Trump administration decides Trump isn’t violating his government lease

“It is harmful to the integrity — and thus credibility — of GSA, the Presidency, and federal procurement process.”

The Trump International Hotel at 1100 Pennsylvania Avenue NW, is seen Wednesday, Dec. 21, 2016 in Washington. CREDIT: AP Photo/Alex Brandon
The Trump International Hotel at 1100 Pennsylvania Avenue NW, is seen Wednesday, Dec. 21, 2016 in Washington. CREDIT: AP Photo/Alex Brandon

Trump’s downtown D.C. hotel has emerged as one of the starkest symbols of his conflicts of interest, a literal landmark to Trump’s kleptocracy and a central property in Trump’s violation of the emoluments clause.

And, shortly after the election, government ethics experts pointed out one even more basic way Trump’s ownership of the hotel poses a problem: he appears to be in clear violation of the terms of the lease itself.

The Trump Organization, which Trump still owns, leased the Old Post Office building from the government in 2012. Included in that lease is a standard provision against corruption that stipulates that no “elected official” can be part of the lease or reap any benefit from it.

With his election, Trump became both the owner of the hotel and the highest elected official in the country.

On Friday the General Services Administration (GSA), which manages the lease, finally issued their ruling into the matter — and ruled that clause poses no problem for the president, and thus that the lease is perfectly valid.

Ethics experts characterized the decision as a “joke” and a “spine-ectomy.”

“Not only is the conclusion unexpected and unpersuasive, as a matter of law, but, as a matter of policy, it is harmful to the integrity — and thus credibility — of GSA, the Presidency, and federal procurement process,” Steven L. Schooner, George Washington University Professor of Government Procurement Law, told ThinkProgress.

The conflict of interest tainting the decision

The GSA based their assessment on a few points, all of which ethics experts (and House Democrats) find unpersuasive. First and foremost, Contracting Officer Kevin Terry, who wrote the GSA ruling and who negotiated the original deal with the Trumps, trots out a familiar defense: that Trump may still own the hotel, but he’s resigned from all management positions and handed control over to his sons Eric and Donald Jr.

Whether this appearance of a barrier means anything at all in reality is dubious — the Trump organization has provided no evidence that Trump doesn’t talk to his sons about his business beyond promises. And, indications are that promises of a firewall are already being broken: Eric Trump recently told Forbes that he would continue to give his father profitability reports as often as every quarter, despite promising not to discuss the business with him.

“Yeah, on the bottom line, profitability reports and stuff like that, but you know, that’s about it,” Trump told Forbes. “I talk to him a lot. We’re pretty inseparable.”

Regardless of the strength of the managerial firewall, practically speaking it has little bearing on the substance of the problem — imagine a contracting officer, for example, renegotiating rental rates for the lease while Trump is the president. It doesn’t matter if Trump is the one physically on the other side of the table or the one running the hotel. The official will still know that, effectively, they’re negotiating with their boss — and may draw the ire of their boss or his children if they push a tough bargain for the government.

That conflict, however, was never addressed in the GSA ruling — which is particularly troubling because it also now applies to Terry himself.

“The CO’s decision favors the President, who, in effect, is his supervisor, just as it favors the GSA (in terms of maintaining the status quo); but it also pleases his (the CO’s) ultimate supervisor — the head of the agency — who serves at the President’s pleasure,” Schooner told ThinkProgress, adding that the underlying conflict of interest “undercuts any suggestion that he (the contracting officer) engaged in independent analysis.”

Trump still owns the hotel — he’s just playing a shell game

A lengthy portion of the GSA’s ruling depends on an appeal to the corporate structure of the hotel ownership. In brief, the hotel is owned in part by Trump and each of his adult children, and profits for the hotel are paid through LLCs into revocable trusts for each of them.

Trump’s trust, however, isn’t separate from him at all. Under the terms, the president can access its contents “at his request, as the trustees [his sons] deem necessary for his maintenance, support or uninsured medical expenses, or as the Trustees deem appropriate.”

In response to concerns, the Trump organization did add one change to the operating agreement, which Terry thanked them for in his ruling. The contract now stipulates that the hotel won’t pay any of its revenue into Trump’s share of the ownership, thus cutting his trust off from the money from the hotel.

“In other words, during his term in office, the President will not receive any distributions from the Trust that would have been generated from the hotel,” the GSA letter reads.

Just because Trump cannot access the earnings now, however, doesn’t mean that he’s not earning profit from the hotel during these years — during which his hotel has conveniently become a popular venue for foreign embassy events, conferences, and business meetings between business interests and lobbyists hoping to curry favor with the president.

Instead of going directly to Trump, the profits are to be invested back into the hotel and its businesses, which Trump will have full access to once he leaves office. The provision doesn’t cut Trump off from any profits, it just delays them.

“This decision allows profits to be reinvested back into the hotel so Donald Trump can reap the financial benefits when he leaves the White House. This is exactly what the lease provision was supposed to prevent,” Reps. Elijah Cummings (D-MD) and Peter DeFazio (D-OR) said. Cummings and DeFazio are respectively the chairs of the House committees on Oversight and Infrastructure and Transportation, and have been some of the leading congressional advocates for an inquiry into the Trump hotel.

Lawyers for the Cork Wine bar case against President Trump, which alleges that the Trump International Hotel enjoys an illegal business advantage due to its association with the president, echoed the sentiment.

“The Defendants have done nothing other than play a corporate financial shell game, in an effort to conceal the fact that Donald J. Trump continues to monetarily benefit, even if such monetary benefits are delayed until after the term of the Presidency,” Scott Rome and Mark Zaid, co-lead councils for the case, responded to the ruling in a press statement provided to ThinkProgress.

There’s also one final wrinkle in the hotel’s ownership: Ivanka Trump, who also has a share in the hotel.

Ivanka’s husband is one of President Trump’s top advisers, and she herself is moving into an unofficial (and unspecified) White House role that comes with an official White House office. Her role in the Trump hotel and the government, however, isn’t addressed in the GSA’s ruling.

“The Ivanka situation only makes it all worse,” Schooner told ThinkProgress.

The plain language of the lease

One of the reasons the lease became a major issue was because, unlike, many of Trump’s other conflicts, it seemed to be straightforward: The lease says that elected officials can’t be part of it. Trump is an elected official. Case closed, right?

Per the GSA’s decision, wrong — the decision even begins by criticizing media reports for a reaching “simplistic ‘black and white’ conclusions” regarding the elected-official clause.

The decision, however, fails to ever directly address why the black and white language is allegedly gray. And that, say House Democrats, is a dangerous part of the problem.

“This new interpretation renders this lease provision completely meaningless,” Cummings and DeFazio wrote. “Any elected official can now defy the restriction by following this blueprint.”

Schooner, however, is skeptical that the decision will provide a precedent for future government procurement, given the extremely unique situation surrounding it. Still, he raised the decision as an issue of credibility and integrity of the GSA and the presidency itself.

What happens now

Democrats have been pushing the GSA to investigate the case of the hotel. GSA Inspector General Carol Ochoa, however, said that she would hold off until the ruling came down.

Democrats have also made repeated requests to the GSA for the hotel’s revenue and expenses. The GSA has yet to respond, according to Jennifer Werner, an aide to Cummings.

Lawyers for the Cork case floated one more possibility for evaluating the lease: that the Trump organization may raise it in their defense in the case.

“Several courts have, in fact, rejected prior conclusions of GSA as arbitrary and capricious,” they say. “The GSA’s conclusion does not prevent a Judge from making an independent determination.”