It sounds anticlimactic: After years of chatter about widespread tax evasion, Russian funding and sketchy shell companies, the first charges prosecutors are leveling against the Trump Organization involve fringe benefits for one employee. It wouldn’t even be news if it weren’t the Trump Organization.
But the employee, Allen Weisselberg, is the Trump Organization’s chief financial officer, with intimate knowledge of all the money that flows in and out of the family business of former President Donald Trump. By targeting Weisselberg, New York prosecutors are clearly using the threat of prison to cleave Trump’s top money man from the company he has served since the 1970s. And the charges are just serious enough to represent a real threat.
On July 1, the Manhattan district attorney, Cyrus Vance, charged the Trump Organization and Weisselberg with 15 felony accounts including grand larceny and tax fraud. Among other things, they say, Weisselberg avoided paying income tax on $1.7 million in fringe benefits that should have been reported as income. Those benefits reportedly included free apartments and cars and private-school tuition for his grandchildren.
Weisselberg, 74, pleaded not guilty. Attorneys for the Trump Organization insisted the charges are politically motivated, and said they couldn't come up with another case where prosecutors went after a high-profile company solely for misreporting fringe benefits.
This file photo from Jan. 11, 2017, shows President-elect Donald Trump, left, his chief financial officer Allen Weisselberg, center, and his son Donald Trump Jr., right, during a news conference at Trump Tower in New York. Prosecutors in New York brought the first criminal charges in a two-year investigation into Trump's business practices, accusing his namesake company and its longtime finance chief Weisselberg of tax crimes. (AP Photo/Evan Vucci, File) ·ASSOCIATED PRESS
The Trump lawyers are actually right about one thing. Prosecutors would not ordinarily spend months pursuing charges related to fringe benefits, if that was the entire case. But New York prosecutors probably found convincing evidence against Weisselberg on tax avoidance that they play to use to pressure him for information on more serious matters that could imperil Donald Trump himself.
Fringe benefits normally need to be reported as income, with taxes paid on the value of the benefit by the employee and payroll taxes paid by both employee and employer. There are narrow exceptions, such as a hotel manager who needs to live in the property to do his job. But none of those exceptions seem to apply to Weisselberg, who didn’t need cars, apartments or tuition to perform his job.
“Not paying taxes on fringe benefits is unambiguously a crime and one that really needs to be enforced,” says law professor Daniel Shaviro of New York University. “It’s cheating the country. It leads other taxpayers to develop the attitude, if they don’t pay taxes, why should I.”
Donald Trump, in a statement, said prosecutors are focusing on “things that are standard practice throughout the U.S. business community, and in no way a crime.” Not really. Most firms compute the value of fringe benefits for taxation purposes, or issue 1099 forms to employees for miscellaneous income. The Trump Organization could have asked an outside law firm to validate the practice in writing, providing legal cover. There’s no evidence it did so. “Legitimate business organizations are not doing this without reporting it,” Shaviro says.
Manhattan District Attorney Cyrus R. Vance Jr. arrives at New York City Criminal Court for the continuation of the Harvey Weinstein trial on January 24, 2020 in New York City. (Photo by Jeenah Moon/Getty Images) ·Jeenah Moon via Getty Images
Weisselberg is likely to remain free until there’s a trial. In the meanwhile, Manhattan D.A. Cyrus Vance and New York State Attorney general Letitia James will continue investigating other matters, including possible tax evasion by Trump, his use of foreign money and possible fraud involving banks and insurance companies. In February, Vance acquired eight years’ of Trump’s tax returns, after an 18-month legal battle that ended with the Supreme Court ruling against Trump’s efforts to shield the documents.
Vance and James are targeting Weisselberg because he has the keys to the Trump kingdom. Weisselberg began working for Trump’s father, Fred, in 1970, and he’s been a loyal soldier ever since. When Trump’s former lawyer Michael Cohen—who pleaded guilty to eight criminal charges in 2018 and went to jail—testified before the House of Representatives in 2019, he mentioned Weisselberg several times.
'Only Allen Weisselberg would know'
One member of Congress asked Cohen about Eric Trump’s 2014 claim that the Trump Organization didn’t need American banks because “we have all the funding we need out of Russia.” Cohen said, “I have no idea, but actually somebody who you would want to speak to about that would be Jason Greenblatt, who worked on all of the deals. He was general counsel at the time. And, of course, Allen Weisselberg. They would be the two people that I would go to first in order to find out what Eric was talking about.”
Former President Donald Trump greets attendees as he enters the room at a border security briefing at the Texas DPS Weslaco Regional Office on Wednesday, June 30, 2021, in Weslaco, Texas. (Joel Martinez/The Monitor via AP, Pool) ·ASSOCIATED PRESS
Another question involved a nonprofit foundation Trump set up, which he may have used to avoid paying taxes. Here’s what Cohen had to say about that: “He considered the foundation to be his checkbook, it's his money, that's how he would refer to it. He had me do a contract that had the funds wired to the foundation, and, he would direct me to speak to Allen Weisselberg in order to get all the wiring instructions and to establish it with Allen so that the payment would be made.”
Another questioner asked Cohen what Trump would use the nonprofit money for. “I don’t know what he used the money for,” Cohen said. “Only Allen Weisselberg would know.” Cohen also fingered Weisselberg with regard to a shell company set up in 2016 to make a hush-money payment to Playboy model Karen McDougal—who Trump reportedly had an affair with—during the 2016 presidential campaign. Weisselberg, Cohen said, was one of four people who would know how the Trump Organization accounted for the $150,000 payment to McDougal. The accounting matters because that payment may have been an illegal campaign-finance contribution, which is a felony.
The threat of criminal conviction
Weisselberg has reportedly remained loyal to Trump and refused to incriminate him. That may change if the threat of criminal conviction and jail time intensifies. Cohen stayed loyal to Trump until prosecutors brought charges of fraud and other crimes against him. Cohen eventually cooperated in exchange for a shorter sentence, and he may have provided leads that helped with the charges against Weisselberg.
People walk past the Criminal Courts building and District Attorneys office in Manhattan,where long-serving chief financial officer of former president Donald Trump's company, Allen Weisselberg is being held on July 1, 2021 in New York. (Photo by ED JONES/AFP via Getty Images) ·ED JONES via Getty Images
One oddity of the New York prosecutions is that they focus on tax evasion at the state and local level, but not at the federal level. If this were a run-of-the-mill case, there would probably be no jail time. “What probably happens in most cases like this is, they’re settled,” says law professor Norman Stein of Drexel University. “The taxpayer agrees to pay civil fraud penalties. But these are city and state prosecutors and I don’t know what they’re doing at the federal level.”
Federal prosecution of Trump is obviously tricky, because Trump would be sure to portray it as politically motivated persecution by political enemies. But federal prosecutors also have an obligation to investigate if evidence of a crime surfaces. That clearly seems to be happening in the Trump saga, since it would be a crime to evade federal income taxes on fringe benefits, just as it would be for state and local taxes. It might seem like a small beginning, but it’s likely to get a lot bigger.
