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Aug 24, 2018

Trump Insiders Could Offer `Holy Grail' of Hidden Finances I Politics I Bloomberg


By David Kocieniewski and David Voreacos


Michael Cohen’s guilty plea is opening a door to a long-closed world -- the business of Donald Trump.
Many have tried, unsuccessfully, to get a look. Trump rebuffed calls during the election to release his federal tax returns. Public advocacy groups have sought those returns and failed. Even his ex-wives, and by one account his bankers, haven’t been able to get a full view of Trump’s finances.
But now that Cohen has told prosecutors that Trump directed him to pay women for their silence and was repaid by the Trump family business, U.S. and New York authorities are taking a closer look.
“Because there are tax implications to all these transactions, it even opens up Trump’s tax returns to state and federal prosecutors: The Holy Grail,” said Frank Agostino, an attorney in Hackensack, New Jersey, who formerly prosecuted U.S. tax cases.
David Pecker
Photographer: Francois Durand/Getty Images
Since Cohen spoke earlier this week, it has emerged that federal authorities have granted immunity to two key witnesses. Allen Weisselberg, the longtime chief financial officer of the Trump Organization, is cooperating, the Wall Street Journal reported. So is David Pecker, whose American Media Inc. made “catch and kill” deals that helped keep illicit affairs out of public view, as Vanity Fair first reported. Also circling are New York authorities, whose actions would be beyond the president’s power to issue federal pardons.
Tax charges never sound sexy. Trump and his team spend more time on Twitter and TV batting back other allegations thrown their way, like a Russian conspiracy and obstruction of justice. But tax law has been a fundamental tool for authorities since the days of mobster Al Capone. This week, tax crimes helped sink Cohen (five of eight counts) and Trump’s former campaign chairman, Paul Manafort (six of eight).
Tax crimes rarely stand alone, as the Cohen and Manafort cases demonstrated. But when prosecutors are working through often murky investigative strands, the concrete numbers found in tax forms are often a starting point. Anyone who has signed off on false tax forms may be eager to cut a deal to avoid penalties. A key witness in the Manafort case was his onetime deputy Rick Gates, who faced tax fraud charges of his own until prosecutors dropped them in a deal for Gates’s cooperation.

Deductible Expenses

For Trump and his business, Cohen’s admission this week suggested a potential tax problem. The longtime lawyer and fixer said payments to women (who said they’d slept with Trump) were in fact illegal donations to Trump’s presidential campaign intended to avert bad publicity.
Cohen paid $130,000 to silence porn actress Stephanie Clifford, known as Stormy Daniels. The Trump Organization later paid him $420,000 to cover the Daniels payments, Cohen’s tax liability and a bonus, according to federal prosecutors. The company accounted for it as legal expenses.
Lawyer bills, like other business expenses, are tax deductible. Campaign contributions aren’t. Authorities, whether federal or state, are certain to ask hard questions about how the business accounted for the payment, and whether it was a legitimate expense.
They are also likely to look back at any similar deals and how Trump executives may have accounted for those transactions. According to the Associated Press, Pecker’s company, American Media, kept a safe with contracts detailing payments to people whose stories about Trump and others had been purchased and squelched.
Trump probably hasn’t filed 2017 taxes yet. White House Press Secretary Sarah Huckabee Sanders said earlier this year he would do so by Oct. 15. The president’s personal return will reflect income from the web of limited liability companies that comprise the Trump Organization.
If any business expenses were mischaracterized, the companies could be deducting a cover-up “and making the U.S. public pay for their cover-up and campaign with our tax dollars,” said Agostino.
Alan Futerfas, a lawyer for the Trump organization and foundation, declined to comment on the matter.
Calls and emails to Weisselberg weren’t returned. Pecker didn’t respond to requests for comment. Neither Weisselberg nor Pecker has been accused of a crime.

Conflicting Accounts

The president and his lawyers have given conflicting accounts about the payments to Daniels and Cohen and haven’t addressed any potential tax implications. In an interview with Fox News on Thursday, Trump expressed disdain for the campaign-finance charges to which his former lawyer pleaded guilty. “What Michael pled to weren’t crimes,” he said.
Trump has famously shielded his full financial picture from his spouses, by way of prenuptial agreements, and sometimes his bankers, who have pressed for personal guarantees for loans.
Trump has previously cited an Internal Revenue Service audit to explain why he hasn’t released his tax returns, although the IRS has said he’s free to release them.
State authorities have been spurred on by the Cohen plea. Manhattan’s district attorney is assessing whether to begin an investigation into the Trump business. And the state’s attorney general is seeking a referral to dig deeper into Cohen’s tax matters and related issues.
In a civil matter earlier this year, New York sued Trump and three of his children for engaging in a long pattern of “illegal activity” by using the charitable Trump Foundation to pay business, personal and campaign expenses. Trump signed off on those returns. That issue was referred by the state’s Attorney General to the IRS for investigation, as well as the Federal Election Commission. Its status is unclear.
The foundation has rejected the allegations, accusing New York enforcers of a political campaign to smear the president and his children.
Tax experts say the foundation complaint is unlikely to generate criminal charges. They consider fines and civil sanctions a more likely outcome.
“It seems like a very strong case and a very serious case,” said Jeremy Temkin, a former federal prosecutor who now handles white-collar defense cases at Morvillo Abramowitz law firm. “It has already impacted the foundation and could impact those close to the foundation.”
The president was directly involved in decision-making at the foundation, according to documents and testimony released by the New York Attorney General’s office in June. The New York report included testimony from Weisselberg and another official who said Trump personally reviewed every check from the foundation.
Weisselberg’s immunity deal is a clear threat to Trump because of the executive’s extensive knowledge of the inner workings of Trump’s company, said Harry Sandick, a former federal prosecutor in Manhattan who’s now a white-collar criminal defense attorney.
Weisselberg “knows a lot of detail about how the Trump Organization worked, not just with respect to the campaign, but in all regards and for many years,” Sandick said. “If he has immunity, he can be compelled to speak about Trump, his family and his associates.”
— With assistance by Shahien Nasiripour, Greg Farrell, Erik Larson, and Caleb Melby
(Adds Trump Foundation’s previous response to New York civil suit.)