Why Donald Trump Should Be Nervous

Could Trump’s Suspicious Financial Transactions Be Scrutinized?

Robert Mueller, Donald Trump

Editor’s note: Martin J. Sheil is a retired branch chief of the IRS Criminal Investigation division.

Special Counsel Robert Mueller has apparently expanded his investigation of the Trump campaign’s connections to Russia to include examination of suspicious financial transactions of White House-connected individuals.

Recent media reports have indicated that the finances of Trump campaign associates Michael Flynn, Paul Manafort, Carter Paige, Roger Stone and Trump’s son-in-law Jared Kushner are coming under Mueller’s microscope.

This raises important questions: Will President Donald Trump’s finances — and his tax returns — be next? What might such a financial inquiry of Trump himself find? What led Mueller to broaden his investigation of Russian meddling in the 2016 US election to now include the finances of Trump associates?

WhoWhatWhy recently discussed how following the money might turn out with regard to Flynn. WhoWhatWhy has also recently looked into possible illegal dealings with Russian officials by Kushner.

Answers to these questions might well be found in the vast financial repository of the US Treasury organization, the Financial Criminal Enforcement Network, also known as FinCEN.

Mike Flynn, Jared Kushner, Roger Stone, Paul Manafort, Carter Paige.

Left to right: Mike Flynn, Jared Kushner, Roger Stone, Paul Manafort and Carter Page. Photo credit: US Embassy in SyriaLori Berkowitz Photography / Wikimedia (CC BY 2.0), Watch the video on C-SPAN, Watch the video on C-SPAN and MSNBC / YouTube (Creative Commons Attribution license – reuse allowed).

Done in by the Bank Secrecy Act and the Patriot Act

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The Trump administration has reason to be worried: Financial shenanigans have tripped up notable political figures in the past.

In 2008, Eliot Spitzer resigned as Governor of New York after embarrassing revelations that he had engaged an escort service while he was married.

The Spitzer investigation was triggered by a Suspicious Activity Report (SAR) issued by a New York bank and filed with the IRS. Special Agents with the IRS Criminal Investigation (CI) reviewed the SAR, which indicated suspicious financial dealings by two shell companies.

Upon drilling down, the IRS agents found that someone by the name of Spitzer was making wire transfers totaling just under $10,000; the money ultimately ended up at the escort service supplying Spitzer with companions for his scandalous soirees at the Mayflower Hotel.

Ex-Speaker of the House Dennis Hastert was indicted in May of 2015 for violating bank reporting requirements. The indictment accused Hastert of structuring withdrawals to avoid these reporting requirements, and lying to the FBI about the nature of the withdrawals.

It came out that Hastert had agreed to pay $3.5M in hush money to keep someone quiet about his “prior misconduct.” The banks that Hastert frequented, the indictment stated, were required to “prepare and file with FinCEN, a Currency Transaction Report (CTR) for any transaction or series of transactions involving currency of more than $10,000.”

From 2010 to 2012, Hastert made 15 withdrawals of $50,000 from multiple bank accounts in order to make the hush money payments, according to the indictment. The Huffington Post, among other media, reported that one or more of the banks flagged the transactions as suspicious.

Spitzer and Hastert are only two of the well-known politicians ensnared by the Bank Secrecy Act and the Patriot Act, which together form the substantive efforts of the Federal Government to ensure that the American banking system is not willy nilly manipulated to facilitate financial transactions involving proceeds derived from unlawful activities.

The Investigator’s Weapons

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Should a bank identify suspicious financial transactions by a customer, it is required to file a SAR (Suspicious Activity Report) with FinCEN. The SAR reports are reviewed periodically by designated law enforcement agencies that participate in what are known as Financial Investigative Task Forces. SARs are also available in the FinCEN database to law enforcement members who have been given access by both their agencies and FinCEN.

Eliot Spitzer, Dennis Hastert

Eliot Spitzer and Dennis Hastert. Photo credit: Timothy Krause / Flickr (CC BY 2.0) and US Navy / Wikimedia.

Experienced financial investigators embark on sensitive investigations by querying FinCEN databases, using available target identifiers such as Social Security and phone numbers.

As in the Spitzer case, a Suspicious Activity Report from a bank often leads investigators to probe deeper. The next step is often a FinCEN query; such queries are quick and easy, providing immediate results that can be followed up with bank subpoenas to sustain the investigation.

In most cases, investigators will only request tax returns later in the process, since such requests are governed by strict IRS disclosure protocols and criteria, which are listed in the federal tax code.

Turning to Tax Returns

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One person in the Russian investigation who may have revealing tax returns is Michael Flynn. We know that he received specific items of income from foreign sources — namely Russia and Turkey — in 2015 and 2016. We also know that Flynn failed to disclose at least some of these payments on his Security Disclosure forms, and also failed to communicate the receipt of the income to the appropriate authorities at the Department of Defense (DoD), as required and directed.

Mueller would be well advised to request Flynn’s personal and business tax returns to determine whether, in addition to his disclosure forms, he concealed the foreign income on his tax returns.

This would further document Flynn’s overt acts of concealment of the income and help ascertain whether Flynn knowingly failed to disclose such income — a finding necessary to prosecute him.

Although Mueller likely will pursue Flynn’s tax returns, this might not be productive in Trump’s case, at least for the time being.

Mueller can obtain Trump’s tax returns via grand jury (GJ) subpoena or he can file what is known as an ex parte 6(e) request with IRS. This requires an affidavit outlining detailed probable cause as to the likelihood that Trump’s tax returns are false or would serve as material leads to evidence of a crime, e.g. money laundering. This 6(e) request must be signed off by a federal judge. Both of these methods of requesting tax returns can be slow.

Should Mueller opt for use of a GJ subpoena, Trump’s tax returns will be forever shielded from public scrutiny given that they would fall under GJ secrecy requirements.

The quickest way for Mueller to obtain tax returns would be to request IRS Criminal investigators be assigned to the Special Counsel’s investigation. IRS special agents can then use internal protocols to quickly obtain whatever tax returns they need.

What Should Make Trump Nervous

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Mueller will undoubtedly jump through the hoops needed to obtain Trump’s tax returns if the investigation reaches the point where the returns can be informative and probative of potential crimes — as in the Flynn situation.

It is likely that Mueller’s team will first exhaust FinCEN queries before requesting tax returns. Criminal tax crimes are historical in nature, and usually require proof of a pattern of evasion over two or more past years; for this reason, tax investigations can drag on for years.

Investigations of money laundering, however, focus on more recent or contemporary individual financial transactions that are characterized as “present-day tax evasion” or tax evasion in progress.

Melania Trump, Donald Trump

President Donald Trump and First Lady Melania Trump. Photo credit: The White House / Flickr

Investigations of individual financial transactions — such as payment of millions of dollars for a luxury condominium with proceeds of a specified unlawful activity — can be quicker than long, drawn-out criminal tax cases. Money laundering charges also pack a wallop with up to a 20-year prison sentence for each count of the indictment, compared to the three to five-year penalty for tax charges. Every prosecutor looks for maximum flexibility in terms of charges and potential sentences with which to leverage the subjects of their investigations.

Damning Frames of Reference

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A tax return is most informative when examined within a frame of reference. For example, any probe of Flynn’s tax returns would compel the agent to look for the already known specific amounts of income received by Flynn from Russia and Turkey via Flynn’s LLCs. The foreign income needs to be examined separate and apart from any income received from his government salary, or paid to Flynn by the Trump campaign and likely reported on Flynn’s SF-86 Disclosure forms.

Mueller now has possession of Trump’s 2017 Financial Disclosure statement which makes his 2017 tax return fairly superfluous. Surely he would be interested in whether Trump listed any foreign bank accounts or foreign bank account activity on his Schedule B of his personal tax return. Trump’s Financial Disclosure forms list hundreds of entities, many of which are LLC’s, that he has joint investment interest.

Without a frame of reference, tracing income from real estate sales through hundreds of LLCs owned by Trump, and from shell company LLCs owned by the buyers, would be a challenge to the best of financial investigative teams.

This is where reference to FinCEN databases can help. The team investigating Trump will need to construct massive spreadsheets to list all of the properties and corresponding LLCs that Trump uses to control the sale and leasing of his properties.

Donald Trump, disclosure form

Donald Trump’s Financial Disclosure Report, 2017. Photo credit: documentcloud.org

His Financial Disclosure form lists approximately 500 companies/properties, a figure substantially confirmed by USA Today’s lengthy catalogue. We know from Trump’s disclosures that he has approximately $315 million in liabilities, the bulk of which emanate from Deutsche Bank, which has been the subject of multiple money laundering queries here and abroad.

More spreadsheets will be needed to corroborate those loans from Trump’s business and personal tax returns. We also know from Trump’s disclosure forms that he had minimum foreign investments and liabilities. A FinCEN analysis of their Foreign Bank Account Record database — in concert with review of Trump’s Schedule B — should provide confirmation of his bank accounts and whether he has any overseas accounts.

Elusive Shell Corporations

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Foreign buyers of Trump luxury condos — who conduct their investments through shell corporations called LLCs, and route their investments through offshore LLC bank accounts — have come under suspicion of trying to “launder” ill gotten foreign monies by converting their income into above-board holdings of American real estate.

Not much was done about the situation over the years and many real estate moguls located in the big cities of the US profited greatly from US governmental inaction. Trump was one of them. The media is replete with stories of the many hundreds of luxury Trump condos sold to foreign- owned shell companies over decades.

Many of these properties were paid for without any mortgage loans, making the transactions all cash. Trump’s sons were famously quoted in 2016, boasting of the influx of millions of dollars of Russian money invested in Trump properties.

So how does Mueller pin down the identities of the individual foreign investor into Trump properties? Tax returns will not be helpful, given the anonymous nature of the transactions.

Trump Tower

Trump Tower Photo credit: CEBImagery / Flickr (CC BY-NC 2.0)

USA Today has documented the sale of at least 58 units for about $90M by Trump companies since Trump announced his candidacy. Half of those sales were to LLCs.

While the President is immune from most conflict-of-interest rules that govern the rest of government employees, it would still be informative to know just who is buying Trump luxury condos and for how much.

This information could be valuable in deciding whether Trump violated the Emoluments provision of the Constitution, which bars sitting presidents from receiving income from any “foreign State.” Multiple lawsuits are brewing on this very issue. Documentation of the sales of Trump properties to foreign owners would be central to any such suits. Should Congress find that Trump violated the Emoluments Clause, impeachment proceedings could be initiated.

Geographic Targeting Order (GTO)

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While we don’t have Trump tax returns to pore over with regard to the sale of Trump luxury condos to foreigners, the government can use a recently devised financial tool directed at luxury real estate sales for cash.

This FinCEN mechanism is called a Geographic Targeting Order (GTO). It was first implemented on March 1, 2016, to require title insurance companies to identify the individuals behind large “all cash” purchases of high-end residential real estate in Miami and Manhattan transacted through shell companies. Using this GTO, FinCEN discovered that a significant portion of the transactions were linked to possible criminal activity by the individuals behind the shell company purchases.

This GTO is a powerful investigative tool because it penetrates shell companies (LLCs) by requiring title insurance companies to identify persons with a 25% or greater ownership interest in a legal entity purchasing residential real property without a bank loan or similar external financing above certain transaction thresholds, e.g., Manhattan – $3 million, Brooklyn – $1.5 million, Los Angeles – $2 million, and $1 million for Miami-Dade and Palm Beach counties in Florida.

Robert Mueller

Official portrait of former FBI Director Robert Mueller, who served from September 4, 2001 to September 4, 2013. Photo credit: FBI

So now Mueller has a real tool — the GTO — to apply to the dozens of properties sold by Trump companies to what may be shell corporations in the months since Trump announced his candidacy. If the Trump representative on the sale side of the all-cash transaction can be shown to have been aware that the buyer was investing illicit proceeds, that seller can be charged with conspiring to money launder or aiding and assisting money laundering.

Finally, if the buyers of Trump condos are really citizens of foreign countries who have used foreign-derived funds to invest in Trump properties since the inauguration, then Trump may well have violated the Emoluments Clause of the US Constitution.

All of the above can be established without ever looking at Trump’s tax returns — however much we may want to see them. The Watergate investigation led to multiple criminal tax violations as a result of following the money. Given the evolution of modern financial investigative techniques and technology, Russiagate has the potential to expose multiple money laundering violations.

FinCEN databases are likely more critical to Mueller’s probe than tax returns. But Mueller needs to staff his team with the best financial investigators in the world — IRS Criminal Investigation —  and not rely solely on the newly created FBI money laundering unit reputedly tasked with this most challenging assignment.


Related front page panorama photo credit: Adapted by WhoWhatWhy from Trump Tower (keith.bellvay / Flickr – CC BY 2.0) and logo (FinCEN).

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15 responses to “Why Donald Trump Should Be Nervous”

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  5. andrew1212 says:

    As your article states: USA Today claims Trump sold 58 units worth $90,000,000 in since his announcement to run for POTUS–an average of about $1.55 million per unit. Half the sales were to LLCs.

    Use of a Limited Liability Company (LLC) is very common in real
    estate — most developers (and many investors) use a brand new LLC on
    every project/investment because an LLC limits the liability to that one
    specific project (so you can’t be sued for other money or assets you
    have outside the LLC). LLCs are intended to provide privacy and protection for the investors.

    If the All Cash Buyers were smart–they would have kept their investment(s) below the 25% threshold and below the dollar limit for each city as well. Obviously, the investors would have had to be using a very well-informed real estate attorney to advise the specific parameters–especially since the regulations were put in place recently.

    Every state in the US has different real estate laws–but how easy is it to change an LLC from one investor to having 5 investors? Can you just tell your attorney to add four family members, then purchase a condo and stay under the 25% radar?

    For me, the article comes down to this one accusatory sentence:
    —————-
    Using this GTO, FinCEN discovered that a significant portion of the
    transactions were linked to possible criminal activity by the
    individuals behind the shell company purchases.
    —————–

    What is a “significant portion” — 5% or 80%? Isn’t even one violation “significant” (as it would be illegal)? “Possible criminal activity” seems to be a very loose term as well.

    I would think it would be quite hard to prove beyond a reasonable doubt that a realtor (or developer) knows exactly where money is coming from–generally, realtors are quite happy to write-up a deal. After the contract is signed and the earnest money paid, the attorneys representing both sides of the transaction handle the details between the buyer and the developer.

    All Cash Deals are rarely (if ever) frowned upon–because the deal is a Slam Dunk. Nor are All Cash Deals rare–developers/investors use them often–they can be the difference between winning a bid and losing a bid if there are multiple offers.

    (Note: Usually the building’s association also approves buyers/tenants and would check the applicant’s background for work/criminal history, etc.–normally this is overseen by the building association’s manager. If the building is under construction–the developer would basically be setting the rules and making the approvals.)

  6. 0040 says:

    Mueller is a deep state hack who favours torture, rendition, oppression, and subversion of civil rights . A perfect choice for an American investigative committee. Only Allen Dulles or J Edgar Hoover would have been better to guarantee America’s freedoms/ and deliver justice?

    • russbaker says:

      Well perhaps this makes him best qualified to convince the reticent to “talk”

    • 0040 says:

      Sure. After a little torture, fingernail pulling or waterboarding, they will verify what ever Mueller wants to hear . America is recreating a modernized version of the Inquisition.

    • Alexi says:

      Trump pledged to release his taxes. He lied. Trump and his cohorts claimed they NEVER met with ANY Russians EVER. They lied. Campaign chair Manafort was forced out of his position because of it, so was Flynn, Carter Page has been interviewed by the FBI multiple times, Jeff Sessions was forced to recuse himself due to lying about contact with Russians. Jared Kushner LIED on his security clearance forms about meeting with Russians including a Russian Gov run Bank currently under sanction and attempted to create a secret line of communication behind the Intel agencies back via Kremlin crypto-comm INSIDE the Russian Embassy.

      There are multiple credible reports of Trump’s businesses involving members of Russia’s oligarchy and mob that connect to the Russian Gov and to Putin, but specifically to Russian organized crime. Take a moment and look up Bayrock, Kriss, Felix Sater and Mogileivich.

      Following LEADS is NOT an inquisition. It’s an investigation.

    • 0040 says:

      Depends on whom is asked to follow the leads and what conclusion he wants to produce . Consider the Warren Report at the time the biggest pile of lies ever produced by the American security apparatus. Trump may be and probably is a sleazy crook , but people like Mueller and Comey have been and are far more dangerous to the Republic. Both were key players in the ginned up and unjustified attack on Iraq.

    • Radio Scout says:

      Please share reports of Mueller and Comey in relation to the Iraq War.
      Thanks.
      I think and hope this openly corrupt administration is soon dissolved but not before we learn the breadth and depth of Russian reach into US politics/government.
      Pay for play has always been a political reality, but who is paying whom and for what?

    • Alexi says:

      “Both were key players in the ginned up and unjustified attack on Iraq.”

      I sure hope you have a link for that.

      BTW, Iraq was the result of an unhinged and corrupt Presidency. Precisely what we have in Trump. Except Trump is in fact somewhat less sane than Bush Jr.

    • alvin says:

      I see what went wrong here. Your above reply to 0040 is an impressively thorough catalog of the leads Mueller and other investigators are no doubt following. But thoroughness is a liability in debates with the ideologically blinded. Notice how 0040 bypassed each of your specific points and only responded to your rhetorical conclusion—with rhetoric of his own.
      Then, he used the opportunity you gave him to advance an unsubstantiated claim. You rightly asked for substantiation (which, I notice two weeks later, never materialized—shocking, right?), but that means you ceded control of the discussion. Now, you’re behind the 8 ball. That wall of facts you started your reply with could have been used more tactically to keep your opponent at a disadvantage.

    • Alexi says:

      For what it’s worth… online scuttlebutt is that NY. Atty Gen. Schneiderman is setting up what appears to be a RICO prosecution.