In October 2010, in the run-up to the midterm elections, I paid a visit to Canton, Ohio, the seat of Stark County, about an hour’s drive south of Cleveland. Stark County is the kind of place that attracts reporters in election years: a place that had voted for Barack Obama in 2008, and George W. Bush before that, and Bill Clinton before that. Canton itself had become a recognizable archetype: a once-proud midwestern manufacturing town, with tall buildings and ornate movie palaces constructed on the premise that Canton would be Someplace for as long as those impressive edifices would stand.
By 2010, much of Canton’s downtown was boarded up. Unemployment in Stark County had topped 13 percent earlier that year,1 and desperation was palpable in the strip malls and Walmart parking lots, the only places with enough passersby for a reporter to gauge the mood of the electorate. There was widespread confusion and discontent about President Bush’s Troubled Asset Relief Program, known as TARP, the $700 billion bank bailout, which was almost always mixed up with the Obama economic stimulus package, an $800 billion relief package containing funds for infrastructure investment, but also for tax cuts for the working class. Stimulus opponents—Republicans, mostly—lambasted Obama’s package for being too large, but it was, in fact, too small for most voters to notice. No one could understand why, if the federal government could give $700 billion to the banks, it couldn’t give them enough money to save their homes.
In my hotel room in Canton, the campaign ads were nonstop. They were on every channel. Uniformly negative, they featured prison bars, bags of cash, and ominous music. Washington was doing nothing but stealing and stealing, committing every crime short of murdering your wife and kidnapping your children. Twenty-four hours a day, seven days a week, voters were told that government officials were untrustworthy, destructive figures, that government itself had undermined towns like Canton. Similar ads ran in Jackson County, Michigan, and in Hillsborough County, Florida, and in swing counties across the country. This was not just normal election-year television advertising. This was the television landscape in the year the US Supreme Court ruled in the case Citizens United v. Federal Election Commission, which gave corporations the First Amendment right to free speech in elections.
Campaign spending in 2010 topped three and a half billion dollars, shattering the previous record of under three billion dollars in a non-presidential year.2 After the Citizens United decision, expenditures by groups with hidden donors, which a few years earlier had been almost undetectable, approached one hundred and forty million dollars—and favored conservative groups at a rate of two-to-one.3 “Democratic strategists began to feel a strange undertow, as if an offshore tsunami were gathering force,” Jane Mayer wrote in her book Dark Money.4
As Mayer documented, Citizens United was the fruit of a decades-long plan to unshackle the campaign finance system from the controls that had been enacted in the wake of Watergate. Key to that effort was the DeVos family of Michigan, who had presided over the Amway direct-selling empire. “The government alleged that the company was little more than a pyramid scheme built upon misleading promises of riches,” Mayer wrote of a Federal Trade Commission probe into Amway.5 Family patriarch Richard DeVos became a top backer of “independent” political spending campaigns, and of efforts to undo campaign-finance laws. Ultimately, the FTC did not find Amway to be a pyramid scheme, but, in a 121-page decision, ordered the company to “cease and desist” from some of its business practices.
Richard’s son Dick married Betsy Prince, the scion of another Michigan dynasty. Betsy DeVos became a founding board member of a nonprofit whose sole purpose was to dismantle all restrictions on money in politics, the James Madison Center for Free Speech. This group was funded by a variety of right-wing sources, including the National Rifle Association and the Christian Coalition. It shared a general counsel, James Bopp Jr., with the National Right to Life Committee.6 “We had a 10-year plan to take all this down,” Bopp told the New York Times. “And if we do it right, I think we can pretty well dismantle the entire regulatory regime that is called campaign finance law.”7
To do this, Bopp took on as a client Citizens United, a right-wing agitprop group led by David Bossie, a former GOP congressional staffer and anti-Clinton researcher whose film Hillary: The Movie, scheduled for release in 2008, became the basis for the lawsuit. At issue was whether the film, an on-demand video distributed close to an election and advertised on television, should be banned as corporate-sponsored political advertising. Delivering the majority opinion for the US Supreme Court, Justice Anthony Kennedy wrote that while some people might find the movie Hillary instructive and others might see it as unfair, “those choices and assessments, however, are not for the Government to make.” For purposes of campaign finance laws, Kennedy concluded, “political speech does not lose First Amendment protection ‘simply because its source is a corporation.’ ” Citizens United had won. The decision was delivered January 21, 2010.8
Six days later, President Obama addressed both houses of Congress in his annual State of the Union address. “With all due deference to separation of powers,” President Obama said, “last week the Supreme Court reversed a century of law that I believe will open the floodgates for special interests—including foreign corporations—to spend without limit in our elections.” As Democrats rose to applaud the remarks, Supreme Court Justice Samuel Alito, in full robes, sitting right in front of the president, grimaced and shook his head as he mouthed the words “not true.”
Obama continued with his speech. “I don’t think American elections should be bankrolled by America’s most powerful interests, or worse, by foreign entities. They should be decided by the American people.”9
Alito and the rest of the court sat stone faced after that, looking straight ahead. Alito’s silent utterance—“not true”—would prove to be wrong. Obama was also wrong, sort of. The effect of money and foreign influence on campaigns would be worse than he ever imagined.
In July 2011, as the Trump family prepared to cut the ribbon of the Trump Ocean Club Resort in Panama City, Panama—in an area newly crowded with developments—downpours swamped the city’s infrastructure, turning the cramped roads near the tower into sewers.10 This was the Trumps’ first project in Central or South America, and the Trumps’ first international hotel.11 It was the tallest building in Panama, described by Ivanka Trump as resembling as a “gorgeous sail—some people say it resembles a giant D, as well.”12 (Locally it’s known as la mota, la micha, la cocada, el tontón, or la chucha, all of them slang for “vagina.”)
Donald Trump had put Ivanka forward as the point person on the project involved, as she said, in “every aspect,” from scouting and pre-development planning through construction, sales, and marketing.13 She had picked out the finishes and overseen the design of the fifteenth-floor sky lobby, touted the palette as “reminiscent of indigenous flowers.” But in July 2011, days away from giving birth to her and Jared Kushner’s first child, Arabella, she did not fly to Panama City to cut the ribbon for the Trump Ocean Club Resort.
Instead, Eric Trump and Don Jr. attended along with their father, and the Panamanian president, Ricardo Martinelli. There were other VIPs, and hotel workers, and dancers in vivid red-and-white traditional garments, performing for an approving row of men in dark suits. Martinelli told Donald Trump, “everything you touch turns to gold.” Trump, in turn, had kind words for Martinelli. “They really love your president and I just want to thank you very much for being here today and you’re my friend, great honor,” before lining up with the men in suits to cut a giant ribbon with a pair of giant scissors.14 Afterwards, Trump and Martinelli left, driven out through the flooded streets of Panama City in separate SUVs.
Just five months later, in November 2011, the Trump Ocean Club Resort’s developer defaulted on its bond payments.
Though troubled from the start, the Panama tower established a Trump family template for accumulating foreign capital, in many different forms: as sales to foreign buyers, as collateral for construction loans, as financing for its US investments, and as a source of branding and licensing fees abroad. Much of this money came from the satellite countries of the former Soviet Union, the Middle East, and countries like Brazil, India, Turkey, the Philippines, and Uruguay, almost all of them places with few regulatory or financial controls, if not an outright business of corruption. It was not unusual for real estate companies in this period to rely on foreign capital. What was unusual was the Trumps’ exceptional indifference to vetting their sources of income and taking steps to ensure their customers and investors would come out whole.
The developer Trump chose to work with in Panama had most of his prior experience not in construction or building, but in the garment import-export business; still, the licensor and licensee dreamed up a deal to build the tallest tower in Panama, a world capital known for its secrecy, and, in other contexts, for being a haven for laundering drug money. In 2005 and 2006, despite his initial success as the host of the The Apprentice, Trump still couldn’t get a regular bank loan. To overcome this hurdle, Trump and the Panama developer signed a licensing deal predicated on Trump’s obtaining construction financing for the project through a bond sale, essentially a deal that would farm out the financial risk of the loan to a potentially worldwide group of bond buyers.
According to the licensing deal uncovered by my Trump, Inc. colleagues Heather Vogell and Meg Cramer in files maintained at the Panama Securities and Exchange Commission, Trump agreed to arrange the financing (for which he would receive a two-million-dollar fee). But in order to unlock the construction bond, the sales team had to presell over 60 percent of the units; that is, enter into sales contracts before the building was fully constructed. These sales contracts were the collateral on which the entire deal was based; the buyers’ deposits, with the promise of more money to come at closing, would in theory give bond buyers the financial assurances they needed to invest in the deal.
Despite a softening of the real estate market by 2006, early sales at the Trump Panama (at least on paper) appeared to be swift; in the first year of presales, the developers reported that there were 585 presales contracts. Many of those contracts may have been illusive; buyers later claimed that Trump and his associates had promised to help them “flip” the units before they closed, (wrongly) suggesting a no-lose situation for buyers. There were also built-in incentives for the brokers to sign deals that might never close, including an unusual provision that paid the brokers most of their commission after signing the deal, not at the usual time—when a deal finally closes.
It wasn’t just that these unit sales were questionable; they may also have been vehicles for money laundering or attempted money laundering. Before the Trumps started developing in Panama, there wasn’t much of a tourist market there. However, high-rises flourished in Panama City, their construction fueled by international drug cartels, wanting to turn their dirty cash into real estate, which could then be sold for clean cash.15
Panamanian laws make it easy to obscure financial transactions. For the Trump Ocean Club most purchases were made through anonymous shell companies. In Panama, buyers could change the ownership of a unit in secret. Often this was done using “bearer shares,” which meant the transfer could be accomplished by passing a piece of paper to the buyer, without recording the transfer anywhere.
Bond documents show 60 percent of the early buyers in the Trump Ocean Club Panama came from outside the United States. Though buyers in Panama were not tracked by nationality, Trump’s Panama developer said in an interview with ProPublica’s Heather Vogell that buyers from Moscow and from Sunny Isles, a city in Florida known as “Little Moscow,” did buy in.
But even with special incentives for buyers and brokers and structural incentives luring flight capital to Panama, it was still hard for the Trumps and their associates to find enough buyers to reach the “presold” threshold to obtain a $220 million bond from Bear Stearns.16 To put false information in a bond prospectus would run afoul of securities laws. And yet the bond documents claimed 64 percent of units had been presold.
The bond sale went through in November 2007, barely. Not only had the real estate market begun to collapse, but so had the global financial markets. At the last minute, Bear Stearns postponed the offering only to reverse course a few days later. Trump had been a Bear Stearns client since the 1980s. (The Art of the Deal opens with a phone call with the then–Bear Stearns chief, and in the 1990s Trump was fined $750,000 for obscuring stock transactions with Bear Stearns.) The Panama development was the only bond issue to move forward among eight Bear Stearns was considering at that moment.
One of the lead real estate brokers on the project, Jack Studnicky, told ProPublica’s Vogell, “I remember walking up Fifth Avenue and I put my arm around” the Panama project’s developer, Roger Khafif. “And I said, ‘You are the luckiest SOB I ever met.’ ”17
The bonds were a hard sell. They had been rated as “speculative”—or junk—for the perceived risk of the investment, and global investors weren’t buying. Within months, Bear Stearns collapsed, disappearing into the maw of J.P. Morgan Chase. But the Trump Ocean Club had its construction loan. It could build.
Aggressive presales tactics; promises of flipping; front-loaded brokerage fees; anonymous purchases; all had created a rotten foundation. Only half the sales contracts ever closed. Buyers walked away from some $50 million in deposits, a volume that far exceeded ratings agencies’ worst expectations for performance of the bond. And when the project defaulted, and ultimately went into bankruptcy, up to $120 million of the $220-million bond deal was never paid back.
The Trump Ocean Club Resort had been a bad investment for many involved—but not the Trumps. They still made money—on everything from obtaining the financing to their portion of minibar and terry-cloth robe sales—between $30 million and $55 million, ProPublica’s Heather Vogell calculated.18 The Trumps also learned an important lesson about new ways foreign capital could keep them in the black, even when the world was falling apart.
Far north of Panama City, the Trumps were involved in another hotel condo licensing project. The Trump International Hotel and Tower in Toronto, also assigned to Ivanka Trump,19 similarly relied on pumped-up presales. One judge found the sales team deployed “deceptive documents” that were “replete with misrepresentations of commission, of omission, and of half truth.” An Ontario Court of Appeals judge found the developers engaged in “negligent misrepresentation,” leading one buyer to lose nearly a million Canadian dollars. Another, who worked in a warehouse and had only recently come out of bankruptcy, lost $248,064.58.20
Like the Panama project, the Toronto project was beset with problems. Trump’s original partner had fled the United States after pleading guilty to fraud and embezzlement, and the remaining partners had questionable experience in real estate development, construction, and hotel operations. One of them, Val Levitan, who ran a slot-machine company, was tasked with managing the construction and selling the condo units. The sales were made on the basis of fictitious financial estimates, the Ontario judge noted, that were “dreamed up” by Levitan, “who, it will be recalled, had no previous experience in the hotel business.”21
There was a new wrinkle in the Trump Toronto deal, something that set it apart from Panama. After Trump’s initial Toronto partner was extradited to the United States, a man named Alex Shnaider stepped up to be the project’s main financial investor. As the Financial Times described it, with the arrival of Shnaider, Trump Tower Toronto connected Donald Trump “with a shadowy post-Soviet world where politics and personal enrichment merge.”22
Born in St. Petersburg, Alex Shnaider emigrated from the Soviet Union to Israel at age four, and to Canada when he was thirteen. In Canada, teenaged Shnaider stocked shelves at his parents’ delicatessen in an immigrant neighborhood of Toronto.23 In his twenties, Shnaider went to work at the international conglomerate Seabeco for Boris Birshtein, who was born in Soviet-occupied Lithuania and became rich during the disintegration of the Soviet Union. Shnaider married Birshtein’s daughter.
Birshstein, the Financial Times reported, was by then a rare western businessman who could work on both sides of the Iron Curtain. Among other industries, he had interests in the Ukrainian metals market, the same lawless arena where Paul Manafort’s patron Rinat Akhmetov had also jousted.24 It was in that market that Birshtein’s son-in-law, Shnaider, made a fortune after purchasing a Ukrainian steel mill with a partner for a vastly reduced price in 2001. Media reports put that price at $70 million.25
In separate investigations, the Financial Times, the Globe and Mail, and the Toronto Star with Columbia Journalism Investigations26 marshalled evidence that Birshtein had, at best, rubbed up against the KGB and the Russian mob, if he didn’t have more serious entanglements, ties that Birshtein denied. (He and Shnaider have said they have since had a falling out.)
In 2010, Shnaider and a business partner, Ukrainian metals trader Eduard Shyfrin, entered into negotiations to sell their steel mill.27 According to Shnaider’s statement to British arbitration court, unearthed by the Financial Times, buyers acting “on behalf of the Russian government” wanted to buy their stake in the mill. The documents say Shyfrin was told that Moscow regarded buying the mill as “politically strategic,” that owning the mill was a way for the Russian government to maintain influence in Ukraine. Further, “a top Russian official told Shyfrin ‘in very clear terms’ to proceed with the deal, hinting that, if he did not, his Russian assets would be in jeopardy.”
This is when things got weird. According to the Financial Times, Shnaider and Shyfrin’s company, the Midland Group, was offered $850 million for the mill. This was $160 million more than they had been offered by another bidder, Rinat Akhmetov. But there was a catch: Shnaider and Shyfrin had to make some payments out of their proceeds from the sale. First they would have to pay a $50-million “termination penalty,” as the Financial Times described it, to Akhmetov. Shnaider and Shyfrin would have to pay another $100 million to what Shnaider called “introducers.” By the time of their British court case, Shnaider and Shyfrin were at odds. And yet, the Financial Times wrote, there appeared to be “no dispute in the documents that Shnaider signed off on the $100m payment on the understanding that it was heading for representatives of the Kremlin’s interests.” In the court papers, Shyfrin called the payment of these types of commissions “common practice” in Russia and Ukraine. Shnaider denies the “introducer” fee was ever paid. However, the entire $850-million deal was financed by Vnesheconombank, whose chairman at the time was Vladimir Putin. “In effect,” the Financial Times stated, “Shnaider and Shyfrin’s deal was with the Russian state itself.”28
If the ultimate destination of the $100 million in commissions was unclear, one thing was not: months after his company was enriched by the sale of the steel mill, Shnaider set aside another $40 million for the Trump Toronto.29 Trump, according to his own financial disclosures, subsequently made at least $3 million in fees from the deal.30
In April 2012, just months after the Panama default, the Trumps gathered to cut the ribbon in Toronto. Donald, this time with all three of his adult children, Ivanka included, stepped out of a black Cadillac Escalade, and greeted white-hatted chefs and uniformed hotel workers brought together for the occasion, along with VIPs like the mayor of Toronto (the later-disgraced Rob Ford). In a room packed with cameras, the Trumps and the VIPs again formed a line of dark suits broken only by Ivanka’s blue-flowered dress. Instead of traditional Panamanian music, there was Aaron Copland’s “Fanfare for the Common Man.” Instead of dancers in vivid white and red costumes, there were four women, all similarly coiffed, all with dresses V-necked in the back, carrying trays at precisely waist height bearing sets of gold-plated scissors. There were two Toronto police officers in dress uniform, saluting Donald Trump with white-gloved hands, before unfurling, as if they held a flag, a long red ribbon, cut to pieces on Donald Trump’s count of three.31 The building, Shnaider proclaimed, was a “great success.”32
It was not a success. Buyers started suing for misrepresentation almost right away. Sales were much slower than predicted, and so were hotel occupancy rates. Alone among hundreds of tall condominium towers that had been built that decade in Toronto, the Toronto Star and Columbia Journalism Investigations reported, there was “only one that went bankrupt after completion: the Trump International Hotel and Tower Toronto.”33
As with Panama, the Trumps made millions anyway.
After the Citizens United–fueled midterms of 2010, after the Democrats’ crushing loss of control of the House of Representatives, Obama’s economic initiatives largely came to a halt. In his first two years in office, he’d passed the Affordable Care Act and the Dodd-Frank Act, but when he proposed eliminating the carried-interest loophole, a tax provision that allowed private equity and hedge fund partners to halve the rates on certain of their taxes, the bill’s very existence enraged Steve Schwarzman, CEO of the Blackstone Group. “It’s a war,” Schwarzman said at a private board meeting of a nonprofit organization in 2010. “It’s like when Hitler invaded Poland in 1939.”34 Schwarzman soon apologized, but he showed up at the Koch donor conference that year, as Jane Mayer reported, with others, “checkbooks in hand, determined to prevent” Obama’s reelection.35
The Federal Reserve kept the economy afloat using a move called quantitative easing, buying tens of billions of dollars of bonds every month in an effort to flood money into the economy, weakening the dollar. As Ilya Marritz wrote of this period for WNYC News, there was a side effect of the weak dollar: “a growing appetite for expensive New York real estate. Residential skyscrapers intruded on the skyline south of Central Park.” He added: “Even in outer borough neighborhoods that were once synonymous with crime, elegant condominiums began to appear.”36
By 2012, foreign money was flooding into New York real estate. Throughout the United States, money was flooding into campaigns. The total cost of the election reached $6.3 billion, a billion dollars more than the previous record.37 Super PACs, now able to raise unlimited sums, spent $800 million. Another $312 million came in as undisclosed “dark money,” 86 percent of that to conservatives, the Center for Responsive Politics found.38
Donald Trump poured money into the 2012 election, as did Ivanka. That February, she gave an interview to Piers Morgan. When asked if she was looking forward to another four years of Barack Obama, she replied, “Hmm. Let’s hope not,” adding she was “vehemently against most of Obama’s policies. . . . I really wanted him to do a great job and I think that he hasn’t.”39 Donald Trump gave $201,000 to Republicans running in federal races that cycle. Ivanka Trump gave $132,900, all but $2,500 to Republicans.40
Their money funded television buys in places like Canton, Ohio, where the ads kept running and running. Almost all of them about the harms of government, coming at voters in an endless stream.