A growing corruption scandal in Brazil
In 2012, Donald Trump Jr. traveled to Rio de Janeiro to announce the development of Trump Towers Rio, a five-tower office complex, in partnership with European developer MRP International and Brazilian developer Even Construtora e Incorporadora SA. However, construction has not started and the project is reportedly on hold.
In 2013, Trump also signed a deal with Brazilian developer Paulo Figueiredo Filho, the former chief executive of Brazilian company LSH Barra, to brand a hotel—again in Rio de Janeiro—that the Trump Organization would manage. Filho—who is the grandson of João Baptista de Oliveira Figueiredo, Brazil’s last ruling president during its 21-year military dictatorship that lasted until 1985—left LSH Barra in March 2016, although he is still a shareholder in the hotel. The beachfront hotel was meant to be completed in time for the 2016 Rio Olympic Games but was only partially operational by the time the games began.
In December 2016, the Trump Organization announced that it was canceling several deals, including the Rio hotel project, claiming that the developers failed to meet the terms of the licensing deals. Trump Organization Chief Legal Officer Alan Garten described the cancellation of the deals as “normal housekeeping.” Specifically regarding the Rio hotel project, a Trump spokeswoman said the company was cancelling the deal because the project was behind schedule. However, the timing of the cancellation and the reasoning behind it are likely more complicated than the Trump Organization claims.
In October 2016, Anselmo Henrique Cordeiro Lopes, a federal prosecutor in Brazil, opened a criminal inquiry that included both the Trump Towers Rio and Trump Hotel Rio as part of a larger ongoing federal investigation into graft involving Brazilian pension funds. Thus far, no charges have been filed and the Trump Organization has said that it is not the target of the investigation.
Regarding the Trump Hotel Rio, the inquiry is specifically looking into two Brazilian pension funds—Serpros and Igeprev—that allegedly invested around $40 million into a fund that controls the company that owns the Trump hotel, LSH Barra. According to prosecutors, this investment was “reckless,” and in court documents, Lopes noted, “It is necessary to verify if the favoritism shown by the pension funds towards LSH Barra Empreendimentos Imobiliáros SA and The Trump Organization was due to illicit payments and bribes.”
According to reporting on the investigation from Bloomberg, “[T]he Trump Organization, in a deal negotiated by daughter Ivanka and son Donald Jr., found itself managing a hotel backed by shady characters, profligate pension funds and built on, prosecutors suspect, corruption,” which has led investigators to question “the level of due diligence undertaken by the Trump Organization.” A lawyer for the Trump Organization, Adam Rosen, said that the organization performed due diligence on the project and that they “had no knowledge of any irregularities with respect to the project prior to the announcement of the investigation.” This raises the issue of whether the Trump Organization has violated the Foreign Corrupt Practices Act—a U.S. law that requires due diligence by U.S. firms to ensure that they are not working with corrupt partners overseas—in its dealings in Brazil.
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In speaking with Bloomberg, Filho noted that Trump’s lawyers sought “assurances that no dirty money was involved to head off potential violations of the U.S. Foreign Corrupt Practices Act” in their dealings, as is their responsibility. In light of the ongoing pension funds and bribery investigations, however, it is an open question as to just how rigorous the Trump Organization’s due diligence may have been in this case. For its part, LSH Barra has denied wrongdoing.
In relation to Trump’s office towers project in Rio, a prosecutor investigating the case noted that, as reported by Bloomberg, “the Trump Organization ‘was favored in a suspicious way’ by an alleged bribery scheme that involved kickbacks from a builder to the former head of Brazil’s lower house of congress to secure investment by the state bank.” The deals for both the towers and the hotel were licensing and management agreements in which Trump provided the use of his name and managed both projects in exchange for royalties and management fees.
Follow the paper trail
According to Trump’s July 2015 financial disclosure—which was not verified by regulators and therefore may not include all of his foreign deals or assets—Trump was paid $85,000 in management fees for his Brazil projects during the previous year and owned, had ownership interest in, or was a managing member of several companies related to projects in Brazil, including the following:
- DT Marks Rio LLC, member, president
- DT Marks Rio Member Corp., director, chairman, president
- South Beach Venture LLC (formerly THC Marks Rio LLC), president
- South Beach Venture Member Corp. (formerly THC Marks Rio Member Corp.), president, chairman, director
- THC Barra Hotelaria LTDA, member, president
- THC Development Brazil Managing Member Corp., chairman, director, president
- THC Development Brazil LLC, member, president
- THC Rio Managing Member Corp., chairman, director, president
- THC Rio Manager LLC, member, president, received $85,000 in management fees
- Trump Brazil LLC, president, member
According to Trump’s May 2016 financial disclosure—which was not verified by regulators and therefore may not include all of his foreign deals or assets—Trump reported no income and owned, had ownership interest in, or was a managing member of several companies related to projects in Brazil, including the following:
- DT Marks Rio LLC, member, president
- DT Marks Rio Member Corp., director, chairman, president
- THC Barra Hotelaria LTDA, member
- THC Development Brazil Managing Member Corp., chairman, director, president
- THC Development Brazil LLC, member, president
- THC Rio Managing Member Corp., chairman, director, president
- THC Rio Manager LLC, member, president
- Trump Brazil LLC, president, member
Based on these disclosure forms, Trump received $85,000 in management fees for his Brazil projects over the previous two years. Interestingly, he did not list receiving any management fees on his 2016 form, and unlike his other licensing arrangements, these forms do not appear to list any royalties Trump received from these projects.
Trump’s troubled projects in Brazil and the ongoing legal fallout are just another example of how badly these conflicts distract Trump from the actual business of being president. When dealing with Brazil, Trump may well be more concerned about his firm being implicated in scandal than the many other critical issues America faces when it comes to Brazil, including trade, climate change, and cooperation on key regional political issues such as the economic, social, and political instability in Venezuela.
Read the full series of columns here.
Carolyn Kenney is a policy analyst with the National Security and International Policy team at the Center for American Progress. John Norris is a senior fellow at the Center.