The reason the very intense involvement by the Trump Organization is relevant is the Foreign Corrupt Practices Act referenced above. If those involved in Trump Tower Baku participated in any illegal financial or other conduct, the Trump Organizations degree of tight control over the project exposes the company to criminal prosecution. Houston lawyer Tom Fox, who specializes in anti-corruption compliance said “it’s a problem if you’re making a profit off someone else’s corrupt conduct.” Recent developments in case law has even held that licensors take on a much greater legal burden when they assume roles normally reserved for property developers. Because the Trump Organizations very involved engagement with Baku XXI Century suggests it had the responsibility to monitor it for any corruption.
The way the FCPA works, American companies must conduct risk assessments and background checks taking a very close look at the country, the prospective business partner and the people involved AND must do so before signing a deal with that foreign partner. There are any number of accounting and law firms that perform this service, as well as specialized investigation companies and it’s reported that a “baseline report” costs anywhere between $10,000 and $25,000. An anonymous source from one of America’s largest hotel change, who would talk only upon condition of anonymity out of fear of reprisal from the Trump Administration, said, “we would look at due diligence as a burden. There certainly is a cost to doing it, especially in higher-risk places. But it’s as much an investment in the protection of that brand. It’s money well spent.”
Trump attorney Alan Garten indicates the Trump Organization commissioned a risk assessment for the Baku deal, however he declined to name the company that performed the risk assessment. A Washington Post article on the Baku project reported that Garten stated the Trump Organization had under taken “extensive due diligence” before making the deal and discovered no “red flags.” One can only assume the risk assessment was nowhere near as extensive as Mr. Garten indicates. The Mammadov family and has a long-established reputation for corruption and one that even a cursory risk assessment would have revealed. For example, the Mammadov family has been financially entangled with an Iranian family that is tied closely to the Iranian Revolutionary Guard Corp, the “ideologically driven” military force. The year the Hotel was announced in 2008, Ziya Mammadov, in his low-paid role as Transportation Minister, awarded a series of multimillion-dollar contracts to an Iranian construction company, Azarpassillo. The company’s chairman, Keyumars Darvishi, fought in the Iran-Iraq war, after which he became the head of Raman, an Iranian construction firm controlled by the Revolutionary Guard. The US government has regularly accused the Revolutionary guard of criminal activity from drug trafficking, money laundering and sponsoring terrorism abroad. According to Reuters, the Trump Administration is considering placing the Revolutionary Guard as a terrorist organization. No indication as to the current status of the Revolutionary Guard given the new revelations about the Baku, Azerbaijan deal.
Once again, the importance of the FCPA is that the burden is on the American Company to exercise its due diligence and making certain that their business partner or other associates in the forward project are in no way involved in corrupt or illegal activities. The defense of simply looking the other way is not enough. You must actively research possible business partners before making a decision and failure to exercise that due diligence can be very risky.
Trump’s attorney was asked how extensive the Trump Organization looked into the Mammadov family’s political connections and whether he was concerned that, Elton Mammadov, as a sitting member of the Azerbaijani parliament, might exploit his power to benefit the project and how much money that Ziya Mammadov invested in Elton’s company? Garten responded that he did not oversee the due-diligence process and that the individuals who did are no longer with the company. “I can’t tell you what was done in this situation.” Furthermore, he would not identify the former employees who were allegedly involved, nor could he provide any documentation of due diligence conducted by the Trump Organization in preparation for their involvement in the Baku, Azerbaijan deal.
As previously stated, it is incumbent upon the American company to be proactive in their due diligence. There used to be a loophole that was known as the “head in the sand” loophole which was used by American companies regularly to profess their ignorance as to the corruption of their business partner. That loophole was closed and it is now criminal activity for an American company to even unknowingly benefit from a partner’s corruption if it could have discovered the illicit activity but avoided doing so. As a result, American companies must examine potential partners extremely carefully before entering into business arrangements with those partners. Trace International is a consortium of 300 corporations that do business overseas and help these firms avoid violating the FCPA. Trace also has a division that can be hired by individual clients to assess potential foreign partners. Furthermore, the law requires the American company to remain vigilant even after signing the contract and must monitor its foreign partner to ensure no one is engaging in bribery or other improprieties.
Alexandra Wrage, who runs Trace International, pointed out that corrupt government leaders often use children or siblings to distance themselves from illicit projects. The official might create a company in their relative’s name that appears to be independent but is controlled by the “hidden” government official. Therefore, American companies doing business overseas with a partner that is a sibling or child of government official, the law mandates that American company be able to “show that the child or sibling of a government minister has real expertise and real ability to do the work for which they are hired. “Otherwise,” Wrage said, “the assumption is that they are a partner entirely because of their ability to use their parent’s power.” This poses a real problem for the Trump Organization’s because Elton Mammadov, before becoming a Member of Parliament in 2000, was a “maintenance engineer who had no experience in real-estate development.” Wrage said “a US company looking to make a deal with a foreign partner should be confident the partner has a reasonable likelihood of making a profit from the venture. If the project seems almost guaranteed to lose money, it could well be a bribery scheme or other criminal operation. The partner also should uphold modern accounting standards.”
“It’s simple,” she said. “Will money flow through this business because it offers a compelling product at a decent price, or will the money come because of an illicit relationship with someone who uses their power?” She gave an example of an American entrepreneur successfully prosecuted for his part in a corruption conspiracy in Azerbaijan. Frederic Bourke, the co-founder of Dooney & Bourke, the handbag company, had invested in a project in which a foreign partner paid bribes to an Azerbaijani government official and their family members. Bourke was sentenced to a year in prison for violating the FCPA; he appealed the conviction, claiming he had absolutely no knowledge of the corruption which resulted in the U.S. Court of Appeals for the Second Circuit upholding the conviction, saying that “regardless of whether he had known about the bribes, the testimony at trial demonstrated that Bourke was aware of how pervasive corruption was in Azerbaijan.” According to Wrage, the Bourke conviction put US companies on notice of the dangers in making careless deals in Azerbaijan.
A cursory look at Mammadov family suggests they are less than ideal partners for any American business looking to avoid problems with the FCPA. Several years before the Trump Organization announced the Baku deal, Donald Trump’s favorite website, Wikileaks, released the US diplomatic cables indicating that the Mammadov family was corrupt; one cable mentioning the Mammadov’s link to the Iranian Revolutionary Guard. The Mammadov family’s corruption was exposed in 2013 after the Organized Crime and Corruption Reporting Project investigated the family’s corruption and published well documented Exposé’s. Finally, just six months before the announcement of the Baku Hotel project, Foreign Policy ran an article titled “The Corleones of the Caspian,” which suggested that the Mammadov had exploited inside’s position as Transportation Minister to make a fortune. That same investigation revealed that Baku XXI Century, the company controlled by Elton, had at least two other stakeholders’ one of whom called ZQAN, an acronym for the family members of the Transportation Minister: Ziya Mammadov; Qanira, his wife; Anar, his son; and Nigar, his daughter. Anar is the official head of ZQAN. Another stakeholder in Baku XXI Century was the Baghlan Group, a company run by an Azerbaijani businessman who is known to be close to Ziya Mammadov. Another company run by a businessman close to design a Mammadov was also involved.
These entities have so many overlapping interests they are often appear to operate as a single entity. Not surprisingly, all the companies prospered almost exclusively through contracts with the Transportation Ministry. The Trump Tower Back to complex was built partly on land controlled by the ministry. It is essentially common knowledge that Zion Mammadov controlled ZQAN. In one of the leaked cables sent in 2010 by the US Embassy in back to stated that, “with so much of the nation’s oil wealth being poured into road construction,” the Mammadov’s had become disproportionately powerful in Azerbaijan. Another cable suggested that Ziya controlled ZQAN, the country’s “largest commercial development company.” This cable described Ziya as being the object of “many allegations from Azerbaijani contacts of creative corrupt practices.”
The New Yorker article goes into much more detail about the Azerbaijani project by the Trump Organization and provides more detail about the obvious corruption of Zion mamma dogs, the Trump Organization’s business partner in the back to tower deal. It is noteworthy however that Trump Organization attorney, Alan Garten, did not deny there was corruption involved in the project. “I’m not going to sit here and defend the mamma dogs,” he said. But, from a legal standpoint, he argued the Trump Organization was blameless. Garden even argued that the FC PA did not apply to the back who deal even if corruption occurred. Did “we didn’t own it. We had no equity. We didn’t control the project. The flow of funds is in the wrong direction.” He also added, “We did not pay any money to anyone. Therefore, it could not be a violation of the FCPA.”
Again, the New Yorker goes into more deal but it should be clear already that the Tromp Organization failed miserably in their legal obligation to conduct due diligence regarding their business partner and the extent of the Trump Organizer nation’s involvement appears far more extensive than their attorney suggests. Simply put, the Trump organization is exposed to criminal liability as a result of this back to project.
Interestingly, Donald Trump himself made some pertinent comments in a phone in appearance on CNBC, during which he expressed frustration with the law. “Every other country goes into these places and they do what they have to do,” he said. “It’s a horrible law and it should be changed.” He goes on to state that unless American companies give the bribes, “you will do business nowhere.” Trump continued, “there is one answer – go to your room, closed the door, go to sleep, and don’t do any deals because that’s the only way. The only way you’re going to do it is the other way.”
Donald Trump certainly has a way with words. Now that Donald Trump is president of the United States and will be presumably filling cabinet members that are like-minded, it will be interesting to see if there are any changes to the Foreign Corrupt Practices Act. The Central intelligence agency as well as other intelligence services came to the conclusion that preventing illicit money from flowing through the global financial system is a necessary tactic in preventing future terrorist attacks. The United States led an international effort to enforce financial transparency. Banks and other financial entities are required to vet their clients aggressively and to report any suspicious activity. Prosecutions for money-laundering bribery and other financial crimes rose significantly after the passage of the law. By comparison, in 2000 the government launched only three prosecutions under the FC PA while last year it initiated 54.
From the totality, it is abundantly clear that the business partner the Trump Organization chose to do business with in Azerbaijan is grossly corrupt to the extent it would be unlikely the Trump organization was unaware of the corruption even with no due diligence. Assuming they did conduct the required due diligence, though they cannot provide any proof it was darn, there is no doubt the corruption of the potential business partner would be crystal clear.
When Adam Davidson attempted to contact those referenced in this article, it is not surprising few were eager to talk. Trump organization attorney Alan Garten indicated the Trump Organization learned of “the possibility” that the Mammadov’s had ties to the Iranian Revolutionary Guard in 2015. An interesting date to provide given that the Trump organizer nation did not terminate the Baku deal until December, 2016.
According to the New Yorker, Donald Trump was in business with someone who his company knew was likely a partner with the Iranian Revolutionary Guard throughout the entire Presidential campaign. When asked why the Trump Organization did not terminate the project as soon as it learned of the connection with the Revolutionary Guard, Garten responded there was “no rush,” because “the project had already stalled and was showing no signs of moving forward.” Furthermore, Garten said the Trump Organizer nation has signed binding contracts with the mamma dogs and cannot simply abandon those obligations. As a lawyer myself, it seems ridiculous to argue that use should be permitted to violate sanctions in doing business with the Iranian Revolutionary Guard simply because you have a binding contract with them for lack of a better word. According to Erich Ferrari, a lawyer who specializes in sanctions, companies that discover possible sanctions violations will typically commission a “look-back” investigation to review payments received to make sure they did not originate with the sanctioned entity.” The Trump Organization did not commission a look back.
Unfortunately for the Trump Organization, the Baku deal appears to be the second time they have looked the other way regarding US efforts to sanction Iran. In 1998 Donald Trump purchased the General Motors building in Manhattan. In doing so, he inherited as a tenant in Iran’s Bank Melli. One year later, the Treasury Department listed the bank as an institution that was “owned or controlled” by the government of Iran and covered by US sanctions. Later, the Treasury Department labeled Bank Melli one of the “primary financial institutions through which Iran was funneling money to finance terrorism and to develop weapons of mass distraction. Despite this, the Trump Organizer nation retained Bank Nelly as a tenant for an additional four years before terminating the lease.
The best way to determine whether the Trump Organization committed a crime would be of course a Federal investigation, which could use its power of subpoena and international legal tools to obtain access to the contracts, the due diligence, internal emails and financial documents. The Department of Justice routinely sends investigators to other countries in pursuit of possible FCPA and sanctions violations.
Although this story has not been publicized mainly because of the extensive corruption and daily barrage of crazy things the press must follow in covering the Trump Administration, but one senator has taken notice. Sen. Sherrod Brown, of Ohio, the ranking Democrat on the Committee on Banking, housing, and Urban Affairs said in an email that a federal investigation is warranted: “The Trump organization’s Baku project shows the lack of ‘extreme vetting’ Mr. Trump applied to the zone business dealings and corruption plagued regimes around the globe… Congress – and the Trump Administration itself – has a duty to examine whether the President or his family is exposed to terrorist financing, sanctions, money-laundering, and other imprudent associations through their business holdings and connections.”
The final paragraph of Adam Davidson’s article is very telling: “more than a dozen lawyers with experience in FCPA prosecution expressed surprise at the Trump Organizations seemingly lax approach to vetting its foreign partners. But, when I asked former Trump Organize Asian executive if the Baku deal seemed unusual, he laughed. “No deal of the air seems unusual, as long as a check is attached,” he said.
Were now at approximately the halfway point of the first 100 days of the Trump Administration and their already seen this to be more potential scandals and problems in governing then one can keep track of. That said, this little known deal in the capital city of Azerbaijan could possibly lead to felony prosecution. As stated above, a completely innocent American businessman was sentenced to a year in prison for not conducting sufficient due diligence. Here the Trump Organize Asian seemingly flaunts the fact that they don’t seem to care about due diligence “as long as a check is attached.”
It is definitely going to be a long Four Years.