Ethics experts say their 'fear has been realized' as Trump faces one of his most consequential conflicts of interest yet

• The week-long dispute between the Trump Organization and the owner of a Panama hotel could have consequences for President Donald Trump.
• Ethics experts say this is the kind of situation they've always warned about.
• Now that situation has become a reality.

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Ethics experts fear that the week-long standoff at a Panamanian hotel between ownership and the Trump Organization just presented one of the most consequential conflicts of interest yet for President Donald Trump.

The dispute broke out into the open last week when Orestes Fintiklis, the majority owner of the hotel, arrived in the lobby of the building with associates. His aim was to fire the Trump Organization, which has managed the hotel since its 2011 opening. The Trump Organization, however, refused to leave.

In the days since, police have been called to the property multiple times to, as the Associated Press reported, "keep the peace." Meanwhile, after Fintiklis and his associates hand-delivered termination notices to Trump Organization employees at the hotel on Thursday, witnesses told the wire service they saw Trump executives moving files to a room, where they would be shredded.

It's gotten so bad that footage has leaked of Trump Organization security and hotel officials fighting within the building. CNN reported that armed Panamanian authorities entered the building amid the standoff.

Late last week, Fintiklis' lawyer went to Panamanian authorities to complain about the Trump staffers issuing threats and intimidating him so he wouldn't enter the building. Panamanian prosecutors then promised to investigate Trump's namesake company for its role in the episode.

If that probe is opened, it would mark the first such investigation into the Trump Organization by a foreign government during Trump's presidency - something that has many ethicists on edge.

'He can't just go around and recuse himself from various decisions'

Even though Trump passed control off to his two adult sons prior to taking office in January, he did not enter into a blind trust or divest from the business as experts pleaded with him to do.

"When the president refused to divest from his businesses, there was always the fear that there would be some sort of incident at one of his overseas entities, and his judgment and loyalty could be tested," Jordan Libowitz, a spokesperson for the watchdog group Citizens for Responsibility and Ethics in Washington, told Business Insider in an email. "That fear has been realized. The president can obviously have a great impact on American foreign policy toward Panama. How could this affect that? We don't know, but it's not good that we have to ask."

Unlike other positions in the administration, where officials are legally required to divest from their assets or recuse themselves from any possible conflicts of interest, the president is not under such legal requirement to do so. That brings up a specific problem in Panama. Since Trump is president, he can't just recuse himself from decisions related to the country, experts told Business Insider.

"He can't just go around and recuse himself from various decisions," Larry Noble, senior director and general counsel of the Campaign Legal Center, told Business Insider. "Especially when you're dealing with international relations. It's the problem we said would happen and it is happening."

Short of severing ties with his businesses, Noble said there isn't anything Trump could do to fully remedy the situation if Panamanian authorities do launch the investigation. And if that investigation begins, any US decision with an effect on the country will be under the microscope.

"It could be a trade deal, it could be aid of some sort, it could be a rule involving the Panama Canal," Noble said, adding, "This is a good example of what a presidential conflict of interest looks like."

Trump's history with Panama while president is not extensive, though he did meet with Panamanian president Juan Carlos Varela in the Oval Office last year.

During that meeting, he cited a "very, very good" friendship with Varela.

That friendship would, obviously, get tested if the investigation is launched.

"Obviously, that affects his feelings about that foreign country," Noble said. "And so, when he has to make any decisions that may impact Panama, we have to ask, is he doing it to get back at them? Or to make them happy because of his business? Or is it really just in the interest of the American people? And that's your classic conflict of interest."

"If they really do start a major investigation of this property, is he going to start tweeting about Panama and our relations with Panama?" he continued. "This is a real tangled web, and it's a problem."

'It's just a lot of risk to come out of this'

Trump's best course of action is to acknowledge the problem exists, express that he understands why people would be concerned, and provide as much transparency as possible, Noble said. He added that while there have been prior conflicts of interest involving foreign governments seeking to curry favor with Trump through his business, this is the first instance of a foreign government possibly doing something that could harm his namesake company.

"The question is how will it influence what he does," he said. "And we've seen before that he tends to lash out when he feels people are attacking his daughter's business, or basically attacking him. It's one thing when a pundit or expert attacks him, its another when another country is trying to enforce its laws and finds itself at odds with his business."

Panama could decide to drop the case or not pursue it, being unwilling to ruffle the US's feathers. That too presents problems.

"What if all of a sudden Panama drops it and the people who've been challenging the Trump hotel, saying wait a second, our government only did that because they don't want to take on the US," Noble said. "That has its own complications. It's a very specific instance of the conflict we all warned about playing out."

Richard Painter, a University of Minnesota law professor and former top ethics adviser to President George W. Bush, said a huge risk for the president is if Panama opens the investigation and finds anything that could be used as blackmail against Trump. On the other hand, Panama could back off in exchange for some sort of favor, which would constitute bribery.

"It would end up being a big mess," he said. "It's just a lot of risk to come out of this."

Trump's business should end its involvement with the hotel, Painter said, adding that Trump should steer clear of the situation entirely. Trump and any US government official should not discuss the issue with the Panamanian government, and Trump Organization officials should not be discussing US government policy with Panamanian officials.

"Because if what happened at that hotel is thrown into any type of negotiation with the United States government, you're going to end up in a bribery situation very quickly," he said.