How companies handle criminal charges: Trump Organization, CFO Allen Weisselberg face allegations of conspiracy

Trump Org, Weisselberg charged with tax fraud: Here’s what we knowThe Trump Organization and CFO Allen Weisselberg were charged on an alleged tax evasion conspiracy. Here’s how the 15-count indictment affects Trump.Just the FAQs, USA TODAYGeneral Motors, Volkswagen, Wells Fargo, Arthur Andersen – and now the Trump Organization.Each company has faced criminal charges over allegations of wrongdoing, ranging from GM’s deadly ignition switches to Volkswagen’s emissions-law cheating to Wells Fargo’s fake accounts and Arthur Andersen’s role in the Enron scandal.When companies face criminal charges, the outcome can range from exoneration to a slap on the wrist to the ouster of top executives, fines, court-imposed oversight and other measures that can simply annoy or lead to insolvency.“Corporations can be criminally convicted of any crime committed by any employee that was done in the scope of employment with some intent to benefit the firm,” said Jennifer Arlen, law professor and director of the Program on Corporate Compliance and Enforcement at New York University.Has rush hour forever changed?: Vehicle traffic takes an unexpected turn as pandemic ushers in remote workGoodbye, V6: The reasons why six-cylinder engines are on their way out in most new carsThat is, a company cannot be convicted when one of its employees embezzles money from it. But it can be convicted if, for example, one of its employees orchestrates a theft of a competitor’s intellectual property on behalf of their employer.With the Trump Organization and its chief financial officer now facing criminal conspiracy charges over tax allegations, the attention will quickly turn to how the indictment will affect the future of former President Donald Trump’s empire of real estate, golf resorts and licensing deals.If past criminal cases against companies are any indication, it’s not likely that the Trump Organization will end up out of business. After all, GM’s faulty ignition switches were blamed for the deaths of at least 124 people, but the company survived criminal charges with its business intact after paying a fine of about $900 million and is now thriving.But that doesn’t mean the Trump Organization or its top executives will escape unharmed. If prosecutors are able to use this case to uncover heretofore unknown wrongdoing, the company could be facing a drawn-out legal battle to survive.“Companies cannot go to prison, whereas individuals can,” said Eugene Soltes, a Harvard University professor and expert on corporate integrity, including white-collar law. “But beyond that, in terms of the law, the responsibilities that corporations have are in many ways similar to those of individuals.”Over time, companies have been charged with polluting the earth, obstructing justice, committing wire fraud, fixing prices, laundering money and bribing government officials. The list goes on.“The company is held responsible if employees in that company do things in the scope of their employment and it benefits the company,” Soltes said. “Seemingly small violations can have dramatic implications.”Of course, employees can be charged on their own, as well. That’s the situation for Allen Weisselberg, the Trump Organization’s CFO.Handcuffed Allen Weisselberg escorted in NY courtLawyers for Donald Trump’s company pleaded not guilty to tax crime charges Thursday, along with the Trump Organization’s longtime finance chief. (July 1)APIt’s also what happened with several executives at Volkswagen, including former CEO Martin Winterkorn, who was charged several years ago with conspiracy and wire fraud. But in the GM case, no employees were ever charged as individuals.Corporate criminal penalties can range widelyCriminal penalties for companies can come in the form of fines or other measures, such as the imposition of a monitor who works onsite to oversee matters, ensuring that the company doesn’t relapse.Think of it as a way to combat recidivism. Both GM and Volkswagen were subject to monitors for years after their scandals.In some cases, the most serious outcome can be if a criminal conviction bars the company from doing business with governments, lenders or other corporate clients.For example, pharmaceutical companies convicted of felonies may not be able to do business with the U.S. government’s Medicare and Medicaid services, which could be a devastating blow to their solvency, said NYU’s Arlen.That type of outcome in a corporate criminal case is what’s known as “collateral consequences,” and it’s something that companies often try to avoid by submitting to “deferred prosecution agreements.”In such agreements, companies usually willingly accept fines, oversight or other measures and agree to a statement of facts about what they did wrong in exchange for the charges being eventually dismissed if they clean up their act.What’s unknown about the Trump Organization is whether the nature of the indictment or future additional charges could preclude the company from working with any governmental agencies. For example, the company has a lease to operate the Trump International Hotel in Washington, D.C., from the U.S. government.To avoid, for example, hurting public health by making drugs unavailable or leading to job losses, prosecutors often devise criminal cases that would hold companies accountable without unnecessary collateral consequences.“A company might do something awful where they deserve to be held accountable criminally, but at the same time no prosecutor would want to have a friend or their parent not be able to get potential medicine because of that,” said Soltes, author of the book “Why They Do It: Inside the Mind of the White-Collar Criminal.”Could this case lead to the Trump Organization’s demise?If the case spirals and further information surfaces, the Trump Organization could be facing “serious” consequences, Arlen said.“Is this the tip of the iceberg?” she said. ”So if this is the first arrow in what will then be a bigger investigation that shows there was either tax fraud or bank fraud or both, now that would be a really big problem.”Yet only rarely do prosecutors pursue a complete dissolution of a company.One prosecutor who chose such a route was Rudy Giuliani, a Trump confidante in recent years. When he was a prosecutor in New York in the 1980s, he pioneered the use of the Racketeer Influenced and Corrupt Organizations (RICO) Act against non-mob organizations, Soltes said.“It imposes very, very significant potential sanctions,” Soltes said. “There are tools in the prosecutor’s box that can be used to potentially shut down organizations, but ultimately those are used in limited ways and are constrained.”In some instances, the official penalties aren’t enough to doom a company, but the firm still may not be able to survive for other reasons.That was the case for Arthur Anderson. The accounting giant was convicted in 2002 of obstruction of justice for allegedly destroying Enron documents.Years later, the Supreme Court overturned the conviction. It was too late. The company’s business had collapsed.“They were charged,” Soltes said, and “the firm literally folded.”Some 25,000 jobs were lost.Could the case against the Trump Organization grow in significance?Trump Organization investigation turns criminal: Here’s what we knowThe New York attorney general’s two-year civil probe into the Trump Organization is now a criminal investigation. Here’s what we know so far.Just the FAQs, USA TODAYThat may depend on whether the office of Manhattan prosecutor Cyrus Vance Jr. can convince people inside the company to cooperate, including potentially the CFO if he agrees to a plea deal. Trump, the Trump Organization and Weisselberg have denied the allegations and vowed to fight the charges. Trump has accused Democrats of pursuing charges against him for political purposes.At the outset of criminal cases involving companies – just like in cases involving individuals at the center of a broader scheme – prosecutors’ No. 1 priority is often to secure witnesses’ cooperation to go after bigger fish.That leads to the inevitable question: Could Trump himself or perhaps his children, who are involved in the business, be forced to testify or perhaps even be charged themselves?It’s too early to say, legal experts said.“Prosecutors have a lot of discretion in these cases,” Soltes said. “When corporations are being investigated and prosecuted, their goal is to figure out how to settle or resolve the case and move on so they can get back to doing business.”It’s typically more common for prosecutors to secure the cooperation of large publicly traded companies than it is with smaller, privately held companies that might have a tighter-knit group of executives, such as family members, Arlen said.Even so, it’s hard to envision the Trump Organization battling this case all the way to trial, Soltes said.“That’s quite unlikely because it’s so costly and it prolongs the issue,” he said. “So generally they seek some type of resolution or settlement.”One caveat here, though, is that the charges against the Trump Organization come in a state case, not a federal case. Which means New York state law applies.In federal cases, prosecutors don’t need to prove that top executives knew about the wrongdoing to gain a conviction for the corporation. But in New York state, they may need to show that “someone with high managerial authority committed the crime,” Arlen said.That could explain why Vance charged the Trump Organizaton’s CFO first instead of going after lower-level employees and then working his way up the chain – a strategy that federal prosecutors often employ.Could the case hurt the Trump Organization in other ways?In major criminal cases, companies certainly want to avoid fines or other penalties if they can. But they may have other objectives as well, such as minimizing the impact on their image, said Carl Tobias, a University of Richmond law professor who has studied the criminal cases of GM, Volkswagen and Takata.“With the automobile industry, a big part of it is reputation,” Tobias said. “You’ve got to have consumer trust, or you’ll never be able to sell your vehicles.”Whether the Trump Organization’s image can be damaged by this case is hard to say. The Trump brand has already experienced significant turmoil since the former host of “The Apprentice” rose to political prominence.“Who knows what he cares about in terms of the reputation of the company?” Tobias said.What seems obvious, though, Tobias said, is that Trump himself will seek to avoid the harm to his company’s brand and legal consequences that would come with his taking the witness stand..“I assume he’s going to do everything he can to avoid that,” he said. “His lawyers, I’m certain, don’t want him on the stand.”You can follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey and subscribe to our free Daily Money newsletter here for personal finance tips and business news every Monday through Friday morning.


Source link