Leader of Japanese-French Car Alliance Arrested

Greg Kelly joined the Nissan board in 2012. Pic Nissan Motor Co

Nissan Motor said on Monday its internal investigations showed its chairman Carlos Ghosn had under-reported his income and had committed other misconduct.

The arrest follows a statement from Nissan confirming that it was investigating "serious misconduct" by Chairman Carlos Ghosn and another high-level official.

News agency Kyodo reports that Ghosn is suspected of understating income by 5 billion yen over five years, or about AU$62 million.

Japanese media are reporting Monday that Ghosn is being questioned by Tokyo prosecutors on allegations that he underreported his income and that he will likely be arrested.

CEO Saikawa, a top ranking executive since 2011, emphasized that Nissan was a victim of Ghosn's alleged misdeeds but declined to say whether others besides Kelly at the automaker were involved in the wrongdoing. He holds both Brazilian and French citizenship. Additionally, he serves as the Renault-Nissan-Mitsubishi Alliance chairman.

Nissan said it was providing information to the prosecutors and cooperating with their investigation. Ghosn voluntarily went with Tokyo prosecutors, the Asahi newspaper reported.

Now Ghosn's arrest in Japan for alleged financial improprieties at Nissan could put the almost 20-year-old alliance in jeopardy.

Ghosn's alleged improprieties also raise questions over governance at the alliance in which the three partners' boards are all chaired by a single executive.

Its investors got their first chance to react to the news on Tuesday - with shares falling 6% at one stage, alongside those of Mitsubishi.

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Ghosn was seen inside Nissan as someone who keeps receiving high remuneration without confronting his own responsibility even when the company underperforms, while telling his subordinates to strictly achieve targets.

Renault shares fell as much as 15 per cent in Paris on Monday, the lowest in nearly four years in the wake of the scandal, while Nissan global depository receipts dropped more than 11 per cent.

He made his name as a turnaround specialist before he was parachuted into Nissan from Renault in 1999, swinging the axe on costs to bring the troubled Japanese firm rapidly back to profit.

As the misconduct uncovered through our internal investigation constitutes clear violations of the duty of care as directors, Nissan's Chief Executive Officer Hiroto Saikawa will propose to the Nissan Board of Directors to promptly remove Ghosn from his positions as Chairman and Representative Director.

"With Carlos Ghosn also Renault CEO, the two groups are reliant on one big hitter to solve their lopsided partnership", wrote Liam Proud, a columnist for Reuters' Breakingviews.

Adding to the complexity is the byzantine structure of the Renault-Nissan-Mitsubishi Alliance.

Seiji Sugiura, a senior analyst at Tokai Tokyo Research Institute, said the path forward remains unclear, as Ghosn may deny the allegations.

He said that because of the continuing investigation, he could not disclose many details. Shares of the carmaker fell by as much as 15 per cent in Paris, while Nissan's global depository receipts sank by more than 11 per cent.

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