” policy with Nissan and Jean-Dominique Sénard, the new President of Renault, seems to have the greatest difficulties in putting the alliance back on track, despite a human and managerial style completely at odds with that of Carlos Ghosn. Finally, the French state seems to have opted, after passivity, for interference. The prospect of a rapprochement with Fiat Chrysler (FCA), in an environment of tame world auto cycle and with many new technological challenges to be met, was torpedoed by the French Ministry of the Economy, in the opinion even of Renault and FCA. We know how the story ends: FCA has announced its merger with PSA. A great missed opportunity for consolidation for Renault, but also a missed opportunity to counterattack by diluting Nissan into an even larger alliance… Renault has also seen its market capitalization melt, by more than 5 billion Euros since the beginning of the case.

Therefore, the Carlos Ghosn case is above all that of a waste: a Pyrrhic victory for the Japanese, a complete defeat due to lack of anticipation and a total lack of reaction for the French. It at least has the advantage of representing probably the most perfect illustration of a campaign of economic warfare, as it covers all aspects of economic and strategic intelligence, with the exception perhaps of the cyber aspect…

Interview translated and edited with the kind permission of the Algerian Center for Economic Diplomacy (CADE)

Picture credits: Bloomberg