What is Money Laundering and Why Has Donald Trump Been Linked to It?

Trump Tower – New York City

UPDATE: February 27, 2020

Scotland is currently investigating whether Donald Trump purchased his golf courses in Scotland (Turnberry and Menie) with laundered money. Scottish Greens co-leader stated the purchases were “part of a huge cash spending spree in the midst of the global economic crisis.” An inquiry by the Scottish House of Representatives suggested the patterns of “buying and selling” were “suggestive of money laundering.”

The Scottish First Minister, Nicola Sturgeon, is being pressured to use an Unexplained Wealth Order (UWO) to reveal sources of the money used by the Trump Org to purchase the courses.  UWOs are used to determine whether foreign officials have laundered stolen money through the United Kingdom. The primary purpose of the order is to force an individual or organization to reveal the source of its funding.

As of February 2020, it has not been confirmed whether or not laundered money was used in the purchase of these properties, but it would not be the first time that Donald Trump has been tied to money laundering.

Previously, Michael Cohen’s testimony to Congress on February 27, 2019, before the House Oversight Committee, hinted at other crimes that may have been committed by Donald J. Trump.  One of these potential crimes is money laundering. Initially, the transcripts of Fusion GPS founder Glenn Simpson’s testimony to the House Intelligence and Senate Judiciary committees suggested that Trump had laundered money for Russians. Perhaps the most damaging allegation made by Simpson was that he believed that Russians had been laundering money through the Trump Organization when Donald Trump was its CEO. The crux of the allegation is that Donald Trump facilitated money laundering by Russian oligarchs and Putin allies.

Robert Mueller’s investigation of Russia’s interference in the 2016 presidential election is exploring Donald Trump’s interactions with Russian oligarchs and underworld figures before and during the election. Trump has a long history of cultivating relationships with Russian businessmen on behalf of both his casinos and real estate companies that have extremely close ties to the Russian government. These relationships would go a long way toward explaining why he either may have worked with them or is willing to ignore Russian interference in the election. It is entirely possible that money laundering by the Trump Organization on behalf of Russian oligarchs or banks is at the center of these investigations.

New and disturbing allegations of a sophisticated Russian money laundering operation called the “Troika Laundromat” have also come to light in a report by the Organized Crime and Corruption Reporting Project (OCCRP). The report alleged Russia’s largest private investment bank, Troika Dialog, funneled $9 billion through western banks such as ING, Citigroup, Raiffeisen, and Deutsche Bank. At this time there is no evidence to suggest that Trump Org was involved in these illegal activities, but it shows how much money even a fairly small Russian bank can launder through western banks and companies.

What is Money Laundering?

Money laundering is an illegal criminal activity that is not terribly easy to understand or explain. Both the federal and state governments ban money laundering, but it is a complex crime and difficult to enforce. It is also a massive business in the United States. The United States Treasury estimates that over $300 billion a year is laundered in the United States.

At its core, money laundering seeks to convert money earned from illegal activities such as illicit drug sales, and convert it to clean money that can move through financial networks without attracting scrutiny. Moving as little as $10,000 of illegal funds through the financial system can be prosecuted under federal money laundering statutes.

Money laundering has three separate steps: placement, layering, and integration.

Placement: There are different ways to place “dirty” money. Some of the most popular methods are through fronts, smurfing, currency exchanges, wire transfers, cash smuggling, and purchasing assets.

Using a front is pretty straightforward, people will inflate the receipts of a cash-based business (such as a car wash) and then move the money into the business’s banking accounts. For example, this is how Avon Barksdale from HBO’s The Wire used his strip club, Orlando’s, to integrate his drug money into the financial system.

What to do with all this money?

Smurfing involves depositing small amounts of money into multiple bank accounts to avoid attracting attention. If you keep the cash flow small, then banks may not be as suspicious of the behavior. Money launderers typically will courier people large amounts of money to slowly deposit small amounts of money into multiple bank accounts – these are the smurfs. Typically, smurfs will space these deposits over weeks or months to avoid suspicion. Eventually, the smurfs will transfer the money to shell companies or offshore accounts. The key to being a smurf: stay small to avoid attention.

Currency exchanges, on the other hand, can be used to convert one form of currency into another for a small fee. While this can be expensive, it creates a legal money trail. Additionally, people use money transfers or money mules to ship money to countries that have much looser laws regulating money laundering.

Casinos can also be used this way, but that can be a little bit more complicated. The Feds have been targeting casinos recently to put a clamp on this type of placement. In 2015, Trump Taj Mahal in Atlantic City paid the largest penalty ever by a casino for willfully violating anti-money laundering regulations for over a decade.

Cryptocurrencies currently represent the newest option for laundering money, but these transactions are often not as opaque as some people believe. Additionally, cryptocurrencies are incredibly volatile and introduce uncertainties that may make money launderers nervous.

Layering: This is pretty straightforward. It requires the money launderer to create as much confusion as possible to hide the origins of the money. Typically, this involves transferring the money through numerous shell companies and multiple bank accounts. While this step does not make the money any cleaner, it merely seeks to move the money as far away from illicit origins as possible.

Integration: Once the money has been layered, you can now try to use the money on large, legal transactions on something like real estate. The layering process clouds the provenance of the money and makes it appear to be legitimate, but it doesn’t complete the laundering process. Integration represents the final step of money laundering as it “cleans” the dirty money. One of the best ways to integrate money fully into the financial system is to buy real estate.

Why is real estate a useful way launder money?

Glenn Simpson believes that the Trump Organization became involved in money laundering in the integration phase after illicit funds have been layered.

Instead of buying the property as an individual, the money launderer will use a shell company or legal trust to purchase the property.  These types of transactions are reasonably common in the New York City real estate market and do not attract any scrutiny. The reality is that most sellers in real estate transactions have little interest in scuttling a deal just because the money used to buy the property has a cloudy history. They would instead look the other way. This makes real estate an ideal front for money laundering.

Here’s why. Once you own the property, you can rent it out. A shell company buys a property. The shell company can go to a bank and show that it holds the property. The bank is happy to open an account for the shell company. Any rental fees can then be deposited in this bank account.

Therefore, any of the money that you make from rentals can go directly into the financial system – no questions asked. You can also hold onto that real estate and eventually sell it. Markets such as New York and London have been especially attractive to money launderers because rentals are profitable and these two markets have been booming over the last 30 years. A money launderer would probably describe this as a win-win scenario.

How much real estate does the Trump Organization own?

Trump World Tower – Manhattan

The Trump Organization is a privately-held company that has as many as 500 different subsidiaries. It is believed that New York City real estate makes up a large percentage of the company’s assets, but getting any hard numbers on Trump Org is notoriously tricky. Current estimates show that Trump Org holds up to $3.5 billion in New York City real estate, but it is not clear that these numbers are accurate or whether they are offset by large loans. It is also almost impossible to trust any of the claims made by Trump Org.

The Trump Organization does appear to have interests in at least 5 significant buildings in Manhattan, three Trump Hotels, a few estates in Florida, New York, and Beverly Hills and finally, Mar-a-Lago. It also has an interest in Trump Winery, Wollman Rink in Central Park, and several golf courses in the U.S., Scotland, and Dubai. Trump Org also licenses its name to be used on numerous properties, but these properties are not owned by Trump. This business provides as much as a 1/3 of Trump Org’s income. Trump Org has some other subsidiaries, but it is not clear that any of them are producing much income.

For example, Trump Org has repeatedly reported over the years to Crain’s New York Business that it had $9.5 billion in revenue per year. Every year, Crain’s publishes an issue that ranks the largest private businesses in New York state, and it has consistently ranked Trump Org in the top five. The number provided by Trump (perhaps unsurprisingly) slightly exceeds the amount of revenue by $200 million of a former competitor in casino business – MGM Casinos and Resorts.

In November 2017, Crain’s revised its estimates of revenues after it realized that Trump Org had been lying about its revenues for years. Trump Org overstated its earnings by $8.9 billion per year. Crain’s used Donald Trump’s own federal filings claim for Trump Org to learn that it only generated between $600 to $700 million a year.

While this lie by Trump Org appears to be rather petty, it does indicate something important about the organization. It is not nearly as successful or flush with capital as it claims to be. Instead of being a central player in the New York real estate world, it could be described as a fringe figure. This might also help explain why the Trump Organization would be so willing to partner with Russian businessmen whose backgrounds could be best described as extremely sketchy.

Trump Org’s best known Manhattan property, Trump Tower, is already playing a role in Robert Mueller’s investigation of the President.  Paul Manafort has been alleged to have laundered money paid to him by the pro-Russian Ukrainian government by purchasing an apartment in Trump Tower. Manafort not only bought the unit, but he also took out a large loan against the property. The loan permitted Manafort to use his apartment like a piggy bank.

The critical question regarding Trump Org is whether or not they knew that Paul Manafort was trying to launder money through Trump Tower. It is possible that they were not aware of this transaction.

Granted, Paul Manafort has been involved in some shady business arrangements as a lobbyist for Ferdinand Marcos, Vicktor Yanukovich, and other despotic regimes. Allegations have swirled around Manafort that he had absconded with $10 million that was given to him from Marcos that was intended to be “donated” to Ronald Reagan’s 1984 presidential campaign. Roger Stone, a close friend of Donald Trump, would have been well aware of Manafort’s shady dealings because they were partners together in a prominent lobbying firm in the 1980s. It would have been somewhat predictable that Manafort was trying to launder his ill-gotten gains when he purchased his Trump Tower apartment.

How does Russia fit into this mess?

Vladimer Putin, 2017

The fundamental question is simple: Did Donald Trump knowingly launder money for powerful political and criminal Russian interests?

The crux of Simpson’s testimony to the House Intelligence is that he believes that Trump Org was helping Russian oligarchs and mobsters launder money through its organization. Simpson was concerned that when he viewed the real estate sales made by Trump Org, they were “suggestive of money laundering.” According to Simpson, both the Russians and Trump Org would have benefited from this relationship. The Russians laundered their money with no questions asked, and Trump Org desperately needed the liquidity. Between 2007-10, Trump Org faced a liquidity crisis and almost went bankrupt because major banks were leery of lending money to a man whose businesses had repeatedly filed for bankruptcy.

According to Michael Wolff, Steve Bannon was concerned that Trump had willingly laundered Russian money.  Wolff reported that Bannon stated “[y]ou realize where this is going. This is all about money laundering. Mueller chose Weissmann first, and he is a money-laundering guy. Their path to fucking Trump goes right through Paul Manafort, Don Jr. and Jared Kushner. … It goes through Deutsche Bank and all the Kushner shit.” The Weissman Bannon is referring to is Andrew Weissman, an attorney who specializes in prosecuting financial crimes. Everyone has an opinion about Wolff, but this sounds credible, and, Bannon also has not explicitly denied making this statement.

The Atlantic reported that Adam Schiff, the ranking Democrat on the House Intelligence Committee said: “if the Russians were laundering money through the Trump Organization, the Russians would know it, the president would know it, and that could be very powerful leverage.”

The House Intelligence Committee has done everything possible to avoid answering these questions. Despite having the ability to subpoena bank records that could either prove or disprove Simpson’s allegation, they would rather play dumb. That’s understandable because all of their political futures are directly tied to Trump’s popularity. Discovering that Trump was, in fact, facilitating money laundering by Russian oligarchs and mob leaders could potentially be devastating to his reputation.

Why would Trump launder money for Russians oligarchs?

The Ill-fated Trump Tower Baku

It is essential to understand that “the Russia state is a highly criminalized state where the criminal ‘underworld’ and the political ‘upperworld’” are closely integrated. While John McCain has called Russia “a gas station masquerading as a country,” it is more akin to a criminal organization with Vladimir Putin as its Godfather.

When the Soviet Union fell, the KGB and the Russian mafia already had a long history of cooperation. Under Boris Yeltsin, Russia was spiraling out of control due to the rise of powerful and empowered criminal underworld.  Instead of prosecuting the criminal underworld when Vladimir Putin came to power, he essentially integrated it into the Russian ruling structure. He made it clear that they could operate, but they needed to tone down their actions and shift towards a more respectable image.

This should not have been too surprising, as a former KGB agent, Putin would have had a long history of working with the Russian mob. Significantly, this approach worked. Putin essentially forced the criminal underground to wear suits and stop shooting each other in the streets.

Since the 1990s, significant amounts of money have flowed into Trump’s companies from Russia, Ukraine, and Kazakstan. This included his casinos, his Manhattan apartment buildings, and the Trump Royale in Florida (aka “Little Moscow”). According to the New Republic, “Russian money did more than save Trump’s business from ruin – it set the stage for the next phase of his career.”

Starting in 2001, Trump’s business with Russian oligarchs began to boom. Trump quickly convinced Russian oligarchs to buy condos in Trump World Tower in NYC. Trump next partnered with a developer on the Trump Royale in Sunny Isles Florida that quickly became known as Little Moscow. These ties have gone significantly past condo purchases and sought business deals with Russians businessmen on Trump Hotel Soho, an ill-fated hotel in Baku, Azerbaijan, and several real estate deals in eastern Europe.

Trump’s sale of a 62,000 square foot mansion in Palm Beach in 2008 to Russian billionaire Dmitry Rybolovlev for $100 million has also raised some eyebrows. The transaction is suspicious because the sale occurred after the real estate market had burst in Florida. Trump had purchased the property 4 years earlier for $41 million, and Rybolovlev drastically overpaid for it.

On February 8th, Oregon Senator Ron Wyden asked the Treasury Department to turn over records of the sale to the Senate Finance Committee. The Finance Committee, just like Mueller, is interested in any suspicious real estate transactions. Recently, Rybolvlev was also named in a list of oligarch by the Treasury Department because of his cozy relationship with the Kremlin and his high net worth.

This sale occurred at an incredibly steep time for Trump as his company teetered towards bankruptcy at the start of the economic crisis. The deal provided much-needed liquidity for Trump and help move $100 million of Rybolvlev’s money into the United States banking system. It most likely helped Trump weather the economic storm.

Craig Unger in the New Republic carefully walks the reader through the dizzying array of Russian businessman and oligarchs who have been connected to Trump Org – Trump’s Russian Laundromat.  While Trump has failed to build a hotel in Moscow despite numerous attempts, it allowed Trump to establish “lucrative connections” with the Kremlin. So much so that Donald Trump Jr. in 2008 stated, “[w]e see a lot of money pouring in from Russia.”

The Washington Post recently revealed that the Trump Organization had shifted to buying properties exclusively with cash in 2006. Despite Eric Trump’s statement that all of these cash purchases were funded solely by money generated by the Trump Org. The first purchase was $12.6 million estate in Scotland which was later converted into a golf course. Not did Trump golf courses, but he appeared to have unlimited amounts of money to renovate these properties.

These investments in golf courses are also intriguing because the golf business is struggling. Golf courses are have been going out of business at a record rate. Between 2006-2016, over 800 golf courses in the United States went under. The golf business became so bad that even Nike has stopped selling golf equipment. Blowing huge amounts of cash on prestige golf courses instead of other types of real estate when golf business is cratering is odd.

Over the next ten years, Trump Org went on a buying spree in Scotland and Ireland. Interestingly, his purchase of the Doral Golf Course in Florida was one of his only transactions financed by a loan over $150 million loan from a bank (Deutsche Bank). The overseas purchases, on the other hand, were paid for with cash.

At the time Trump Taj Mahal was penalized for money laundering in 2015, Donald Trump was only tangentially affiliated with the casino. But the violations dated all the way back to 2003 when Trump was the CEO and principal owner. Additionally, Taj Mahal was assessed a $477,700 penalty in 1998 for similar violations. Even less surprising is that one of the most prominent people who is believed to have laundered money through Taj Mahal was Vyacheslav Kirillovich Ivankov, a well-known figure in the Russian underworld figure based in the United States and a Trump Tower resident.

When you take Eric Trump’s statements that Trump Org was relying on Russian investments to power its growth and Trump’s previous violations of money laundering laws at his casinos, this flurry of cash real estate transactions now looks incredibly suspicious. Additionally, the only type of real estate investors that rely on cash purchases is extraordinarily wealthy and cash rich. Trump Org appears to have struggled with liquidity over its entire existence.

It is difficult to imagine that Trump was unaware that both his real estate and casino companies were doing business with Russians who sought to launder money. He had focused his sales efforts on Russian oligarchs and actively wanted Russians oligarchs and underworld figures to gamble in his casinos for over 15 years. Robert Mueller will have to determine if these sales were simply coincidental or evidence of a criminal relationship between Trump and the Russian underworld.

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