Spirited away? Carlos Ghosn, the Japanese legal system and the hunt for universal rule of law

The arrest of ex-Nissan CEO Carlos Ghosn in 2018 and his subsequent escape from Japan by private plane have made for one of the most spectacular criminal cases in recent times. While the affair kept international observers and UN panels occupied, Ghosn actually accused the Japanese state and his former employer of nothing less than violations of human rights and a vast conspiracy against his person. 

A Comment by Lars Feyen and Paul Guthmann

 

Part 1: The business side 

 

The rise and fall of an international businessman

The case raises a number of points about the rule of law in Japan. It also shows that Western perceptions of the Japanese legal system show at times a lack of insight and nuance. Looking at the renditions of the Carlos Ghosn case in Western media today, the reader finds himself in a Hollywood-esque thriller: A hero, detained by an unfair judicial system in a remote and unknown country, flees injustice in an audio equipment-style case (aided by two sidekicks one of them a former member of the U.S. special forces). 

Indeed, after the Renault-Nissan CEO jumped bail in Japan in late 2019, Western media went crazy. The story of Ghosn’s escape has been featured at length in Vanity Fair and two Bloomberg Business Week reports (“The Tokyo Job” and “Carlos Ghosn Never Saw it Coming”), to name a few examples. However, in focusing strongly on the circumstances of Ghosn’s escape, the international legal implications and debates around the case often get obscured. In fact, in February 2021 the U.S. Supreme Court has issued a ruling in a case closely linked to the Ghosn escape that has barely found an echo in European media discourse.

In two parts, we will illustrate how the case of Carlos Ghosn has played out in the end and analyse broader international debates that were linked to the case. These include business relations between Japan and the West, and Europe’s perception of Japanese rule of law, especially the notion that the Japanese legal system has more serious deficiencies than its Western counterparts.

 

What happened?

Starting off, a quick timeline of events to recap the case appears necessary: On 19 November 2018, the CEO of the Renault-Nissan alliance, Carlos Ghosn, was arrested and later indicted on four charges. Firstly, Ghosn was charged with two cases of under-reporting around 88 Mio. USD of his earnings to the Tokyo Stock Exchange over a period of 8 years from 2010 to 2017 (divided into two periods). The third indictment charged Ghosn with a breach of trust, having Nissan cover personal losses in the wake of the financial crisis in 2008. The fourth charge accuses him of misappropriation of company assets by transferring 5 Mio. USD from Nissan to a Ghosn subsidiary.

After multiple re-arrests, Ghosn was released on bail on 25 April 2019. On the night of 29 December 2019 he fled from Japan. Ghosn was aided by Michael Taylor, a former member of the U.S. Green Berets operating a private security company, and his son Peter Taylor. On 31 December, the public learned that Carlos Ghosn had fled Japan and is now in Lebanon, a country that has no extradition treaty with Japan. In a press conference in Beirut on 8 January 2020, Ghosn contended he had been a victim of a conspiracy to remove him from his position as leader of the Renault-Nissan alliance. Ghosn was suspended from his position at the Board of Directors on 22 November 2018 and resigned from his position as chairman and CEO of Renault SA on 23 January 2019.

 

A conflict long in the making

To fully understand the Ghosn case, it helps to understand the nature of the recent Renault-Nissan alliance. In 1999, Renault was confronted with the question of whether to acquire Nissan or to enter an alliance. Fabien Blanchot and Michel Kalika, professors of management at the Université Paris Dauphine and IAE Lyon School of management, identify three reasons for why, at the time, the CEO of Renault, Louis Schweitzer, chose the alliance model.

Firstly, Nissan at the time had a debt of somewhere between 18 and 25 billion USD. Acquiring Nissan would have meant repaying this debt and it was questionable whether Renault was able to shoulder these losses. Secondly, an acquisition was difficult from a managerial perspective. Given the perceived differences in French and Japanese management culture, it was unclear whether effective management of a Renault-Nissan fusion was realistic. Finally, from a political perspective a takeover of one of the Japanese hallmarks of automobile manufacturing by Renault, basically unknown in Japan at the time, was also politically unfeasible.

So in 2002, an alliance structure was set up where Renault controls 43 percent of Nissan and Nissan has a 15 percent non-voting stake in Renault. The French state is traditionally a major stakeholder in Renault (formerly a state-owned enterprise) and holds currently around 15 percent. But since 1999 a lot has changed: Looking at today’s value, Nissan’s economic struggle appears to be all but over. In fact, Nissan Motors (13.5 billion USD) has more than doubled the market value of Renault (5.8 Billion USD) and has outperformed its French counterpart in sales (96.3 billion USD to 62.2 billion USD). 

Looking at these numbers, the asymmetric alliance structure has been a concern of the Japanese side for a long time, starting in 2015 when the French government – under a young minister of economy named Emmanuel Macron – increased its stake in Renault overnight to an almost 20 percent to push through the implementation of the “Florange law“, that would double the voting rights of long-term investors (and that of the government). That rang a bell in Japan where Nissan feared a takeover by a French government equipped with double voting rights in Renault which in turn owns a big stake in Nissan. After threats of Nissan to leave the alliance, an emergency deal was struck: Renault inter alia gave up most of its control over non-strategic decisions in Nissan which shifted the power balance within the alliance significantly.

Fast forward to 2018, Carlos Ghosn’s reappointment as CEO of the alliance is conditioned by the French Government (still a major stakeholder in Renault) on an intensification of the alliance. While pledging to envision a merger (given that the French government significantly reduced its stake in Renault) under his control, Ghosn’s proposal did not bode well with both the French and the Japanese side of the alliance. Ghosn envisioned a strong integration and internationalisation of the value chain, this would – most certainly – involve an outsourcing of manufacturing jobs from Renault in France (which is a political nonstarter). 

On the other side, the Japanese, traumatised by the potential takeover of Nissan by the French state in 2015 and keen to forge a more equitable alliance, were also strongly opposed to a merger between Renault, Nissan and Mitsubishi under the control of Carlos Ghosn and possibly France. While it is impossible to verify whether there was, as Ghosn contended in his press conference, a conspiracy that landed him in Jail, and whether the charges against him are accurate (a question that courts have to deal with), the picture of Ghosn’s arrest becomes more nuanced when factoring in the longstanding conflict in a brittle alliance. 

Justified or not, the Ghosn case sheds light on a deeper confrontation within the alliance that has long been underway and is essentially industrial-political, affecting Japan-France relations. The rebalancing of this alliance was, not by chance, at the core of the Memorandum of Understanding that was negotiated between Renault, Nissan and Mitsubishi in March 2019 as a consequence of the Ghosn-crisis. The heads of the three companies decided on a checks-and-balances system where both Nissan and Mitsubishi have key veto-powers and important bodies are staffed equitably with Nissan, Mitsubishi and Renault officials, thus significantly changing the power balance within the alliance.  

 

Part 2, with a focus on the legal aspects of the case, was published on 14 May

 

The Polis Blog serves as a platform at the disposal of Polis180’s & OpenTTN’s members. Published comments solely express the authors’ opinions and shall not be confounded with the opinions of the editors or of Polis180.

Image via unsplash

 

Paul is a student of International Relations with a focus on East Asia. He graduated from King’s College London in the field of Conflict Studies. His research interests include Japanese foreign policy, East Asian regional disputes and US foreign policy. Paul has been involved with the Connecting Asia programme since late 2020.

Lars has studied International Relations and Romance Languages in Erfurt and East Asian Studies in Groningen. He also spent one year studying at Sophia University in Tokyo and worked in audio journalism. He currently writes a weekly newsletter called Ausblick Ost about East Asian politics on Substack. Interested in the intersection of public law, policy decisions and history, Lars has been involved with Connecting Asia since late 2020.

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