Carlos Ghosn, who heads up the Japanese-French car alliance Renault-Nissan-Mitsubishi, is accused of under-reporting his income by 5 billion yen ($44.4 million; £34.5 million) over five years and using company assets for personal purposes.
Both Nissan and Mitsubishi have said they are preparing to remove Ghosn from his posts, and the board of Renault is also due to meet to decide his future.
In a late night press conference on Monday, Nissan said an internal investigation prompted by a whistleblower, revealed significant acts of financial misconduct.
The announcement sent shockwaves through the automotive industry where Ghosn, 64, is seen as a titan, responsible for a dramatic turnaround at Nissan in the early 2000s.
Nissan’s chief executive Hiroto Saikawa, speaking at the Yokohama headquarters of the firm said, too much power was given to one person in terms of governance, this is a dark side of the Ghosn era which lasted for a long time. Further adding, he said that he was still thinking through whether Ghosn was a charismatic figure or a tyrant.
Prosecutors later said in a statement that both Ghosn and senior executive Greg Kelly had conspired to understate Ghosn’s compensation, starting in 2010. Ghosn, accused of filing annual securities reports containing fake statements, could see up to 10 years in prison, or a fine of 10 million yen, or both.
From 2010, Japanese firms have been required to disclose the salaries of executives who earn more than 100 million yen. Japanese prosecutors also said they had already raided Nissan’s Yokohama headquarters, near Tokyo, as part of their investigation.
BBC Tokyo correspondent Rupert Wingfield-Hayes said the charges against Ghosn had only come to light owing to a new law that had come into effect in Japan in June, targeted at improving corporate governance and uncovering corporate misdeeds. Adding further, he said under Japanese law, Ghosn can be kept in police custody for up to 23 days without charge.
No further details of his alleged financial misconduct have been given, but some specifics were being reported by Japanese media. The broadcaster NHK reported, citing unnamed sources, that, Nissan provided Ghosn with houses in 4 countries without legitimate business justifications. Millions of dollars were spent to purchase and renovate the homes in Brazil, France, Lebanon, and the Netherlands.