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Politics

Exclusive: Trump faces new tax fraud allegations in Panama hotel dispute

A new court filing alleges previously undisclosed “illegal behavior” by Trump, including failure to pay income taxes, as part of a bitter legal dispute that resulted in the eviction of Trump’s management company from a luxury hotel in Panama City.
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3 Jun 2019 – 4:44 PM EDT

The owners of a luxury Panama hotel filed a lawsuit against President Donald Trump’s hotel management company in New York district court on Monday seeking $15 million damages for alleged breach of contract and income tax fraud, according to court documents.

The former Trump International Hotel in Panama City was managed by Trump and his children until March last year when his company was evicted by court order due to alleged “gross incompetence” and mismanagement.

The latest 48-page court filing by the hotel owners, Ithaca Capital, an investment fund with multiple hotels in Latin America and Caribbean, alleges previously undisclosed “illegal behavior” by Trump, including failure to pay income taxes to nthe Panamanian government and fully report employees’ salaries.

The Trump Organization told AP that it did not evade any taxes, saying that it was only responsible for management of the hotel. The Trump family's hotel group has previously accused Ithaca Capital of seizing control of the hotel by fraudulent means.

Ithaca Capital declined to comment.

The $400 million hotel and condo project was the Trump Organization's first venture in Latin America and opened in 2011 to great fanfare, with Donald Trump and his children; Ivanka, Donald Jr. and Eric in attendance. The 70-story building with a distinctive sail-like design that dominates Panama City's Pacific coast skyline.


Trump brand

Trump lent his brand name to the project, reportedly earning him around $45 million, but some of the investors have since been alleged to have links to money laundering and drug trafficking. The Trump Organization has not been accused of laundering money, but questions have been raised about the company’s due diligence efforts.

In recent years, several Trump projects around the world have hit financial trouble, including a hotel and condo in Toronto, a golf course in Puerto Rico and a condo tower in Uruguay. Other projects in Brazil, Mexico and the Dominican Republic never got off the ground.



After it took over control of the hotel’s management last year, “Ithaca learned that Trump had failed to comply with Panamanian tax and legal requirements,” including failing to pay a 12.5% tax on Trump’s own management fees and failing to fully report employee salaries to the Panamanian social security agency, exposing Ithaca to millions of dollars in liability, it alleges.

Possible tax penalty

“Had Trump been honest with Ithaca” about the tax and salary issues, it would never have invested in the hotel due to “the significant, multi-million-dollar tax penalty that could be imposed by the Panamanian government once it started auditing the hotel,” it added in the court filing.

The court filing cited hotel records indicating the alleged tax fraud, though the documents were not included in the court filing. If true, the allegations could expose Trump to legal problems in Panama, though it was not clear if Trump's Delaware-based management company might also face legal issues with U.S. tax authorities.

During his election campaign, Trump became the first presidential candidate in 40 years to decline to make his tax returns public, arousing enormous public suspicion about what they might reveal about his business dealings.

Monday’s lawsuit is the latest in a series of court battles between Ithaca and Trump over alleged “horrific” mismanagement of the hotel after Ithaca purchased a controlling interest in 2017. Prior to the 2017 purchase, Ithaca says it had several meetings with Trump’s representatives, including his sons Eric Trump and Donald Trump Jr, who claimed the hotel was a roaring success and was out-performing the market in Panama.

“False" statements

"These statements were false and made with the intention to mislead Ithaca into believing that its investment in the hotel would be sound,” the lawsuit says, adding that Ithaca later learned that the hotel was “virtually empty” and being out-performed in the Panama market not only by its luxury competitors, but also by cheaper brands.

“Unfortunately, Trump’s malfeasance was only the tip of the ice berg,” the lawsuit alleges. “Trump had been mismanaging the hotel for years. As a direct result … the economic performance, physical condition … and guest service levels had dramatically declined.”

The dispute began as a private legal matter, but the two sides waged a very public battle for physical control over the hotel last year. Trump's company barricaded itself in the hotel and hired security guards. The owners responded by getting a court order from a Panama judge and bringing police in tactical gear to evict Trump's staff, all in front of journalists and cameras.


Prior to being evicted, Trump’s management team also caused significant and intentional damage to the hotel amenities, “including deliberately causing life and safety violations,” the lawsuit alleges. They also allegedly shredded the hotel’s records, removed computer equipment and laptops, and installed malware on the hotel’s remaining computers, according to the lawsuit.

After evicting Trump’s management company, Ithaca signed a new deal with JW Marriott and the hotel has since seen a significant turn-around in occupancy and profitability, the company says.

Arbitration

The hotel’s management is also the subject of an arbitration case with the International Chamber of Commerce (ICC), the world’s leading court for settling commercial disputes. The ICC rejected a legal effort by the Trump Organization last year to return the hotel to its management. The court's decision represented a major setback for the Trump hotel group after it also lost control of hotels in Canada and New York.

As part of the dispute, the Trump Organization initially filed a lawsuit seeking $150 million in damages against Ithaca for breach of contract, which it later reduced to $9 million. It also named Ithaca’s managing partner, Orestes Fintiklis, of "mob-style tactics.

In its lawsuit on Monday, Ithaca sought to remove the name of Fintiklis from the case and asked the court to bar the Trump Organization from any further legal proceedings at the ICC against the Cyprus-born lawyer who was educated at Oxford University and lives in Miami Beach.

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