Politics

Donald Trump, America’s Ultimate Crony Capitalist

THE BIG SHAM

His real wall—and our national security nightmare—is the one keeping the billions his company owns, and owes, out of public view.

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Photo Illustration by Sarah Rogers/The Daily Beast

Crony capitalism is dead in Washington! Long may crony capitalism prosper worldwide under Donald Trump!

On Monday Trump postponed his promised announcement of his plan for what will be the moment of truth for his brand of crony capitalism, in which he will finally say what he will do with his family business while he is in the White House (see Donald Trump's Conflicts of Interest and What Happens to Trump's Businesses When He Becomes President). He Tweeted that evening that "I will be leaving my businesses before January 20th so that I can focus full time on the Presidency. Two of my children, Don and Eric, plus executives, will manage them. No new deals will be done during my term(s) in office." His big decision, widely expected, is a big "so what."

So long as Trump or his family continue to operate the Trump Organization with its vast entanglements with foreign powers and interests there will be no way to separate the business interests of the 45th president from the national security and other interests of the United States of America.

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By removing himself from operations, Trump is hoping to shield the privately owned Trump Organization finances from public scrutiny. Yet without transparency, how can Americans know whether Trump is making decisions solely in the interests of the American people and U.S. national security or is tilting policy in favor of those funneling money into his once and future business enterprises?

Indeed, how could we know whether any of his official conduct is tilted in favor of family profits and inimical to the national interest?

Stepping back from business operations would be a sham. By Trump’s own accounts he's never played much of a role in operations. But what difference does it make in judging the quality and integrity of Trump administration actions whether money flows to the man himself or to his family and the organization bearing his name?

Trump's Real Wall: Around Trump

The Trump Organization is not a publicly traded firm in which Trump is a major shareholder with fiduciary duties to other shareholders. It's Trump’s company lock, stock and undisclosed barrels of money and obligations.

If Trump succeeds in building an impenetrable wall around Trump Organization finances it would create a national security nightmare. Such an anti-disclosure wall would enable corrupt transactions inimical to the interests of the United States of America. The American public won't have any obvious way to discover any pay-for-play deals arranged with his children.

Even if you believe everything Trump does is motivated solely by love of country, one cannot serve two masters. And if there is anything that Trump’s 70 years have established it is his love of money. The fictional Gordon Gecko declared, "Greed is good." Trump thinks it's great.

Trump has a long and thoroughly documented history of breaking the rules, ignoring the rules and just making up his own rules so he can stuff cash into his own pockets with no regard for anyone else.

Court records detail Trump's decades-long history of conspiring to not pay illegal immigrants, as well as shortchanging vendors. “So sue me,” is what vendors not paid all they were owed say Trump has told them, knowing that the legal expense to recover even $100,000 is a burden not worth bearing. And, of course, there are all those banks that Trump stiffed for nearly $1 billion, which is why we know from his extremely limited financial disclosures that he owes American banks nothing, but he's in hock to Deutsche Bank and, much more troubling, to the Bank of China, owned by the communist regime in Beijing.

And then there are the civil fraud cases he settled – on the condition that the files be sealed – alleging investment frauds. Hundreds of investors in failed Trump-branded real estate projects lost many millions of dollars, while Trump and his cronies pocketed millions of dollars.

Key among these cronies is the violent felon and stock swindler Felix Sater, an individual whom Trump claims he barely knows even though for years the two men traveled widely on Trump’s personal jet and Sater worked in the Trump Organization offices in Trump Tower.

Sater was involved in Trump-branded developments that failed in Arizona, Colorado and Florida, and as a defendant in a lawsuit alleging a quarter-billion-dollar tax fraud over the Trump SoHo New York hotel in Manhattan. Sater has publicly talked of his long and close relationship with Trump, who know seeks to distance himself.

But most relevant today is that Sater avoided prison in the stock swindle he ran on behalf of four organized crime families by persuading the federal government that he could intercept missiles on their way to terrorists. The American people need full disclosure of the relationship between the next president and this close advisor.

Would you have any idea who these arms merchants are or how to intercept weapons? Even if you did, how much could the United States of America be assured that all the weapons were intercepted, rather than some, with the other weapons creating numerous opportunities for profiteering? The reality in such situations is the public is dealing with a black box and the government may be watching through dirty or distorted windows.

The terms of many Trump deals to license his name create easy and lucrative opportunities for crony capitalism.

My files include many Trump licensing contracts. They reveal Trump’s penchant for deals in which he gets an increasingly fatter slice of the pie as buyers of Trump-branded real estate pay premium prices. Trump gets guaranteed fees upfront and then an escalating share of the purchase price. The bonuses are usually calculated per square foot, so that above so many dollars per square foot Trump gets an extra 10% and at even higher price he gets a quarter or a third of the premium price.

That's a smart tactic for someone who derives much of his income from licensing his brand name as a private citizen. It's also a simple and easy formula for payoffs. And those payoffs could be either in the form of bribes offered to win favorable treatment or that could be extracted as blackmail when an official favor is needed once the embodiment of the Trump Organization is the American president.

This creates vast pay-for-play opportunities to curry favor with Trump. Just buy Trump-branded condos or office space at premium prices. The Trumps would know how lucrative each deal was, but no current law would require any public disclosure. As Trump himself keeps asserting, he is exempt from federal conflict-of-interest statutes. But as with many Trump pronouncements it's not quite the whole truth. As president, Trump will be subject to the emoluments clause of the Constitution, which bans gifts from foreign powers. That clause could become his Achilles heel if events turn him into a political pariah with Republicans.

How would we ever know if Ivanka, his oldest daughter, or sons Donald Jr. and Eric just mention over dinner in the official residence how much they like this head of state or that foreign business?

And what of foreign land deals? In many countries access to prime real estate for development is decided not on the basis of sound business judgment, but of relationships with the dictator, king, sheikh or other ruler.

This means that Trump removing himself from day-to-day operations or even all operations while his children or even a trustee ran the family business is beside the point.

Don't expect Trump’s coming announcement to square with Trump's own stated standard, articulated in a Nov. 30 Tweet:

Creating a trust or other mechanism that removes Trump from operations, but leaves him or his children with ownership interests, is the kind of sham arrangement long favored by crony capitalists.

There is only one legitimate solution to this looming national security and Presidential integrity nightmare. Trump must create a blind trust and have others not within his crony capitalism sphere pick an independent broker—and that broker must liquidate all Trump holdings with full disclosure of the terms of each deal.

David Cay Johnston's new book, "The Making of Donald Trump," was published on August 2, 2016. His next one will be "The Prosperity Tax: A New Federal Tax Code for the 21st Century Economy." Johnston is a Distinguished Visiting Lecturer at Syracuse University College of Law and Whitman School of Management, and also writes for Investopedia and Tax Notes.

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