Trump’s Other Ethics Quagmire: His Foundation

AP Photo/J. David Ake, File

A $25,000 check from the Donald J. Trump Foundation to a political committee supporting Florida Attorney General Pam Bondi, in violation of the law against charities engaging in political activities. 

President-elect Donald Trump has pledged via Twitter to distance himself from his business empire in order to mitigate potential conflicts of interest once he takes office. But as with many matters involving the former reality show star, the details are hazy. Trump has punted the question of how he might carry out this handover plan to a December 15 press conference, leaving reporters to speculate that he may merely transfer the company’s operations to his children, a move seen as insufficient to safeguard the federal government from becoming a vehicle for Trump’s personal self-enrichment.

Overshadowed by this discussion over the future of the Trump Organization is a secondary question that nevertheless merits scrutiny: What will become of the Donald J. Trump Foundation, an ethically-challenged group that has functioned in part to help the president-elect appear generous while giving away other people’s money?

To be sure, the Trump Foundation’s future is a mere ethical sideshow compared with the potential corruption circus that Trump’s business holdings produce. These include conflict-of-interest questions involving the Trump hotel in Washington, D.C. (already a magnet for foreign diplomats), Trump-branded properties around the world (business partners from India met with Trump following his election victory), and a Trump-owned Las Vegas hotel involved in a labor dispute with the president-elect (Trump will soon control appointments to the National Labor Relations Board, which recently found him in violation of federal law). The list goes on.

Nevertheless, the foundation could present serious if less glaring opportunities for abuse, say tax experts and good governance groups. In October, the New York attorney general ordered the foundation to stop soliciting charitable donations in the state because it had failed to properly register as a fundraising entity. (The foundation has told the attorney general’s office that it complied). The office is also investigating the foundation for “self-dealing,” or using charity money for personal purposes.

Tax experts are meanwhile clamoring for the Internal Revenue Service to open its own investigation. If the foundation were to survive these challenges, and expand its work, it could be subject to some of the same types of concerns over influence peddling that dogged the Clinton Foundation. Recent speculation that Trump adviser Kellyanne Conway might lead a new, independent group aligned with his policies has also brought with it worries that donors could buy political favors. (Trump’s press office did not respond to a list of questions for this story).

“The message would be clearly sent that one of the ways of ingratiating yourself with the most powerful person on the planet would be to give to the foundation,” says Meredith McGehee, strategic adviser at the Campaign Legal Center, an electoral watchdog. “This is a combustible cocktail that can be easily avoided if you just sever those ties or don’t go down that path.”

As documented by The Washington Post’s David Fahrenthold and other reporters, the Trump foundation, formed in 1987 to give away proceeds from the real-estate exec’s biography The Art of the Deal, has routinely skirted tax law. In 2013, it gave $25,000 to a political action committee formed to support the re-election of Florida Attorney General Pam Bondi. Foundations are not permitted to make political contributions, and the organization paid a $2,500 excise tax on the improper donation, while attributing the mess to a bookkeeping error. Foundation money was also used to pay off Trump’s legal expenses, purchase a portrait of the Donald that decorated one of his sports bars, and so on. Much of this work was done with money Trump had raised from other individuals, such as former World Wrestling Entertainment CEO Linda McMahon and her husband, Vince McMahon.

It appears that the foundation is now taking steps to clean house. Two days before Thanksgiving, The Washington Post broke the story that the Trump foundation had acknowledged in its latest tax form, for 2015, that it had engaged in self-dealing. Which specific actions the foundation has categorized as self-dealing remain unclear, and the organization has yet to file with the New York attorney general’s office more detailed paperwork involving payment of taxes related to those activities. The Post story followed by a few days the news that Trump was settling, for $25 million, fraud cases against his Trump University, including an action brought by the New York attorney general. “I would wager that, just like he settled the Trump University case, this is going to be settled,” says James J. Fishman, a professor of law emeritus at Pace University and a nonprofit law expert.

What consequences Trump might face remain an open question, however. Philip Hackney, an associate professor of law at Louisiana State University and a former IRS official, says the revenue agency should “seriously consider” opening a criminal inquiry. He argues that the foundation’s apparent “pervasive pattern of false statements”—over the Bondi gift, the use of charity money for personal matters, and the acceptance of improper donations for which Trump may have avoided paying taxes—appear to justify a probe. He notes, though, that criminal prosecutions in such cases, even for ordinary citizens, are very hard to win, as they require establishing knowledge of wrongdoing. Penalties in those sorts of criminal cases can include fines and even jail time. In the case of Trump, adverse IRS findings would be more likely to trigger calls for impeachment—though GOP control of Congress will likely insulate Trump.

Others say Trump’s actions appear to reflect an ignorance of tax law rather than criminal intent. “There was no money to, say, pay a caterer for his daughter’s wedding,” says Lloyd Mayer, a law professor at Notre Dame. “I don’t think it’s likely that the DOJ or IRS, even under the current administration, would pursue criminal charges.” And once Trump’s administration takes the helm at the IRS, that possibility all but evaporates. Still, a civil investigation, which is much more likely, could result in the revocation of the nonprofit group’s tax-exempt status.

If the group survives both the attorney general’s investigation and a potential IRS inquiry, tax and governance experts say, possible conflicts could crop up. While Trump’s nonprofit has to date been relatively puny in its fundraising—particularly compared with the sprawling Clinton Foundation—it has received at least one gift of the sort for which Trump himself criticized his Democratic opponent. According to its 2015 tax filings, the Trump foundation accepted a $150,000 gift from Victor Pinchuk, a powerful Ukrainian businessman who also gave at least $10 million to the Clinton nonprofit. (A spokesperson for Pinchuk’s foundation told the Post that the donation was made as part of an agreement for Trump to speak, via video, at a conference organized by the steel magnate). If such gifts from foreign individuals and corporations were to start up again during Trump’s presidency, they could raise questions about a quid pro quo. Meanwhile, on Wednesday, the president-elect tapped Linda McMahon, who with her husband has given $5 million to the Trump foundation, to lead the Small Business Administration.   

“If the foundation operating at a low scale was suddenly scaled up just at the moment that the namesake became president, there would be every reason in the world to worry,” says Robert Weissman, president of Public Citizen. Of course, as he notes, that’s a big “if,” especially given the foundation’s current legal and tax challenges. But Weissman says the foundation should take a proactive step to dissolve: “It would have to be shut down or at least be dormant.”

Certainly, tax law experts say, the foundation’s current structure isn’t sufficient to guard against conflicts. Its board is made up only of Trump, his three eldest children, and one Trump Organization employee. The IRS and nonprofit trade groups recommend that a board include independent members and represent a “broad public interest.”

Meanwhile, recent reports in Politico and elsewhere suggest another potential route for donors to cozy up to Trump: through an independent political group. Planning is said to be in the initial stages, but the general idea would be to form a group along the lines of President Obama’s Organizing for Action. Whether the Trump-linked group would be a super PAC or a nonprofit like OFA has yet to be determined. Weissman says such an organization would not necessarily pose a problem if it observes existing rules. “If it were modeled on OFA, I think that would be fine.”  

McGehee, however, disagrees. She has advocated a firewall between lawmakers and nonprofits of all stripes—including foundations and advocacy groups like OFA. Lawmakers, she says, have a habit of deflecting concerns about their nonprofit involvement by pointing out the groups’ good works. But that’s beside the point, she says; what matters is that these nonprofit entanglements inevitably raise the possibility of conflicts of interest. And Trump Foundation critics say that its work, including activities like adorning the boss’s hotels with paintings and helping to settle personal lawsuits, does not bode well for his ability to ethically manage relationships with nonprofits.

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