A lawsuit against the Trump Family Foundation seeks more than $2.8 million in restitution plus additional penalties from members of the Trump family for allegedly misusing charitable assets.

(The Conversation, by Daniel Hemel, Assistant Professor of Law, University of Chicago) The Donald J. Trump Foundation will shut down and distribute the money it has left to charities approved by the New York state attorney general, while the state’s lawsuit against the president and his three oldest children alleging violations of state laws governing charities proceeds.

Under the deal New York Attorney General Barbara Underwood reached with the foundation two weeks before she will leave her post and be replaced by fellow Democrat Letitia James, the state attorney general’s office will wield veto power over which charities receive the foundation’s remaining US$1.7 million in assets.

Meanwhile, Underwood’s lawsuit against Donald Trump and three of his children – Donald Jr., Ivanka and Eric – will go forward even as the family foundation winds down. Underwood’s lawsuit seeks more than $2.8 million in restitution plus additional penalties from these four members of the Trump family for allegedly misusing charitable assets and to temporarily prohibit them from serving on the board of any nonprofit incorporated or authorized to conduct business or solicit donations in the state.

As a scholar of federal and state tax law, I believe that this agreement marks at most a modest victory for Underwood in her effort to hold Trump and his children accountable for alleged violations of state charity law. The more serious test will be whether a state court holds Trump personally liable for using his foundation to aid his campaign and benefit himself.

A Courtroom Defeat

Underwood and the foundation reached this agreement less than one month after the attorney general scored a preliminary win in her lawsuit against the Trumps.

That lawsuit details several apparent violations of federal and state law by the Trump Foundation dating back to 2007.

Among the most flagrant of these is a $25,000 contribution that the foundation made in 2013 to the re-election campaign of Florida Attorney General Pam Bondi. Not only did that run afoul of laws barring foundations from contributing to political campaigns, but the Trump Foundation now admits that it misreported the gift in federal and state tax filings.

The lawsuit also alleges that Trump allowed his campaign to distribute more than $2.8 million in foundation funds to advance his presidential bid in the run-up to the 2016 Iowa caucuses – money that the attorney general says Trump should be required to pay back. And it alleges that he used tens of thousands of dollars of foundation money to benefit his hotels and golf clubs.

The Trump Foundation asked Judge Saliann Scarpulla, a trial court judge in Manhattan, to dismiss the lawsuit, but Scarpulla ruled in late November that the case could move forward.

The litigation in Scarpulla’s court is just one example of the legal woes the president’s foundation faces. In addition, New York authorities are probing whether the president or his charity broke state criminal tax laws. And Underwood has alerted the IRS and the Federal Election Commission about the foundation’s possible federal tax and campaign law violations.

A Settlement

In her November decision, Scarpulla said that she had been “actively encouraging” the parties to reach an agreement to dissolve the foundation but that they so far had “been unable to do so.”

After his 2016 election, Trump said he wanted to dissolve the foundation to avoid “even the appearance of any conflict with my role as President.” But New York law requires the state attorney general’s approval before that can happen.

Underwood’s predecessor, Eric Schneiderman, refused to grant that approval because of ongoing investigations into the alleged misuse of foundation funds. After he resigned in May 2018 amid allegations that he physically abused four women, Underwood took over. She asked the court to dissolve the foundation in June.

The agreement signed by Underwood’s office and a lawyer for the Trumps gives the foundation what it has wanted all along: permission to wind down.

The agreement does allow the New York attorney general’s office to approve which charities get the foundation’s remaining funds. But New York law gives the state attorney general approval authority over a charity’s plan to distribute its remaining assets any time charities – including private foundations – voluntarily dissolve.

Rather than being what Underwood called “an important victory for the rule of law,” the agreement to shut down the Trump Foundation looks to me more like a small and largely symbolic win.

A Civil Action

It remains to be seen whether Trump will bear any real financial consequences for allegedly using his family foundation as a personal and political piggy bank.

Scarpulla has ordered him and his oldest children to respond to the lawsuit by mid-January. By then, New York Attorney General-elect Letitia James, who currently serves as New York City’s public advocate, will have assumed the state’s top law enforcement role.

She plans to ramp up the state’s probes of Trump, his family and his businesses.

“We will use every area of the law to investigate President Trump and his business transactions and that of his family as well,” James told NBC News on Dec. 12.

That could – in theory – include an inquiry to determine whether Trump committed criminal tax fraud in connection with his family foundation.

The New York attorney general’s lawsuit is a civil action, not a criminal proceeding, and not all tax law violations rise to the level of a crime. New York law imposes criminal consequences for only a few tax-related offenses – most notably, tax fraud.

Under New York law, criminal tax fraud occurs when a person “knowingly” submits “materially false or fraudulent information” in connection with a tax return. To hold someone criminally liable, the prosecution must prove that the person acted “willfully” – which means with “intent to defraud” or to avoid “a known legal duty.” Criminal tax fraud is, at a minimum, a class A misdemeanor, punishable by up to one year in jail.

The hurdles to criminal prosecution are high and several of the foundation-related accusations against Trump relate to activity outside the relevant statute of limitations. In my view, any effort by New York state to prosecute the Trump Foundation, the president or his relatives for criminal tax fraud would encounter significant and likely insurmountable legal obstacles.

This is an updated version of an article originally published on July 23, 2018.

Daniel Hemel, Assistant Professor of Law, University of Chicago

This article is republished from The Conversation under a Creative Commons license. Read the original article.