[Updated 10 July 2020] Japan welcomed in the New Year of the Mouse (or Rat) with intense media coverage nationally and internationally about former Nissan CEO then President, Carlos Ghosn, who escaped bail on 29 December 2019 to return to his native Lebanon. The ongoing saga (with background eg here) mainly highlights pros and cons of Japan’s evolving criminal justice system, where almost all prosecutions are successful. That 99% conviction rate can be seen positively: prosecutors carefully try to second-guess judges, without subjecting the accused to unnecessary trials. This enhances rule of law values such as predictability and equal treatment, even for alleged white-collar crimes (often not successfully pursued, as we have seen world-wide after the Global Financial Crisis, even in the US). [There is a similarly high conviction rate for US federal prosecutions generally, since so few are contested at trial, as pointed out by Bruce Aronson.] But there remain concerns that Japanese prosecutors unfairly force confessions and the criminal justice system undermines other rule of law values. [These various aspects were discussed along with background shifts in the global auto industry in a 30-minute ABC National Radio program, “Ghosn has flown – the rise and fall of an auto industry mogul”, which aired on 9 February 2020 and is available as a podcast here (with extracts from my interview appearing around mid-way.)] The Ghosn affair also uncovers Japan’s relative paucity of extradition treaties, as I mentioned in a 3 January 2020 Bloomberg news article reproduced below (reprinted in the Japan Times, which continues extensive coverage).
The Ghosn case also highlights the latest (December 2019) amendments to Japan’s Companies Act, “designed to increase transparency in executive compensation at major companies in the wake of the ouster of Nissan Chairman Carlos Ghosn, who was arrested last year for allegedly understating his compensation. He has continued to deny allegations of financial misconduct. Boards of directors will now be required to disclose outlines of executive pay, such as whether it is offered in cash or shares and in a fixed or variable amount.” The revised Act also now requires companies to have at least one outside director, rather than on a “comply or explain why not” basis as under the 2014 amendments. But the revision won’t take effect until June 2021. In addition, almost all listed companies already had at least one outside director, and indeed a growing majority had at least two outside directors satisfying stricter “independence” requirements, under the 2015 Corporate Governance Code (slighted revised in 2018) that continues to apply on the comply or explain basis.
Further, as a Japan Times editorial had concluded in February 2019 (“Empower outside directors“) regarding the Companies Act amendments then being proposed by the Ministry of Justice’s law reform council:
“After the arrest of Ghosn on that and other charges that raised questions about corporate governance at the major automaker, Nissan is reportedly considering increasing the number of outside directors from the current three. However, the charges against Ghosn, who is alleged to have wielded unquestioned power within the automaker, including in deciding executive pay effectively at his own discretion, also put into question whether the outside directors have been able to play substantial roles in overseeing the firm’s management.
The arrest and indictment last year of a former outside director of an electric parts manufacturer listed on the TSE’s first section, on charges of insider trading of the firm’s shares based on confidential information he obtained thanks to his position — also highlighted the question of the quality of outside directors that companies are bringing in.
Many companies are believed to look for candidates among top executives of other firms, academics and lawmakers. The companies often reportedly face difficulties finding the right person with sufficient knowledge and expertise on corporate management. In fact, many well-qualified people are reportedly serving as outside directors at several companies simultaneously. Another question is whether the companies that tap them have established an in-house environment in which these directors can fulfil the roles expected of them, such as by providing them with sufficient access to the firm’s relevant information or by enabling them to be regularly heard by the company’s top management.
Merely making it mandatory under the law for companies to have outside directors on their board won’t be enough. A legal step like this needs to be accompanied by measures that ensure they can actually contribute to improving their company’s governance.”
Ghosn’s Escape From Japan Ramps Up Pressure on Foreign Suspects
By Lisa Du , Bruce Einhorn , and Isabel Reynolds 3 January 2020, 5:55 pm AEDT
- Foreigners expected to face tougher time posting bail
- Ex-Nissan boss paid record bail bill, then fled the country
The Tokyo district court let Carlos Ghosn post bail last March, overruling prosecutors’ objections that he was a flight risk. After all, how could one of the most recognizable foreigners in the country flee while under round-the-clock surveillance?
As the world learned this week, the court was wrong and Ghosn’s stunning escape is bound to bode ill for future foreign suspects seeking to post bail. Yet longer term, the fallout could carry broader implications for the pace of reforms to a justice system some regard as draconian.
“It’s ironic that Ghosn criticized the Japanese justice system as hostage justice, because the prosecutor’s judgment turned out to be right since he actually fled,” said Hiroki Sasakura, a professor at Keio University Law School in Tokyo. “His action might have a reverse effect on the criminal justice system, especially the Japanese court’s way of thinking, which was turning more liberal.”
Given the high-profile nature of the suspect, Japan’s legal system was already under heightened global scrutiny, with critics lambasting prosecutors for detaining the fallen automotive titan so long.
Even after gaining release from prison, the former head of Nissan Motor Co. and Renault SA had restricted access to family members and paid the highest bail fees in Japanese history: 1 billion yen ($9.2 million) for his first bail and then another 500 million yen after he was rearrested on new charges. And the court ordered his three passports — from Brazil, France and Lebanon — be confiscated.
(Ghosn’s Legal Odyssey and What It Says About Japan: QuickTake)
Japan is unusual for its lengthy pre-trial detentions, strict bail conditions and long delays before suspects are given their day in court, said Luke Nottage, a professor at the University of Sydney Law School and co-director of the Australian Network for Japanese Law.
In response to criticism from defense attorneys and after the introduction of a new jury trial system and pretrial procedures, Japanese courts in recent years were more lenient in allowing bail, Keio’s Sasakura said. A backlash has already begun, with Ichiro Aisawa, a lawmaker from Japan’s ruling Liberal Democratic Party, denouncing the decision to give Ghosn bail in the first place.
“This should have never happened,” Aisawa wrote on Twitter. “We need to establish measures so we don’t screw up ever again.”
In Japan, authorities are allowed to detain suspects for two 10-day periods for questioning before a decision is made on whether to indict. Sometimes suspects are rearrested on new charges as a way to detain them longer.
Prosecutors rarely pursue cases they think they can’t win, and Japan is known for its near-perfect conviction rate.
Those indicted in Japan may apply for bail as they await trial. About 34% of those detained received bail in 2018, according to the Japan Bail Support Association. That’s up from 15% a decade ago.
Such statistics reinforce the criticism by Ghosn, who issued a statement on Dec. 31 from Lebanon saying he had fled there to escape what he called Japan’s “rigged” justice system. This may lead to further calls for a more balanced system, according to Yuichi Kaido, a lawyer who has campaigned for changes to Japan’s criminal justice system.
“I think the international community will look at Japan’s criminal justice system with great severity,” Kaido said. “There will be harsh questions raised there about Japan’s criminal justice system, including the death penalty and what is called hostage justice.”
However, the Ghosn case isn’t likely to have a lasting impact on Japan’s attractiveness as an investment destination, according to Deborah Elms, executive director of Asian Trade Centre, a Singapore-based advisory firm. Foreign companies considering investments in Japan won’t be deterred by the situation surrounding Ghosn, she added, with Asian companies accustomed to unpredictable rules.
“This is just another example of an uncertain legal system that can be worked to your advantage or could come back and bite you,” she said.
Japan should resist internal calls to retaliate by making it even more difficult for suspects to win release from prison ahead of trial, said Nobuo Gohara, a former prosecutor who has been critical of the handling of Ghosn’s case.
“It’s very unfortunate that the efforts of his attorneys to obtain bail and the court’s judgment against the prosecutors to allow it was betrayed,” Gohara wrote in a blog post. “But we shouldn’t simplify the issue to that the court shouldn’t have allowed bail.”
There’s a change that may win widespread support after Ghosn’s escape: a push for more extradition treaties. Japan has only two bilateral agreements, with the U.S. and South Korea. That compares with more than 30 for South Korea and more than 100 for the U.S.
“It’s just one of those areas where they haven’t given much thought and diplomatic attention,” said Nottage, the University of Sydney Law School professor. “The Japanese government might be thinking about maybe we need more extradition treaties.”
— With assistance by Kana Nishizawa