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Kaan Demir

KYC/AML Technology Analyst



Published Date

November 3, 2023


Blog / Trump’s Financial Fabrications and Deutsche Bank’s Flawed Due Diligence

10 min Read

Trump’s Financial Fabrications and Deutsche Bank’s Flawed Due Diligence

In a legal battle for fraud prevention that has captivated the nation, Donald Trump, the 45th President of the United States, is facing a civil fraud trial in New York. Trump and his company, the Trump Organization, are accused of years of fraudulent financial statements, which were instrumental in obtaining substantial loans from Deutsche Bank. This explosive case has uncovered the high stakes in finance, revealing details of how Trump secured hundreds of millions of dollars using financial documents that a court has now deemed fraudulent.

Role of Trump’s Financial Statements

Central to the controversy are Trump’s financial statements, documents that typically serve as a cornerstone of due diligence in lending. These assertions played a crucial role in obtaining a loan of $125 million for the Doral Florida golf resort and an additional $ 102 million loan for the hotel Chicago & condo skyscraper in 2012. But the impact extended far beyond these initial loans – they played a significant role in helping Trump secure larger loans with lower interest rates.

Trump secured $ 123 million loan for his Florida’s Glod Resort.

The former risk management officer at Deutsche Bank, Nicholas Haigh reportedly testified on October 11  about decisions that led to the downfall of the bank. He led the risk group of the bank from 2008 to 2018, declaring a unique perspective on how the bank worked to assess Trump’s creditworthiness. His statements revealed that the bank itself didn’t carry out a thorough exploration and analysis of Trump’s property assets.

According to the September ruling, the Trump Organization had been found involved in corrupt practices for several years. This fraud involved making Trump’s net worth and assets much higher than they actually were in order to deceive people while getting loans. During a recent trial, Trump’s finance chief also acknowledged the illicit financial activities, claiming that these financial statements were not always truthful.

The Trump  World Tower 

The Flawed Due Diligence

One of the most perplexing aspects of this case is the extent to which Deutsche Bank relied on Trump’s own statements without conducting independent assessments or verifications. In a typical lending scenario, financial institutions conduct rigorous due diligence, including independent evaluations of a borrower’s financial status. However, in the case of Trump, the bank often accepted the values he provided for his properties, which experts now argue created a gaping vulnerability in the due diligence process.

These financial statements contained exaggerated values for Trump’s assets and net worth, raising red flags that should have prompted closer examination. Deutsche Bank approved substantial loans without seriously challenging the information provided. This oversight process raises serious questions about the effectiveness of the bank’s risk management procedures.

The trial, led by New York Attorney General Letitia James, has thrust Deutsche Bank’s due diligence processes into the spotlight. This case marks one of the rarest cases in which the bank itself testified and acknowledged about the influence and convincing nature of Trump’s financial statements in winning loans.

Here is a quick analysis of gaps in Deutsche Bank’s due diligence processes which led to failure in detecting authenticity of financial statements. The major highlights include:

1. Reliance on Financial Statements:

The bank’s prominent and influential reliance on Trump’s financial statement depicted a clear flaw in its due diligence screening process.

Normally, when banks evaluate a borrower’s creditworthiness, especially for large loans, they conduct their independent evaluations and verifications of the borrower’s financial health.

In this case, relying solely on  Trump’s statements posed significant risks. If the borrower provides inaccurate or exaggerated information, it can result in substantial financial exposure for the bank.

2. Appraisals and Valuations:

The bank’s practice of not consistently conducting appraisals or valuations of Trump’s properties and instead relying on the values provided by Trump himself created a vulnerability in the due diligence process. Independent assessments are crucial to ensure the accuracy of asset valuations.
Without such assessments, there is potential for overvaluation or misrepresentation, which can distort the bank’s understanding of the borrower’s financial position and increase risk.

3. Exaggerated Asset Values:

The financial statements provided by Trump reportedly contained significant exaggerations of the values of his assets and net worth. These exaggerations were substantial and should have raised red flags during the due diligence process.

When borrowers provide information that appears inflated, it’s critical for banks to thoroughly investigate and verify the accuracy of these claims. Failure to do so can lead to lending based on misrepresented financial data.

4. Trump’s Guarantees:

The bank made it mandatory for Trump to serve as a guarantor for loans taken. This agreement emphasized that Trump would be legally bound to pay the loan if the assets and properties encountered any time of decline, liabilities, and financial difficulties. However, even these guarantees were based on Trump’s stated net worth.

Since Trump’s net worth was indeed inflated, the bank had been inadequately protected all along. This lack of effective due diligence could harm any bank’s interests. Therefore, guarantees should be based on accurate and verified financial information to ensure the bank’s interests are safeguarded.

5. Review of Financial Statements:

Despite the reported inaccuracies between the financial statements provided by Trump, the bank proceeded to approve substantial loans without challenging the accuracy of the information provided. 

Robust due diligence should involve a thorough examination of the borrower’s financial information. In this case, the failure to address the discrepancies is indicative of a flawed due diligence process.

6. Inadequate Oversight:

Testimony from a retired bank official, Nicholas Haigh, revealed that the bank’s oversight process was insufficient. Haigh mentioned that the bank conducted what he referred to as “sanity checks” on Trump’s numbers, but these checks were evidently not comprehensive. Comprehensive oversight is essential to ensure the accuracy and reliability of the financial information provided by the borrower. Inadequate oversight can lead to a lack of transparency and accountability in lending practices.

Summing Up

Deutsche Bank’s lending practices in this case have raised questions about their flawed due diligence in evaluating the creditworthiness of borrowers, particularly high-profile clients like Donald Trump. The bank’s due diligence process was marked by a substantial reliance on Trump’s statements, a lack of consistent independent assessments, and insufficient verification of financial information.

These issues potentially allowed Trump to exaggerate his financial health and obtain loans under false pretenses.  As this trial continues to unfold, the public gains insight into the potential risks associated with financial statements, particularly when those statements come from a Politically Exposed Person (PEP) like Donald Trump. Enhanced due diligence is, therefore, essential to mitigate lending risks and maintain financial institutions’ ethics and integrity.

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