Oliver's been arrested! Well, that happened in the last episode, but it seemed important enough to remind you about. Detective Lance has the evidence that shows Oliver clearly running up the stairs with the hood that's the vigilante's signature. But nobody cares about the evidence because it's much more interesting to speculate about how Detective Lance blames Oliver for the death of his daughter, Sara. Oliver keeps things on a soundly unprofessional basis by hiring the other Lance daughter, Laurel, as his lawyer. Then he steamrolls everything she tries to do on his behalf.
Oliver's plan, it turns out, is to have Mr. Diggle put on the hood and be seen somewhere prominent while Oliver is clearly somewhere else. He puts on a huge, tacky prison-themed party while Diggle interrupts a German arms dealer. And this immediately convinces everyone, so Oliver never actually has to come up with an alibi for all the stuff he did. And then he gets to go shoot some arrows at the arms dealer himself!
We also get some extended island flashbacks, in which Oliver gets kidnapped by paramilitary ninjas who want to know where the mysterious Chinese Archer hides. Oliver tells them nothing, even when a mysterious unnamed figure (spoiler: it's Deathstroke!) stabs him with a katana a few times. Oliver learns the first secret of survival: Breathe.
In other news, Walter tells his head of security to go break into that warehouse where the Queen's Gambit is hidden so he can move the ship to a different secret warehouse. But a convenient car accident kills the head of security, so Walter decides to move to Melbourne for awhile. And someone tries to kill Oliver, so Moira goes to threaten John Barrowman with terrible vengeance. She's very protective of her family, except when she's planning the shipwreck that killed her last husband and nearly killed her son.
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According to the introductory voiceover, his name is Oliver Queen and he's a billionaire who spent five years on an island. Then he came back and started killing people. And now he's been arrested! For murder! Which, frankly, I'm not opposed to. He actually has killed people, and some of them were just guys working for the wrong gang.
Before we get to the arrest, we enter Flashback Island. Five years ago, the Chinese Archer shoots dinner. Oliver is still a pampered billionaire at this point and complains about having to pick up the animal carcasses. He wants to shoot the bow! See, some people would be delighted to have someone hunting fresh food for them. The Archer hands him the bow and tells him to "breathe," which I think means he's read Zen in the Art of Archery. Oliver misses the tree by a wide margin, so the Archer tells him he will die badly. Oliver is sent into the woods to get the carcass. But just before he gets the arrow, he's set upon by three ninjas! They handcuff him and throw him in a convenient pit.
Back to the present. Oliver's a little sanctimonious in his voiceover, but it sounds like he has no interest in staying in jail. While that gets established, Detective Lance interrogates him. Oliver claims he's not who the police think he is (he's wrong). Detective Lance says he's a murderous vigilante (he's right). And he's got video evidence of Oliver running up that stairwell with the green hood. Oliver's claim is that he just happened to find the hood in a bag. And it's a coincidence that his party was across the street. That seems like a stretch. If he found the hood, why wouldn't he tell the police about it? Remember in the pilot when he reported being attacked by the Hood? Anyway, before this can get out of hand, Moira and Walter barge in to declare the interrogation over until the lawyer can get there. Exit Detective Lance. Oliver says that Detective Lance blames him for the death of his daughter Sara. And now he wants Laurel Lance as his lawyer. Moira thinks that's dumb. And it is! But she's the only lawyer in the main cast, so it's got to be her.
Moira meets Laurel at work. Laurel knows what's up with Oliver's arrest because she, like everyone else on this show, has television news on at all times. And it's always the same channel! Whatever network this is must have great ratings. Moira tells her that Oliver wants her as his lawyer. Laurel says that among the reasons this is a bad idea are that her father is the arresting officer, and that she used to be involved with him. She doesn't mention it, but she's also not primarily a criminal lawyer. Also, she's already got a job. Moira understands and apologizes, because she's not crazy.