Donald Trump has spent his entire life escaping the consequences of his actions. This does not mean he has avoided failures and humiliations. Trump Airlines was grounded. Trump Magazine was pulped. Trump University never conferred any credits or diplomas, and Trump had to fork out $25 million to settle fraud claims. Trump’s casinos bet the house and lost.
The Donald J Trump Foundation, his eponymous charity, was deployed as a personal slush fund. Its most infamous disbursements were spent acquiring three portraits of Trump, which were then displayed in his various properties. After a litany of legal violations, and a $2 million restitution payment, the foundation was forced to dissolve by the New York attorney general’s office.
Imagine the reaction if the Clinton Foundation had done any of this.
Trump is an incredible spruiker, but an awful businessman. He has the reverse Midas touch. His companies bleed cash. Trump owned businesses have filed for bankruptcy six times. Despite the blows to his wealth, he has never been forced to declare personal bankruptcy — a fact of which he is unduly proud. Such is the protection afforded by the corporate veil.
Through it all, Trump has always lived to fight another day. Notwithstanding his trail of ruin, Trump’s Teflon touch has meant that every abuse has been flushed down the memory hole to be replaced by the next. With each fresh outrage his critics wonder whether this time will be different. So far they are still waiting.
But now his luck may have run out. On February 9 his longtime accounting firm, Mazars USA, terminated its relationship with the Trump Organization, Trump’s private holding company. Mazars informed the Trump Organization that 10 years of corporate financial statements from 2011 through 2020 “should no longer be relied upon”, and recommended that the company inform any recipients of said documents that they are unreliable. This is accountant speak for “these numbers are not worth the paper they’re printed on”.
This is not normal. Accountants do not typically abandon their clients so bluntly. Mazars’ comment that a “non-waivable conflict of interest” prohibited further work for Trump’s firm also raises multiple possibilities, none of them good for Trump.
Why does this matter? The Trump Organization is propped up by debt. After Trump’s repeated business collapses, and questionable practices, most major banks refused to finance his schemes. Deutsche Bank, Germany’s biggest bank, was a notable exception. However, even Deutsche pulled the plug in 2021, after Trump left the Oval Office, by confirming that it would not lend him any more money.
Due to its assessed credit risk, much of the Trump Organization’s debt is personally guaranteed by Trump. This was the only way he could borrow the money. Hundred of millions of dollars in loans outstanding are due for repayment in the next few years. If the loans cannot be repaid, Trump is on the hook.
In the ordinary course, a company could refinance its loans with new borrowings, or sell assets to raise cash. Dodgy financial statements make both options much harder. Trump will have a hard time finding new funders without trustworthy accounts. And it’s difficult to imagine any credible accounting firm risking its reputation and legal exposure by stepping in to assist him.
Loans with longer maturations could also become a headache, because they will likely have covenants that will have been triggered by Mazars’ action. Those covenants would give lenders the power to call in their debts early. No one wants to be left empty handed if the house of cards collapses.
It has long been believed that Trump has relied upon financing from Russian sources to stay afloat. This view is reinforced by Don Jr.’s and Eric’s loose-lipped boasts to that effect. This is considered a key reason that Trump was so obliging to Vladimir Putin during his tenure in the White House. The sanctions arising from Putin’s invasion of Ukraine will stifle this pipeline in future, not least because of the potential national security implications.
Meanwhile Trump is hoping to raise cash with a windfall profit from his money-losing flagship hotel in Washington DC. The property is owned by the federal government, but was leased to the Trump Organization for 60 years in 2013, shortly before Trump became president. Now Trump wants to sell the lease for at least $100 million over its estimated fair market value. Absent reliable financials, the government may block the sale, or the purchaser may back out.
If all this weren’t bad enough, the Trump Organization and its chief financial officer, Allen Weisselberg, are under felony indictment for a battery of alleged crimes. They will stand trial later this year. Should the company be convicted, it will be akin to a corporate death sentence. This could be curtains for the Trump Organization. It might also unleash a domino effect that could unravel Trump’s business empire.
This is apart from the whirlpool of legal liability that confronts Trump and his family. New York State is investigating them for tax and accounting fraud, which is how Mazars’ letter came to light. Multiple jurisdictions are assessing claims of election interference arising from the 2020 vote. The January 6 committee will soon report its findings on the insurrection and Trump’s role in the attempted coup. The Department of Justice, which does not disclose ongoing inquiries, may be probing multiple potential offences.
As the financial and legal pressure mounts, and the walls close in, Trump is likely to become more erratic and reckless. This won’t help him.
Trump will never be broke. He may not see the inside of a prison cell. But if his empire is reduced to rubble, that would be a humiliating blow to his ego.
Mazars has lit the fuse. Now we wait.