Month: May 2017

We invite you to join us in a short thought experiment. Before we begin, please set aside everything you think you know about Donald Trump and his past business record. For the moment, we don’t know whether Trump was a serial bankrupt or an astonishingly successful business man.

Could we invent a story – straight out of a mobster movie – that would be consistent with the known facts of Trump’s life? It could be the story of a daring heist – the embezzlement of a billion dollars in borrowed money by two celebrities and their mob associates, pulled off like a magic trick in the public eye. In the aftermath of such a heist, stolen money could have been moved offshore while one of the celebrities laid low, staving off bankruptcy with luckily-timed receipts of “just enough” cash. Then, after the statute of limitations had passed, the money could have started slowly coming home, disguised as business loans.

Imagine that Donald Trump came up in this world as a successful New York real estate developer back when the mob controlled New York real estate development. Imagine that Trump followed this success with a brash entry into the New Jersey casino business at a time when mob interests were vying for control of the New Jersey casino business.

Imagine that organized crime got involved in the stock market as the 1980s progressed. Imagine that Donald Trump got involved in the stock market at the same time, often making bold bids to buy out public companies with borrowed money before backing away and failing to close the deal. Imagine Donald Trump even got sued by Federal regulators for using shell corporations to amass secret positions in publicly traded companies.

Imagine Trump borrowed $675 million in junk bonds to finance the purchase and construction of his Taj Mahal casino. Imagine that Trump’s business partner in that deal had proven ties to the mafia and later bankrupted his own company with $950 million in debt. Imagine that brokers were actually indicted for profiting off of insider trades based on that deal. Imagine that Donald Trump had managed to borrow as much as $2 billion overall by June of 1990, when he signed a five year plan to restructure and reduce his debt obligations.

Imagine that Trump somehow escaped this loan default without losing control of his lucrative casino, thanks to the negotiations of Wilbur Ross and Carl Icahn, both of whom are now part of his Administration. Imagine that for some reason, lenders ended up letting Trump keep a surprisingly large share of his assets and live on an allowance of $450,000 per month despite having lost hundreds of millions of dollars.

What if all this were one of the greatest heists of the twentieth century?  Imagine that Trump and his associates actually embezzled a huge share of this borrowed money, secreting it away in offshore accounts. Imagine that the spectacular bankruptcy of his casino and the ensuing cash flow problems were all a show, designed to legitimate the disappearance of money that had been embezzled, not squandered. What if Trump’s business empire doesn’t make sense because it’s all an elaborate shell game designed to hide the movement of stolen money? A lot of stolen money?

What might we expect to find if such a thing were possible? During the “near-bankruptcy” years, Trump’s financial solvency would have to hang by a thread, shored up by mysterious loans from shadowy sources.

Would we find a detailed study of Trump’s finances in June of 1995 prepared by New Jersey casino regulators that told us “for this four-month period, DJT’s cash position fell below the forecasts submitted on February 3, 1995”? Or that Trump’s cash position was only maintained by transactions that “appear to be one-time occurrences and do not represent continuing sources of funds”? Would we learn that Trump was facing a “June 30, 1995 maturity of the Override Agreement” that had resolved his debt negotiations five years earlier? Would the regulators certify Trump’s financial stability by noting “DJT’s flexibility is limited. However, DJT has demonstrated an ability to adjust cash flow requirements when necessary”?

Imagine what would happen if Trump began repatriating his offshore cash in the form of business loans from foreigners shortly after that bank agreement expired in June of 1995. This could be a classic money laundering technique known as a “loan-back.” First you steal some money. Then you secretly move it offshore. Then you give your stolen money to a bank or business overseas. They keep a cut, and loan back the rest to you. Then, you live off the loan itself, treating it as tax-free income. To an outside observer, you would seem to be very rich despite being terrible at business.

Imagine that a group of Hong Kong investors had bought the mortgage to a key Trump development out of foreclosure for $88 million, agreeing to “assume Mr. Trump’s debts and pay him 30 percent of the profits, as well as fees for helping to manage the development of the site, which they agreed to finance.” Would such a deal make more sense if it had been underwritten offshore with Trump’s own cash, embezzled from the earlier bond deals?

Or imagine that Trump purchased a 72-story skyscraper for a million dollars in cash from a Hong Kong-based entity in the latter half of 1995 (only months after the investigation of his finances by casino regulators had concluded). Imagine that Trump claimed to have invested an additional $65 million renovating the building by 2004. Imagine that the building was encumbered with $145 million in mortgages by 2005. Imagine that Trump had somehow come up with that $1 million in cash and secured those millions in mortgages in the same year that he reported losses of $916 million on his taxes. Wouldn’t we wonder why he’d borrowed $80 million more than he had spent? Could such a building, bought for so cheap, allow Trump to live tax-free off of the loans themselves, as though they were income for years?

How would your understanding of Trump change if many of those perplexing business deals he struck after 1995 weren’t bad business loans at all? What would we expect to find if we were looking for evidence of a  scheme? A foreign bank that has loaned $364 million to Trump despite a checkered history of repayments, but where Trump maintained brokerage accounts worth at least $20 million and possibly as much as $50 million?

What if Trump really had been a lot wealthier this whole time than any of us realized? What if that wealth had stemmed from a billion dollar stock fraud pulled off in 1990, and all those strange loans from foreigners would have just been Trump’s stolen money coming back home? What would we expect to find if such a story were true?

We’re sorry we’ve been so quiet lately. We’ve been doing a lot of research into Trump’s business dealings. Many of them are even starting to make sense.

We at RAGEPATH predict that money laundering is about to become a major topic of public discourse in America. While there will be many specific things to say about that topic and its relationship to Trump in the near future, we thought it might be helpful to provide a little primer in the basics of money laundering. You deserve to be prepared.

What is Money Laundering, exactly?

Good question! Let’s say you come into some money you’re not supposed to have. You want to enjoy the possession of your money, but you’re not supposed to have it. So to enjoy your money, you have to come up with a story to explain how you came into unexpected money. Let’s start with a really simple example.

I’m not proud of it, but when I was a child, I used to steal money from my older siblings. They were old enough to earn an allowance and work for the neighbors, but I was not. As long as I wasn’t too greedy, my siblings wouldn’t notice a dollar missing here or there. But I was too young to have any legitimate income! So how could I explain coming into a dollar?

The scheme I came up with was quite simple. While walking to school one day, I’d be sure to walk half a block ahead of my siblings. Then I would noticeably stop and walk over to a bush. I would then hold up my stolen dollar and claim I had just found it lying in the bushes! Everybody saw me find the dollar, so there could be no doubt it was legitimately mine.  Even the sibling who had been robbed would agree that it was truly my dollar and marvel at my good fortune!

Voila. The money had been laundered. Stolen cash was turned into honest cash by telling a good story of how I’d come by it. And that’s all money laundering is. You concoct a lie to explain why you deserve money that has been acquired improperly.

The “dirty money” may have been simply stolen. It may have been confiscated from honest businesses as “protection” from harms you would otherwise inflict on those same businesses. It may have been earned illegally – by selling drugs, selling sex, performing assassinations for hire. The laundering process doesn’t care where the money came from. It’s just a method for explaining why you have money that you’re not supposed to have.

OK… so … how does money laundering work?

That’s another great question! While there are many different schemes for laundering money, all money laundering schemes have three basic components:

1. Placement: This is the earliest stage of the laundry cycle, and it’s kind of like “spot cleaning” your dirty clothes. The cash you’ve generated illegally has to enter the money system. But large transactions trigger reporting requirements that require people to identify themselves and explain how they came up with the money. The most common form of placement is called smurfing – you divvy up your ill-gotten gains among lots of different people, who each make transactions too small to trigger reporting requirements. Collectively they create a legal pool of money that doesn’t have to be explained. Casinos can be very helpful to smurfs. Especially if they don’t make required transaction reports. But of course, at a real casino you’d expect to see actual gangsters trading in illicit cash for chips if there were truly something amiss.
2. Layering: Once your smurfs have generated a pool of money with no origin story, that money has to be moved around enough times that nobody is going to know or care where it came from. This is where offshore money laundering havens like the Caribbean island of St. Martin or the Dominican Republic come in handy. Money gets shipped to secretive jurisdictions outside the reach of law enforcement, then it gets shipped to somewhere else. When it arrives somewhere else, there’s no way to know where exactly it started.
3. Integration: This is the last and most important stage of the process, because this is the moment where the crook actually receives his filthy lucre. This is the drama of finding the dollar under the bush. Everyone sees you get the dollar, everyone knows it has to be legit. Putting out a press release announcing a doomed financial deal with America’s most famous real estate tycoon could be a great way to show off the legitimacy of a transaction.

So, that’s the basic structure of every money laundering scheme.

Am I going to need a glossary?

Probably. You’ve already learned what “placement, layering and integration” are. Here are some other key terms you might want to understand:

• Smurf: A “smurf” is someone who receives a small share of a large pool of illegal cash and makes transactions too small to trigger reporting requirements. These busy beavers are the smallest fish in the money-laundering food chain. It should be noted that in nearly lawless states (like many former Soviet republics), smurfs are not necessarily required to create a pool of untraceable money.
• Nominee: A “nominee” is someone who seems perfectly legitimate, receives laundered funds, then secretly passes it back to the crook who “earned” the ill-gotten gains. In some ways, a nominee is the negative image of the money laundering crook. While the crook comes into cash that he never earned, the nominee earns cash he never gets to keep.
• Shell Corporation: A “shell corporation” is a corporate entity whose only purpose is to pass funds around, obscuring their true source. It needs a bank account. It might also have weird assets – like an Asian trademarking company that owns private real estate in Virginia.  The point is, that the shell company conducts no recognizable business activity, but holds or passes assets and/or liabilities.

We may update this post to add more terms if I think you’ll need them.

Are there any common money laundering schemes I need to know about?

Yeah, there are quite a few common schemes. I’m very enchanted with the elegance of the “Black Market Peso Exchange Operation,” but if you’re as interested in Trump as I am, you don’t need to worry about that one. What do people interested in Trump want to know about?

Loan-Backs: A “loan-back” money laundering scheme is a particularly ingenious way to come into laundered cash without even having to declare it as taxable income. The goal here is to “borrow” money from a foreign bank (or a domestic financial institution that acts like a bank but isn’t regulated like one) that you may or may not ever repay. The nice thing about borrowing money is you don’t owe income taxes on it. If you repay it, the repayments are tax deductible as a business expense. If you don’t repay it, you might owe taxes on the forgiven debt. But not if you offered collateral that the bank can confiscate when you refuse to repay. And if it’s a foreign bank or a “shadow bank” that collateral might not be in the United States. It might even be a direct product of the illicit activity you’re trying to conceal! If bank secrecy laws are tight enough or regulators are lax enough, nobody will ever know.

So, the basics of this scheme work like this. You steal money overseas… wherever you like… Azerbaijan, Georgia, Ukraine, wherever works. You move that money around until it looks legitimate enough to deposit in an ostensibly reputable Western bank. Then you can use that deposit as security or a guarantee to finance a crazy loan in a Western country. Once you receive the loan in the West, you’ve got a legitimate reason to own and use that cash. Who cares if you never pay it back?

[More to come… smurfing in casinos, smurfing in real estate, other known real estate schemes]

I was saddened this morning to read of Jimmy Kimmel’s new son’s health struggle that led to the infant boy undergoing open-heart surgery. In the opening monologue of his show last night, Kimmel parlayed the experience into a political plea to support medical care for everyone:

Kimmel condemned President Trump for proposing funding cuts for the National Institute of Health, and he praised Obamacare for guaranteeing insurance regardless of preexisting conditions. “Until a few years ago, millions and millions of us had no access to health insurance at all,” Kimmel said. “Before 2014, if you were born with a congenital heart disease like my son was, there was a good chance you would never be able to get health insurance because you had a preexisting condition. If your parents didn’t have medical insurance, you might not even live long enough to get denied because of a preexisting condition.”

“Don’t let partisan squabbles divide us on something that every decent person wants,” Kimmel concluded. “No parent should ever have to decide if they can afford to save their child’s life.”

(Rolling Stone, May 2, 2017)

Steeped as I am in all things Trump, I can’t help but notice the contrast with our sitting President. Back in 2000, Trump cut the medical benefits to his nephew’s infant son, who was suffering from a serious medical condition that ultimately led to cerebral palsy. The move was a power play by Trump in a dispute over his father’s will.

Even when it comes to a sick baby in his family, Donald Trump is all business. The megabuilder and his siblings Robert and Maryanne terminated their nephew’s family medical coverage a week after he challenged the will of their father, Fred Trump.  “This was so shocking, so disappointing and so vindictive,” said niece Lisa Trump, whose son, William, was born 18 months ago at Mount Sinai Medical Center with a rare neurological disorder that produces violent seizures, brain damage and medical bills topping $300,000. […]

They offer a rare window into one of New York’s most prominent families, a world where alliances and rivalries are magnified by power, money and the tough-nosed tactics of Donald Trump. “When [Fred 3rd] sued us, we said, ‘Why should we give him medical coverage?'” Donald said in an interview with the Daily News last week. Asked whether he thought cutting their coverage could appear cold-hearted, given the baby’s medical condition, Donald made no apologies. “I can’t help that,” he said. “It’s cold when someone sues my father. Had he come to see me, things could very possibly have been much different for them.”

(Daily News, December 19, 2000)

Here at RAGEPATH, we’ll be joining the atheists in praying for Kimmel’s son, who will hopefully go on to lead a healthy and fulfilling life. We whole-heartedly endorse his plea to guarantee the health care of every sick infant under every circumstance. But also – significantly – we don’t think you should believe that President Trump wouldn’t hold the health of sick infants hostage to win a political fight. He’s done it to his own kin.