Former President Donald J. Trump’s business organization ran a fifteen-year, illegal off-the-books employee compensation scheme implemented by its chief financial officer, Allen Weisselberg, according to a fifteen-count New York County grand jury indictment unsealed on Thursday. Subtle hints in and surrounding this document foreshadow future legal trouble for Mr. Trump himself. With the grand jury expected to meet three times per week for much of the year, we should expect a superseding indictment by fall, one that could include other executives in the Trump Organization including the president’s sons, Donald Trump, Jr., and Eric Trump, as well as the former president himself
In the days leading up to the indictment being unsealed and Weisselberg being brought before the court in handcuffs, defense lawyers tried to brush it off as small potatoes. Yet, the crimes alleged are quite serious, including a scheme to defraud, conspiracy, grand larceny, criminal tax fraud, and falsifying business records. Weisselberg, 73, appeared before the judge on Thursday and pled not guilty to all charges. A conviction could lead to many years in state prison.
Not only did he apparently effectuate what prosecutor Carey Dunne at the arraignment called a “sweeping and audacious illegal payment scheme,” he was one of its biggest beneficiaries. The indictment reveals that Weisselberg enjoyed luxury automobiles, a swanky Manhattan apartment, private school tuition, and more, all provided by his employer, without paying a penny from his own pocket and without declaring any of it as income. But he was not the only beneficiary. Weisselberg, who has worked for the Trump family for half a century, helped the Trump Organization pay other executives off the books as well.
It’s easy to see what was in it for Weisselberg and the employees getting the equivalent of tax-free income. But how would Trump and his businesses benefit from these give-a-ways? It’s a way to give employees higher pay at a lower cost to the company. Here’s a simple, but not precise example for a New York employee. If the company pays an extra $100,000 in cash compensation the net pay for that extra is around $72,000 after withholding and payroll taxes. Then the employee can use that money to pay expenses like private school tuition or car leases. But, if instead, the company directly pays $72,000 worth of the employee’s school and car expenses off-the-books, and the employee and company hide that, it only costs the company the $72,000 (which it can still finagle a deduction as some kind of business expense).
By hiding that fringe benefit income, by pretending that he was not a New York City resident, and by claiming tax refunds to which he was not entitled, as the indictment alleges, he deprived city, state, and federal tax authorities of approximately $1,034,236 all together. A large sum, to be sure, but one that’s probably already been or soon will be dwarfed by Weisselberg’s legal bills. Weisselberg allegedly owes more than half of that cool million in federal taxes. This was a surprising tidbit included in a New York City and New York State indictment. Perhaps that fact’s inclusion was meant to nudge federal enforcement into action. But so far, not a peep from either the Internal Revenue Service or Merrick Garland’s Department of Justice although it’s hard to imagine that Damian Williams, President Joe Biden’s pick to be the U.S. Attorney for the Southern District of New York, and a former clerk to Garland on the D.C. Circuit, won’t notice what looks like an invitation to file charges.
Just as an aside, is it any wonder that $1 trillion goes uncollected federal taxes, most of which the current IRS Commissioner Charles Retting testified is due to tax cheats? Retting claimed the agency is “outgunned” by sophisticated tax avoidance schemes. With all due respect, you don’t need a gun, just a pair of reading glasses. Certainly, that’s true in this case. As for Garland, he seems to be saving his ire for whoever leaked tax returns for billionaires like Jeff Bezos to ProPublica than prioritizing tax fraud and other white collar crimes. So much for President Biden’s plan to hold tax cheats to account and raise $700 billion.
Beyond Weisselberg, the Trump Organization is in the hot seat too. The grand jury charged the Trump Corporation and the Trump Payroll Corp. (both do business as the Trump Organization) on many counts, for crimes including the scheme to defraud, conspiracy, tax fraud, and falsifying business records.
Though corporations are not actually human beings, they can be criminally charged and convicted, and subjected to financial penalties and even forced into dissolution on rare occasions. It’s worth remembering that in 2018, at the request of then acting New York Attorney General Barbara Underwood, a court ordered the dissolution of the Donald J. Trump Foundation, the nominally charitable foundation because of its misuse of funds. Furthermore, New York Attorney General Letitia James has the legal authority under New York corporation law to dissolve the Trump Corporation itself, as Ron Fein, Legal Director of Free Speech for People and Fordham Law Professor Jed Shugerman have called upon her to do.
Under New York law, because Weisselberg had the authority to act on behalf of both corporations to formulate corporate policy and supervise employees, he can be considered a “high managerial agent.” This legal designation means Trump’s businesses can be found guilty for actions Weisselberg alone took, authorized, or even recklessly tolerated. Even the criminal conduct of ordinary employees could be attributed to Trump’s businesses under New York’s liberal interpretation of vicarious liability. Putting Donald Trump’s business out of business would be an enormous win for the Manhattan D.A.
What about Trump himself? Though pundits predicted he would not appear in the indictment, they were wrong. And, how he shows up is slyly significant. There is a section of the indictment accusing Trump Corporation, Trump Payroll Corp., and Weisselberg with conspiracy in the fourth degree. Allegedly they agreed with “Unindicted Co-conspirator #1” (who appears to be someone who works for Weisselberg (so it’s not The Donald) to implement the off-the-books compensation scheme. This part of the indictment goes on to enumerate twelve separate overt acts that were carried out by the conspirators in furtherance of the conspiracy.
For non-lawyers, here’s why this is important. Under many New York, and many other states’ laws, in order to establish the existence of an unlawful conspiracy, prosecutors need to prove there was an agreement between two or more people to commit a crime and at least one act in furtherance of the conspiracy’s objectives. The acts in furtherance can be benign on their own but are significant because they show that the conspirators were not just talking a big game, they really meant to get down to business. Buying a pair of stockings is not inherently good or bad, but if you bought them after agreeing with a friend to engage in robberies of liquor stores using stockings as masks, that act would be enough to cement the conspiracy.
Okay. Back to the hints about Trump. The very first overt act that seems to indicate the ex-president’s involvement was Donald Trump on behalf of the corporation entering into a lease around March 31, 2005 for an apartment in Manhattan on Riverside Boulevard (the Trump Place building). That lease had a rider that permitted only Allen Weisselberg and his wife to occupy the apartment and to use it as their primary residence.
Why is this lease rider important? Well, it communicates that the grand jury knows that Donald Trump knew Weisselberg was living in the apartment on the company’s dime. It also means that Manhattan District Attorney Cy Vance does not yet have enough evidence to bring to the grand jury to show probable cause that Trump was part of the underlying agreement that formed the conspiracy. That said, Trump did himself no favors this week when he impulsively publicly proclaimed that running criminal off-the-books compensation schemes are “standard practice throughout the U.S. business community.” It’s not true and, as prosecutor Dunne said in court today, this bold scheme is not standard practice. This blabbing that it was standard practice is not unlike his blurting out on NBC that he fired James Comey over Russia. Trump says the quiet part out loud.
District Attorney Vance deliberately declined a press conference after the arraignment because this is an “an active, ongoing investigation.” Attorney General James echoed the sentiment: “This investigation will continue, and we will follow the facts and the law wherever they may lead.” And since late February, they have been in possession of millions of pages of Trump’s personal and business financial records. Those inquiries are driven by suspicions that Trump and his businesses inflated the value of real estate when seeking bank loans, and conservation easement tax credits, but deflated the values when paying taxes. (Michael Cohen, Trump’s former lawyer, laid this out in detail before Congress and publicly in spring 2019.) For a comprehensive overview of potential criminal charges against Trump, this newly released Brookings Report, “New York State’s Trump Investigation: An Analysis of the Reported Facts and Applicable Law” is instructive.
But still, many experts wonder why indict now. Sure, indicting Weisselberg may pressure him to flip and provide needed evidence of Trump’s membership in the conspiracy if it exists.
And if that’s the reason, to pressure Weisselberg, then why not wait for more evidence against Trump himself before charging his businesses? Typically, the corporate entities come last. Here’s some non-legal speculation from a law professor who knows white-collar crime. It might be a huge psychological hurdle to ask the men and women of a grand jury to indict a former president. Perhaps the first step of charging his businesses will make them comfortable when they are later given evidence of Trump’s connection to the same or similar fraudulent schemes.
Who knows for sure? But, what I am certain of is this. For Trump, the worst is yet to come.