AG’s Move to Criminal Probe Is a Red Alert for the Trump Org 1

New York State Attorney General Letitia James is doing the right thing by joining forces and investigations with Manhattan District Attorney Cy Vance. Until now, James had been heading up a civil investigation of the Trump Organization while Vance was conducting a criminal one. Now, it appears that the state’s civil investigators have found red badges indicating criminal fraud.

What is the difference, you ask?

First and foremost, a criminal case means that executives from the Trump Organization, including its namesake chief honcho, can go to jail if convicted of criminal violations, while civil penalties are monetary in nature. But there’s also a technical, but important, difference here, about how investigators obtain their evidence while respecting the rights of the folks they are investigating.

When conducting a criminal investigation, the prosecutor and the agents must allow for the Fifth Amendment rights against self-incrimination. This means the agents cannot compel Donald Trump or any Trump executives to testify against themselves. It also means that Trump and his children don’t have to turn over tax returns or other potentially incriminating records voluntarily. Third-party records must be subpoenaed, and that provides for the possibility of intervening with lawsuits as happened in the Mazars accounting firm saga, when they took their fight against releasing Trump’s taxes, which they had prepared, all the way to the Supreme Court.

Think about an IRS audit. When Uncle Sam demands to see receipts supporting the charitable contributions you claim to have made on your tax returns, you must comply and hand them over with no viable recourse.

But if a Special Agent from the IRS Criminal Investigation Division shows up at your door and wants to question you about potential fraud with regard to your tax returns, that agent must first read you your Fifth Amendment rights against self-incrimination.

It’s a really big difference!

Classic indicators of criminal fraud include the use of more than one set of books and records; the use of false invoices; the use of shell companies to conceal financial transactions and the altering of books and records and false statements by the subjects of the investigation.

The IRS almost never conducts a criminal investigation at the same time it is conducting a civil audit. The audit is frozen the minute the criminal investigation is initiated. This means that there can be no confusion for the subject of the investigation as to the nature of the investigation and the right to not self-incriminate.

Only after the criminal investigation is completed can the civil audit resume. Tax and penalties can be asserted then, and no legal confusion ensues.

One other point about the timing of James’ decision to convert a civil investigation into a criminal one: IRS auditors are trained that when conducting civil audits that they are to make criminal referrals once firm indications of fraud are unearthed. This means that evidence may have been obtained demonstrating that financial records were intentionally and/or willfully falsified or concealed in some fashion.

Classic indicators of criminal fraud have been held by the courts to be the use of more than one set of books and records; the use of false invoices; the use of shell companies to conceal financial transactions, and the altering of books and records and false statements by the subjects of the investigation.

Taxes and penalties can be asserted later on and there may well be an opportunity for the criminal investigation to result in seizure and forfeiture of Trump assets should the Trump Organization be indicted and convicted of criminal RICO and/or money laundering charges that include forfeiture counts.

By making the wise decision to convert her civil investigation into a criminal investigation, the AG’s investigators can provide quality subject matter expertise to the DA that will maximize the efficiency and effectiveness of what is likely a complex case, and James has an opportunity to share in the spotlight of a potentially successful joint criminal investigation of one of New York’s most notorious real estate tycoons.