Even before the financial crisis of 2008, Trump found it increasingly difficult to borrow money from big Wall Street banks and was shut out of the rapidly growing pool of institutional investment. Faced with a cash-flow problem, he could have followed other storied New York real-estate families and invested in the ever more rigorous financial-due-diligence capabilities required by pension funds and other sources of real-estate capital. This would have given him access to a pool of trillions of dollars from investors.
Instead, Trump turned to a new source of other people’s money. He did a series of deals in Toronto, Panama, the Dominican Republic, Azerbaijan, and Georgia with businesspeople from the former Soviet Union who were unlikely to pass any sort of rigorous due-diligence review by pension funds and other institutional investors. (Just this week, the Financial Times published a remarkably deep dive into the questionable financing of Trump’s Toronto property.) He also made deals in India, Indonesia, and Vancouver, Canada, with figures who have been convicted or investigated for criminal wrongdoing and abuse of political power.
We know very little about how money flowed into and out of these projects. All of these projects involved specially designated limited-liability companies that are opaque to outside review. We do know that, in the past decade, wealthy oligarchs in the former Soviet Union and elsewhere have seen real-estate investment as a primary vehicle through which to launder money. The problem is especially egregious in the United Kingdom, where some have called the U.K. luxury real-estate industry “a money laundering machine.” Golf has been a particular focus of money laundering. Although the U.K. has strict transparency rules for financial activity within the country, its regulators have been remarkably incurious about the sources of funds coming from firms based abroad. All we know is that the money that went into Turnberry, for example, came from the Trump Organization in the U.S. We—and the British authorities—have no way of knowing where the Trump Organization got that money.
The goal of laundering money is to take the proceeds of a criminal activity—government corruption, tax fraud, drug trade, or many others—and to disguise its origin. Many oligarchs in the former Soviet Union who made their money by expropriating the state’s wealth want to move their money into a more stable nation with greater rule of law. This presents a challenge: How can one insert illegally obtained funds into a system that requires due diligence? The answer, quite often, is to use shell companies to disguise the flow of funds. Although we cannot say that Trump himself knowingly engaged in money laundering, we do know with certainty that much of his business in the past decade was in the industries most known for money laundering, in the locations most conducive to money laundering, and with people who bear the key hallmarks of money launderers. [Continue reading…]