Just when we thought the Carlos Ghosn saga ended with a new life in Lebanon, where he lived happily ever after his rocambolesque escape from Japan inside a musical instrument box, France issued an international warrant for his arrest.
The warrant was issued 10 days ago and focuses on €15m in suspect payments between the Renault-Nissan alliance of which he was chief executive, and the alliance’s Omani distributor, Suhail Bahwan Automobiles (SBA), said prosecutors in the Paris suburb of Nanterre.
The allegations involve misuse of company assets, money laundering, and corruption.
Four individuals are also targeted by the Nanterre Courts in an apparent link to the Omani dealership, alleging they helped Ghosn funnel millions of euros from Renault SA.
Today, Carlos Ghosn is still making headlines internationally with more details on the investigation which led to his French arrest warrant.
A comfortable slush fund
As first revealed by French newspaper Liberation, Carlos Ghosn accumulated a comfortable slush fund of 80 million euros which he allegedly amassed illegally between 2009 and 2018 while he was at the head of the Renault-Nissan group.
French investigators are particularly interested in the link between the former CEO of the Renault-Nissan and its distributor in the Sultanate of Oman, where Ghosn would have allegedly transferred his loot, according to the newspaper.
The investigation is further shedding light on the money laundering mechanism, noting that several payments issued by Renault and Nissan – nearly 120 million euros – were sent to the distributor’s accounts in Oman.
Other transfers, for an amount of 80 million euros, were allegedly re-distributed from Omani accounts to those of Carlos Ghosn and his family.
“The CEO Reserve”
Carlos Ghosn would have personally benefited from ‘retrocommissions’ (charge backs), an illegal practice, aimed at paying a higher commission than requested to an intermediary, to then recover the superfluous part of the sum .
“This investigation overlaps with some of the malfeasance already identified by the Tokyo public prosecutor’s office, but also made it possible to update a system of ‘retrocommissions’ which had never before been revealed ”, reports French newspaper the Echoes .
The principle is simple. It is normal in the car manufacturing industry for aid to be paid to bail out a distributor when he underperforms on his sales, or offer bonuses when he performs well.
The Oman distributor would have received “performance bonuses” from Renault and Nissan between 2012 and 2017 when Ghosn was serving as Renault’s chief executive. Most of the payments were made through Renault’s so-called “CEO Reserve”, a budget line set up by Carlos Ghosn at Renault-Nissan to fast-track payments and get around budget delays.
Nissan would thus have paid nearly 32 million dollars to SBA and Renault 12.5 million euros.
Whilst it is common practice for car manufacturers to provide their dealerships with incentive payments, at Renault this was reportedly done through other channels. The Omani dealership was allegedly the only distributor to ever receive a bonus from the car maker’s CEO Reserve budget line.
The bonus payments allegedly hid a chargeback (retrocommission) system that would have directly benefited Carlos Ghosn and his wife at the time.
Ghosn would have benefited from it via SBA, granting him “ 25 million euros in 2009 (…) in the form of a ‘loan’ granted to Rita Ghosn (his wife at that time)”.
The same company would have paid 7.5 million dollars more to the ex-CEO of the Renault-Nissan alliance to hire him as a “consultant in the automotive sector” .
Auditioned freely last year in Lebanon by French justice, the business manager would have admitted having received this sum . He would also have admitted not having reimbursed it, suggesting the relationship between Ghosn and Omani billionaire businessman Suhail Bahwan was not purely professional.
France has issued an international arrest warrant, but an extradition of Carlos Ghosn from Lebanon to France remains unlikely. Lebanon has as a principle the non-extradition of its nationals. However, Carlos Ghosn has triple French, Lebanese and Brazilian nationality.
Some Compliance Thoughts.
Distributors, kickbacks and slush funds
Whilst this case appears to be a charge back scheme involving collusion between Carlos Ghosn and Suhail Bahwan personally, it isn’t clear whether any of the moneys were used to further influence a foreign government official to advance any of the groups’ interests in the GCC.
So in the absence of such confirmation, we may assume this is a case of private bribery between two companies at this point.
With that said, it is worth reminding the reader that corrupt distributors or business partners often cause headaches for compliance officers in a host of ways, and one specific scheme is quite recurrent: distributors manipulating a company’s sales practices to fund bribes overseas.
The US authorities have a substantial history of FCPA cases involving distributors, going back to the early 2010s. It isn’t unusual for a company to grant “discounts”, “marketing funds”, or “credit notes” to distributors that are ultimately passed along to government officials signing the contract.
For companies that rely on distributors overseas, it is therefore primordial to understand the controls that govern the use of discounts, coupons, rebates, and sales/marketing incentives within your company, distributors, and end customers.
The idea is to limit as much as possible the conversion of any of these items into cash, and put tight accounting controls, and policies in place.
These policies and controls will not only help prevent bribery of foreign officials, but also prevent cases of private bribery, where collusion between your employees and the distributor may occur, as was the case here in the Carlos Ghosn case.
It is worth noting that kickbacks and chargebacks in particular are difficult to detect, because assets or favors are being transferred to an employee, and so they never appear on the books of the concerned company.
Consequently, companies may need to observe employees to see if their lifestyles suddenly exceed their stated incomes.
Carlos Ghosn was probably one of the most ostentatious examples, with French prosecutors believing that the payments which transited through the dealership in Oman were then used by Ghosn to purchase a 120-foot yacht and make investments benefiting him and his family.
Sumptuous parties at Versailles, private jet flights to pleasant holiday destinations, jewelry purchases at Cartier, invitations to the Cannes Film Festival or Rio, all paid for by Renault-Nissan: the suspicions targeting Carlos Ghosn primarily concerned the personal benefits that the former car tycoon allegedly derived from his position as a powerful boss.
Which reminds us that “The higher the perpetrator’s level of authority, the greater fraud losses tend to be.”
Increased use of the Money Laundering Offense
It’s interesting to note that the money laundering offense was added to Carlos Ghosn’s charges by the French authorities. France has actually long used the money laundering offense in its financial crime cases, where it has been hard to secure a conviction on the predicate offense charge alone (ie. corruption).
Today, it’s become almost impossible to violate anti corruption laws without committing a money laundering offense as well, and this trend is gaining momentum in several different jurisdictions, which ought to give pause to legal and compliance officers around the world.
Several recent FCPA indictments in the US for example have included money-laundering charges, the latest being former Goldman Sachs investment banker, Roger Ng who was found guilty of conspiring to violate the FCPA and commit Money Laundering in connection with the 1MDB scandal.
Another recent example of such prosecution is the DOJ charging two former Bolivian government officials and three US citizens with money laundering violations for their roles in a bribery scheme to secure a Bolivian government contract for a US company. Here the US has been utilizing the money laundering statutes as a way to accomplish what the FCPA could not accomplish directly –charging a foreign official.
In the US in particular, recent criminal prosecutions have demonstrated that the DOJ continues to have an appetite to fight foreign bribery around the world, but that it will no longer be limited to the FCPA in its pursuit of this misconduct.
Instead, it has availed itself of other laws – namely, the money laundering and wire fraud statutes – to target individuals engaged in foreign bribery conduct that may be outside the scope of the FCPA based on conduct that takes place almost entirely overseas, often between non-US individuals.
It is worth remembering that the relationship between the anti-bribery and anti-money laundering laws creates serious consequences for individuals and companies that knowingly transfer bribe payments or proceeds through the financial system.
A money laundering charge is a felony and often carries a more severe sentence than a corruption charge. Example: in the US one may face up to 30 years in prison for a money laundering charge vs. up to five years jail for a FCPA charge.
Given the severity of money laundering charges, compliance officers in the non-financial sectors ought to introduce AML training in parallel to their Anticorruption training, so employees and executives may fully understand their risk exposure.
Strong policies, clear accounting controls, and employees properly trained won’t solve all of a compliance officer’s problems — but it is certainly a start to mitigate some serious financial crime risks.
Compliantly LLC is as a consultancy engaged in compliance that has been trusted by clients to provide advisory to mitigate fraud and corruption, including ,risk assessments, whistleblowing systems, due diligence, policies and personalized training . Protect your company from fraud, contact us for more information on our compliance services.
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