Legal trouble in Panama
In 2006, Donald Trump signed a contract with developer Roger Khafif to develop a $400 million Trump-branded club called Trump Ocean Club International Hotel and Tower Panama, which includes a 70-story hotel, luxury condos, restaurants, and a casino.
When the hotel complex opened in July 2011, it was the tallest building in Latin America. Just a few months after the opening, however, Khafif’s company, Newland International Properties Corp., defaulted on its bond debt, and in 2013, the company filed for bankruptcy. The property remains open, however, and the Trump Organization still receives revenue for it. According to an Associated Press analysis of court filings, while the bankruptcy affected Trump’s licensing fees, his payout was between $32 million and $55 million. The Associated Press noted that Trump was “the only party to the original deal to come out ahead.” The deal for the club is a licensing and management agreement in which Trump provides the use of his name for the property and in which he previously managed it in exchange for royalties and management fees.
It was at the opening of the Trump Ocean Club in 2011 that Trump made the acquaintance of then-Panamanian President Ricardo Martinelli, who left office in 2014. During the opening ceremony, Trump referred to Martinelli as “my friend.” Martinelli also reportedly tweeted out an image of his invitation to Trump’s inauguration but has since deleted the post.
According to Bloomberg, Martinelli has a stake in Panama’s Global Bank Corp., which has a subsidiary that was a co-trustee of Trump Ocean Club, “making the bank responsible for receiving revenues, collecting the Trump Organization’s licensing fees and setting up disbursements.” Martinelli, however, claims to not have been involved in that arrangement. Martinelli, who currently resides in exile in Miami, is facing criminal charges in Panama and is now wanted by Interpol. In September 2016, the current Panamanian government submitted a petition to extradite him to the country, where he has been accused of “insider trading, embezzlement and using public money to wiretap business and political adversaries.” Martinelli has denied the charges, calling them “political persecution.” The United States has not yet acted on either the petition from the Panamanian government to extradite Martinelli or Interpol’s international arrest warrant. Trump is set to receive the current president of Panama, Juan Carlos Varela, at the White House on June 19.
The Trump Ocean Club, at least according to reporting by The Washington Post, is attractive to Russian investors, who have purchased many units in the complex. As many as 60 Russians or Russian-born Americans have bought into the 630-unit complex. The Washington Post noted that Trump’s partner in the hotel, Roger Khafif, traveled sometime in the mid-2000s to Moscow to lead a meeting with potential Russian investors. “Russians like brands and Trump was famous in Russia,” The Washington Post quoted Khafif saying. Trump’s business partner further noted that the early 2000s “were good days for Trump. He was the only man in town for real estate.” In the interview, Khafif also recalled Trump hosting a sales event in 2008, which he said was attended by about a dozen potential Russian investors. According to The Washington Post’s reporting, Trump Organization Chief Legal Officer Alan Garten “acknowledged that developers of Trump projects have gone to Russia to sell and that the market there, like others around the world, have been fertile territory for the brand.”
See Also
Additionally, according to reporting by the Associated Press, after a series of disputes, Trump Ocean Club condo owners and board members fired the Trump management company and the top administration staff following a vote in May 2015. According to the Associated Press’ examination, during the four years that the Trump Organization managed the condominium property, “a team installed by the Trump family was accused of running up more than $2 million in unauthorized debts, paying its executives undisclosed bonuses and withholding basic financial information from owners.” Additionally, the article reported, “A clause in many residents’ purchase agreements prevented them from voting against the Trump company’s wishes. That allowed the Trumps to install their top employee as chairman and the residents’ representative on the board—even though the Trumps’ actual stake in the building’s residential area was merely a storage closet on the 15th floor.”
Following the vote to remove the Trumps, “As the Ocean Club’s board was trying to settle into the administrative offices, Trump’s people cut off the office’s Internet and phone service and repossessed the office copy machine.” The Trump Organization acknowledged this to the Associated Press, explaining that disconnecting these services was “necessary for security and privacy concerns.”
The Trump Organization’s legal counsel, Alan Garten, rejected the board’s claims and refused to accept the vote to fire the Trumps, instead claiming that the Trump Organization was quitting and demanding a $5 million termination fee. Eric Trump disputed the claims made by the Associated Press and Trump himself reportedly threatened to sue the news service over its reporting. Following the release of the article, Trump also reportedly filed a confidential claim with the International Chamber of Commerce’s International Court of Arbitration demanding up to $75 million from Trump Ocean Club condo owners, claiming that his company was wrongfully fired from its managerial role. Garten confirmed the filing.
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 more than $5.8 million in royalties and management fees for the Panama project during the previous year and owned, had ownership interest in, or was a managing member of several companies related to projects in Panama, including the following:
- Panama Ocean Club Management LLC, member, president
- Panama Ocean Club Management Member Corp., president, chairman, director
- Trump Marks Panama Corp., president, director
- Trump Marks Panama LLC, member, president, received more than $5 million in royalties
- Trump Panama Condominium Management LLC, member, president
- Trump Panama Condominium Member Corp., president, director, chairman
- Trump Panama Hotel Management LLC, member, received $896,440 in management fees
- Trump Panama Hotel Management Member Corp., president, director, chairman
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 was paid as much as $6.28 million in royalties and management fees for the Panama project for the previous year and owned, had ownership interest in, or was a managing member of several companies related to projects in Panama, including the following:
- Panama Ocean Club Management LLC, member, president
- Panama Ocean Club Management Member Corp., president, chairman, director
- Trump Marks Panama Corp., director, president
- Trump Marks Panama LLC, member, president, received between $1 million and $5 million in royalties
- Trump Panama Condominium Management LLC, member, president
- Trump Panama Condominium Member Corp., president, director, chairman
- Trump Panama Hotel Management LLC, member, received $1,280,599 in management fees
- Trump Panama Hotel Management Member Corp., president, director, chairman
Based on these disclosure forms, Trump was paid as much as $12.1 million and possibly more in royalties and management fees from the Panama project for the previous two years, and he and his children will presumably continue to receive money from these arrangements.
It is hard to imagine that President Trump will not be influenced by his conflicts of interest in Panama. For example, the Trump administration will have to decide if it is willing to extradite former Panamanian President Martinelli, who has a stake in Panama’s Global Bank Corp., which through a subsidiary was a co-trustee of Trump Ocean Club. In addition, the Trump administration has a series of complex foreign policy issues to work through with Panama at the same time that the Trump Organization is involved in a series of competing lawsuits regarding Trump’s alleged mismanagement of its Panamanian properties. These are just a few of the many reasons why President Trump should have fully divested his holdings in the best interests of the American people.
Read the full series of columns here.
Carolyn Kenney is a policy analyst on the National Security and International Policy team at the Center for American Progress. John Norris is a senior fellow at the Center.