To what extent the special investigation squad of the Tokyo District Public Prosecutors Office will be able to determine the truth of the entire situation has now become a focus of attention.

Eyes on the memorandums

As evidence in its case, the special investigation squad is giving particular weight to memorandums that were allegedly written every year and shared only among a limited number of people, including Ghosn.

According to sources, the alleged understating was triggered by the introduction in 2010 of a system that requires executives who earn ¥100 million or more in annual remuneration to disclose such information as their names and the amount they earn in company securities reports. 

Ghosn had received about ¥2 billion annually at least from around the mid-2000s, and is said to have been concerned that disclosing such a high salary would bring criticism from domestic and foreign stockholders, among others. Ghosn allegedly directed his closest aide, 62-year-old Greg Kelly, a former representative director of Nissan, to limit his pay to about ¥1 billion. At the same time, a memorandum was written each year stating that Ghosn would receive the remaining about ¥1 billion after he stepped down as a Nissan executive. 

To make sure the remaining money would be paid, the memorandums stated the amount of each year’s remuneration and the fact that the money would be paid later.

The Financial Instruments and Exchange Law stipulates that even if executive remuneration is to be paid at a later date, the future remuneration must be stated in reports for the fiscal year in which the amount is finalized. 

The special investigation squad arrested Ghosn and Kelly on suspicion of violating the law on Nov. 19, alleging that they conspired to understate Ghosn’s remuneration by about ¥5 billion over the period from the business year ending in March 2011 to the business year ending in March 2015.

“The point at which they created a memorandum confirming the unpaid amount and arranged to receive the money after stepping down — when there would no longer be an obligation to report it — provided proof of the under-reporting,” a senior prosecutor said. 

If nothing else, it is unnatural for an executive’s pay to drop from about ¥2 billion to nearly half that just as a disclosure system begins. The special investigation squad sees the process itself of arranging for half of the remuneration to be paid later as proof of the intent behind the alleged crime. 

‘Room for debate’

In response to the special investigation squad’s questioning, Ghosn has admitted to this process but asserted that it had not been definitely decided that the “money to be paid later” would actually be paid. 

The post-retirement pay had not been set aside within Nissan and was scheduled to be paid from the company’s accumulated profits after Ghosn retired. As for the payment method, it is said that adding it to consulting fees was considered but a final decision had not been made.

Masayoshi Ishida, a professor at Kwansei Gakuin University who is well versed in the Financial Instruments and Exchange Law, said: “If uncertainty remains regarding the surety of the money’s receipt, such as future decision-making being required by the company, there is room for debate as to whether this constitutes a crime.”

Even if prosecutors can prove false entries on the reports, hurdles remain. 

This is the first case to deal with the understating of executive remuneration under the Financial Instruments and Exchange Law. To be able to claim that this was serious enough to constitute a crime, the special investigation squad will also have to prove that the false listing of executive remuneration is an “important matter” that would sway the judgment of stockholders. 

Crime of procedure?

Three allegations of wrongdoing have emerged involving Ghosn, including the understating of his executive remuneration. Another is the alleged private use of investment funds.

Zi-A Capital, a subsidiary established by Nissan Motor in the Netherlands for investment purposes, spent a total of about ¥2.1 billion in company funds to purchase and refurbish luxury homes in Brazil and Lebanon, but relatives of Ghosn are said to have used the properties.

The remaining allegation, of the wrongful use of company expenditures, includes Nissan’s formation of an advisory contract with Ghosn’s older sister that earned her about $100,000 annually. It has also been discovered that Ghosn had Nissan buy and rent luxury condominiums around the world, and cover such expenses as yacht club membership for Ghosn and travel costs for his family. 

There are some who view the false entries on Nissan Motor’s securities reports as merely a “crime of procedure.” The penalty mandated by law is a maximum of 10 years of imprisonment, a maximum fine of ¥10 million or both. 

The Tokyo District Public Prosecutors Office has emphasized: “The disclosure of information to stockholders is extremely important. The punishment is heavy; this is not a crime of procedure.”

Whether the remaining allegations of wrongdoing can be prosecuted under the Companies Law as such substantive crimes as aggravated breach of trust and embezzlement in the course of business will be a focus of attention in the future

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