• Kate Chernitsky

“Smart” or Criminal?: Donald Trump's Indictment

During a debate prior to the 2016 US Presidential Election, Hillary Clinton accused future President Donald Trump of tax evasion, to which he responded: “That makes me smart”. After five years of speculation about why Trump has been so secretive about releasing his tax returns, senior executives at the Trump Organisation were indicted on 1 July for fifteen charges, including criminal tax fraud, falsifying business records and scheme to defraud.

An investigation began in 2018 when Michael Cohen, Trump’s former lawyer, pleaded guilty to breaking campaign finance laws. Cohen claimed under oath in front of Congress that the Trump Organisation hid finances to gain better bank loans and avoid taxes. The indictment follows Cohen’s statement that a tax evasion scheme existed from 2005 through to 30 June 2021 when charges were filed. The charges are brought by Manhattan District Attorney Cyrus Vance and New York Attorney General Letitia James.


While the indictments seem to discredit Trump’s claims to be “smart”, the outcome of the case is far from certain and deals in unprecedented legal territory.


The Indictment


The case’s charges are not against Trump and his family and instead focus on the Trump Organisation and its Chief Financial Officer (CFO) Allen Weisselberg. Weisselberg has been indicted because of evidence indicating that the Trump Organisation illegally gave him approximately US$ 1.76 million (approximately GBP 1.3 million) in unrecorded personal perks for his company role.


The 15 counts against Weisselberg include:

  • One count of scheme to defraud in the first degree

  • One count of conspiracy in the fourth degree

  • One count of grand larceny in the second degree

  • Four counts of criminal tax fraud in the third degree

  • Four counts of offering a false instrument for filing in the first degree

  • Four counts of falsifying business records in the first degree

Weisselberg alleged perks included:

  • Spending US$ 1.2 million (around GBP 863,000) in untaxed income from the Trump Organisation to live in an apartment in New York City while failing to report being an NYC resident

  • Spending US$ 359,000 (approximately US$ 258,000) for two relatives to attend private school

  • Purchasing 2 Mercedes-Benzes for himself and his wife

  • Purchasing home furnishings including TVs, beds and carpeting for his and his children’s residencies

  • Classifying unrecorded monetary gifts as “holiday tips”

The indictment claims that the Trump Organisation submitted falsified records to evade taxes and hide financial flows to executives. Authorities state that there are internal spreadsheets which Weisselberg kept to track indirect compensation without reporting it to federal, state or local tax authorities. Unreported funds came both from the company and from Trump personally. Prosecutors view the unreported spreadsheets as clear evidence of a financial scheme implicating the Trump Organisation and Weisselberg, as the scheme involves documented fraud involving millions of dollars. It is extremely rare in tax fraud cases for physical records of tax evasion to be kept within the company.


If the allegations are true, Weisselberg avoided US$ 556,385 (or GBP 400,000) in federal taxes, US$ 106,568 (around GBP 77,000) in state taxes and US$ 238,159 (more than GBP 171,000) in NYC taxes by failing to accurately report his primary residence and financial earnings from 2005-2017. This amounts to over US$ 1.1 million (GBP 791,000) in unpaid taxes. He also claimed US$ 94,902 (GBP 68,000) in federal tax refunds and US$ 38,222 (GBP 27,000) in state tax refunds to which he was not entitled.


The Defense


The Trump Organisation's lawyers say the District Attorney is punishing normal corporate behaviour. They argue the case is over fringe benefits such as gift-giving; a practice which is typical in the business world and is not usually considered tax evasion or a criminal offense. Company perks for top employees are normal in most businesses and the perks at a company as large and successful as theirs naturally provides higher valued benefits. Ron Fischetti, an attorney for both Weisselberg and the Trump Organisation, says there is minimal evidence supporting the charges despite years of investigation.


An associate on the legal team claims that Weisselberg is being used as an example to further harm Trump’s reputation. Trump himself called the investigation a “political witch hunt” to harm his chances of running for presidency again in 2024 and claimed prosecutors are “weaponising” the law. Donald Trump Jr. even compared the indictment to the imprisonment of Russian opposition leader Alexei Navalny. While Trump has denounced the indictment, he has made no claims alleging his innocence.


Analysis of Charges


Daniel Hemel, a legal professor at the University of Chicago, described the charges as “jaw dropping” because prosecutors do not usually pursue businesses for minor tax violations or fringe benefits. Charges are only brought if the financial benefits are both significant and unreported although there is no clear legal definition of what is considered significant or how long perks must be unreported to be considered illegal.


The main issue with the Trump Organisation’s finances is categorising a large amount of personal expenses as business expenses to be subject to lower taxes. This is problematic because business expenses and personal expenses do not face the same tax percentage; business expenses face much lower taxes than personal expenses although the exact taxation varies state-by-state. Trump’s residences, aircraft, haircuts and Ivanka Trump’s hair and makeup have all been categorised as business expenses in his tax filings. Prosecutors believe that those who were in the position to orchestrate this scheme, such as the CFO, were likely aware of the regulations and laws they were breaking.


The indictment also says the Trump Organisation lowered income taxes for executives by converting salaries into other benefits. This can be done by calculating the value of the benefit and dividing it by 52 to determine how much of an employee’s salary to subtract per week to accurately adjust pay for the benefit. While this is not illegal, the benefits which supplement salaries must be reported in either personal or business tax filings. Weisselberg did not gain more in salary and unrecorded benefits than the US$ 940,000 (GBP 676,000) salary stated in his contract but the benefits were unreported in both his personal taxes and company taxes.


The Trump Organisation and Weisselberg are further indicted for grand larceny, or grand theft, which is the “theft of personal or tangible property". Crimes that involve financial gain of more than US$ 500 (GBP 360) are considered grand larceny. Only financial compensation is included in the grand larceny charges and not the cars, homes or material possessions also involved in the case.


The Future of the Investigation


In a multifaceted indictment, there are several potential outcomes for the case. At the moment, the future of the indictment is uncertain.


Both the Trump Organisation and Weisselberg have pleaded not guilty. Prosecutors know that Weisselberg lied to his personal tax preparer about his finances, which indicates his tax preparer is working with authorities. This is not promising for Weisselberg. Considering his age, position and lack of criminal history, even if found guilty, he will likely receive the minimum sentencing of 2 years and fines. This could be lower if Weisselberg turns on the organisation which is unlikely considering his strong relationship with Trump.


The indictment from 1 July refers to “Unindicted Co-Conspirator #1” which is suspected to be Jeffrey McConney, a Trump Organisation controller who worked on financial books and is closely associated with Weisselberg. It also specifically mentions that “two other employees received substantial amounts of compensation in the form of lodging in New York City and the payment of automobile leases”. This implies that there is evidence against at least two other executives who will face charges revealed in the future.


It is uncertain whether charges will be brought personally against the Trump family. Trump has a history of bragging about his close involvement in the operations of his businesses and if the scheme is as large in scale as it seems then it is unlikely that he did not know about it.


Prosecutors said that a “former CEO” had personally signed many of the checks for unreported financial benefits. Signing checks used to pay for finances and goods implicated in the fraud scheme does not bode well for Trump’s future in the investigation. If Trump and his family are indicted, the DA could do so both personally and in association with the Trump Organisation. A large factor determining the likelihood of this outcome is whether Weisselberg turns on Trump or remains loyal.


Implications for Future Elections


While it is believed that charges cannot be held against a sitting president, there is no law against prosecuting a former president. No former US president has been indicted for a crime either personally or professionally. Facing criminal charges could drastically affect Trump’s chances of a 2024 run by alienating his support within the Republican Party although an indictment or guilty charge will not outright eliminate his chances of receiving the Republican nomination. While Trump has been the subject of many investigations spanning numerous crimes, no one has charged him personally yet. The indictment is a bold and unprecedented move in legal application.


The next hearing for the indictment is set for 20 September 2021. The case could take over a year or longer to see through because of delays in the NY state court system due to COVID-19. The outcome will have a decisive influence on both the future of American politics and corporate tax investigations.