Verdict nears in trial of former Nissan executive Greg Kelly in Japan

TOKYO — More than three years after former Nissan director Greg Kelly was jailed during a business trip to Japan, a Tokyo court will rule whether the American is guilty of helping his former boss Carlos Ghosn allegedly hide more than $80 million in deferred compensation.

A three-judge panel delivers its verdict March 3 in Tokyo District Court, issuing a closely watched decision that has become a lightning rod of corporate and diplomatic maneuvering.

If the judges accept Kelly's defense argument, the former human resources executive from Tennessee could finally be heading home for the first time since his arrest on Nov. 19, 2018. If not, Kelly could be spending two years here locked in prison, per prosecutors' demands.

Click here for all of Automotive News' coverage of the Carlos Ghosn scandal.

But there are other possible outcomes to the drawn-out trial, which began Sept. 15, 2020.

There could be a guilty verdict with a suspended sentence, which would allow Kelly to avoid prison. Kelly's attorney says under such circumstances Kelly may even be allowed to leave Japan.

On the flip side, the rules of Japan's justice system also permit prosecutors to appeal acquittals — and they routinely do so. In that scenario, the case could grind on even if the court clears Kelly.

In a series of interviews with Japanese media ahead of the judgment, Kelly vowed to appeal any guilty verdict. But he didn't think it would come to that — he sees only an acquittal.

"I don't believe I will be convicted," he told Japan's Asahi newspaper. "There is no crime in the first place."

Working against Kelly, however, is a justice system that boasts a 99 percent conviction rate.

Kelly, 65, was initially jailed for more than a month before being released late Christmas Day in 2018. Since winning bail, he has lived in a cramped Tokyo apartment with his wife Dee just across the moat from Japan's Imperial Palace. Under the terms of his bail, Kelly is grounded in Japan. His wife had to enroll in a Japanese language school for a visa that enables her to stay by his side.

The new U.S. ambassador to Japan, former Congressman Rahm Emanuel, pledged during his October confirmation hearing to make Kelly's case a "top priority." After arriving to take up the post in January, the diplomat called Kelly to talk with the American defendant and his wife.

Speaking last week at the Foreign Correspondents' Club of Japan, Emanuel declined to comment on the merits of the case, or on whether Kelly was being handled fairly by Japan's justice system. But Emanuel said he had an obligation to advocate for Kelly, adding that he didn't want to say "anything that would adversely affect any chances that he and his family can be reunited."

The trial has turned an unflattering spotlight on Japan's legal system and the country's attractiveness as a place to do business. It has also highlighted corporate governance problems that long festered inside Nissan — from allegations of misconduct and overreach by former Chairman Carlos Ghosn to the actions of a rogue group of executives that brought him down.

Testimony told of lapdog auditors, rubber-stamp board meetings, internal investigations tainted by conflicts of interest, and long-seething tensions between Nissan and its alliance partner and top shareholder, French carmaker Renault, which was also headed by Ghosn.

Japan is prosecuting the charges against Kelly as a criminal case, even though such allegations might be handled as a civil or administrative affair in other jurisdictions.

In Japan, the charges carry a maximum sentence of up to 15 years. But prosecutors said they sought two years, mindful of the time Kelly has already spent detained in Japan.

In the U.S., by contrast, Kelly settled a Securities and Exchange Commission administrative proceeding over the accusations by agreeing to a $100,000 penalty, a five-year bar on serving as an officer and director, and a five-year suspension from practicing or appearing before the Commission as an attorney. Kelly settled without admitting or denying the SEC's allegations and findings.

(Ghosn agreed to a $1 million civil penalty and a 10-year ban on serving as a corporate officer or director at a publicly traded U.S. company — also without admitting to the allegations.)

Veteran chief judge Kenji Shimotsu, who is overseeing Kelly's trial, has a tough-nut reputation.

Just last autumn, he sentenced a 90-year-old former senior government bureaucrat to five years in prison for negligence in a deadly car crash. The defendant was found guilty of mistaking the gas pedal for the brake as he plowed through a crowd, killing two people and injuring nine. The judge reportedly said he was being lenient because the driver was at least not inebriated at the time.

At the heart of Kelly's case is the whether the former executive was part of an alleged under-the-table effort to hide nearly half of Ghosn's super-sized compensation by paying it out to him later.

Prosecutors accuse Ghosn, 67, and Kelly of hiding some 9.3 billion yen ($80.5 million) in postponed compensation from 2010 to 2018. Both men, arrested the same day in 2018, deny any wrongdoing. But after Ghosn fled Japan for Lebanon in 2019, Kelly -- his longtime American human resources chief and a former director on the board -- was left to fight the charges alone.

Kelly readily admits that Ghosn took a massive pay cut — to the tune of around half his salary — in 2010 when Japan's financial disclosure rules changed. According to Kelly, Ghosn feared that if the true scale of his Nissan paycheck were known, he would face withering backlash in France.

But prosecutors allege Nissan made a deal to pay back that salary shortfall — the amount Ghosn would have earned had he not taken the pay cut — thereby illegally skirting disclosure rules. Kelly counters there was nothing to disclose because no retirement deal was ever finalized.

Kelly's defense also argues that he was working on a retirement package to be paid in retirement for work done in retirement. As such, the defense maintains, there would be no obligation to disclose that payout, and therefore the charges are moot.

The pay cut Ghosn took, referred to as a shortfall by Kelly, only served as a frame of reference for Ghosn's expectations.

"There was no need to report because Carlos Ghosn never got paid, and there was never an agreement to pay Carlos Ghosn," Kelly said in a recent interview with Kyodo News.

But in closing their case against Kelly, prosecutors said the retirement plans were simply a pretense to compensate Ghosn for the pay cut he took in his last eight years.

"It is clear that Kelly knew that the shortfall equals postponed remuneration, according to pieces of objective evidence," the prosecutor said.

The prosecutors pointed to compensation agreements for Ghosn and spreadsheets maintained by a Nissan manager, the latter of which clearly list certain pay figures as "postponed remuneration."

Prosecutors said Kelly engaged in the "laundering of backdoor/off-the-book compensation" and that he was the only one with the expertise who was senior and trusted enough to pull it off.

Prosecutors also argued that Kelly had the motivation to devise the scheme for Ghosn partly because Kelly himself hoped to benefit from a similar deferred compensation plan with his own pay. After being appointed to the board, Kelly asked Ghosn for approval to receive remuneration in another form later without it being disclosed in Nissan's securities report, they said, and Ghosn acceded.

Kelly testified that he indeed worked on compensation for Ghosn, but the defense says those were potential retirement packages aimed at retaining Ghosn's services after he stepped down. And because they were for post-retirement work, there was no requirement to report it.

But in the end, Kelly maintains, no package was ever even finalized.

The defense also argues that was Kelly was not involved in the tabulation of any "postponed remuneration" tables and didn't even know about their existence until after his arrest.

Ghosn, now holed up in Beirut as an international fugitive still wanted in Japan, maintains that old-guard nationalists inside Nissan framed him on false financial misconduct charges to block him from further integrating the Japanese carmaker into Renault under a holding company.

Kelly's backers posit the same theory. But the argument did not feature prominently in Kelly's courtroom defense, as his attorney focused instead on trying to pick apart the various legal claims.

Ghosn jumped bail from Japan saying that he couldn't get a fair trial in Tokyo. But if Kelly is cleared in court, Ghosn will likely trumpet the verdict as proof that he too was innocent all along.

The reality is more nuanced, however, because Ghosn faces two additional criminal indictments — more serious accusations of breach of trust — that were never even leveled against Kelly.

Those charges weren't touched on at all in Kelly's trial. And their details have yet to be divulged by prosecutors, who are still hoping that, one day, Ghosn will be hauled before a Japanese judge.