Blame the execution, not the jurisdiction. By needlessly blurring the line between client affairs and personal business, would-be fixer wrecked a theoretically ironclad opportunity to keep all transactions walled off and confidential.
We weren’t shocked when we heard that Michael Cohen looked to Delaware when he was setting up the shell company that paid off women who posed a reputation risk to his clients. (Let’s call the most prominent one “David Dennison” after the name on the non-disclosure agreements.)
After all, Delaware is one of the few states that shield the principals of limited liability companies from the public record. Find the right registered agent to handle the local paperwork, and the names of the people involved don’t even show up in tax records.
But for whatever reason, Cohen kept his name on the certificate of formation that created Essential Consultants LLC. That means he still showed up in the files once anyone who knew the name of the entity did even a bit of remedial research.
And when your clients cashed checks written on the LLC account, figuring out the name of the entity was trivial. There’s zero mystery that Cohen was behind the payments.
What’s bizarre is that he left the accounts open when his operation pivoted from settling client reputation threats to actively soliciting high-end policy consulting contracts.
Keeping the activities insulated from each other is best practice. Letting the accounts commingle amounts to an unforced and awkward error.
Legitimate vehicles, flawed execution
There’s nothing intrinsically wrong with crossing state lines to create a company. Delaware in particular has cultivated a reputation for simultaneously enforcing tough due diligence standards while turning a blind eye when companies that get a toehold there decide to lend outsiders a hand.
Some get caught in the red tape and residence requirements. Others, like Cohen, have no problem making a phone call to a local registered agent and setting up a Delaware company without leaving their normal stomping ground.
"People generally focus on the business entities that are formed for wrongful purposes, but very likely many more than 99% of the entities that are formed are formed for legitimate reasons,” notes Steven Oshins, a prominent attorney in Nevada, which is arguably a touch more open to outside business.
The added distance allows them to keep their names off public corporate records and lower their overall profile. When the goal is facilitating payments that keep people quiet, the fainter the paper trail, the better.
With the right permissions in place, the registered agent can open the bank accounts as well as paying filing fees and taxes. The principals never even have to enter the picture.
Since Cohen’s name was on the Essential Consultants certificate, it’s a moot point. Figuring out his involvement is trivial. But behind his name, there’s nothing intrinsically linking the accounts to his clients.
The problem, of course, comes when everybody knows who his most famous client is and the non-disclosure orders created to keep people quiet break down. The dots get easy to connect. The cloak of privacy evaporates.
Cohen could easy have used a subordinate’s name or even rented a signature to create an extra layer of confidentiality around the company. When I worked in the family office world we had whole identities available for just that purpose.
Maybe he thought the entire enterprise would only exist for as long as it took to make the payments, receive reimbursement and dissolve.
But instead of winding down, activity skyrocketed as Cohen received a reported $4 million in additional payments to the Essential Consultants account. Maybe it’s just his private political consulting business and he was unwilling to let a perfectly good LLC go to waste — we’ll give him the benefit of the doubt here.
$90 would have prevented all this
However, even if Cohen had the purest motives, recycling the LLC only raises questions.
Running political consulting money through the same account that paid out to protect his top client’s political career looks at least superficially like there’s a quid pro quo arrangement going on somewhere.
If nothing else, exposure triggers additional scrutiny and forces a lot of explanations. At best, it’s embarrassing. And if the explanations falter, it’s serious trouble.
Cohen begged the scrutiny by leaving his name on the documents, full stop. He could easily have structured the initial payments at a farther reach from what would eventually become his own personal business. He didn’t.
And when that business got going, he could easily have opened a second LLC to keep a bright line between the pre-election payments and the post-election advice. It costs $90 in Delaware. With $4 million coming in, that’s literally pocket change. Shutting down Essential Consultants when it had achieved its initial purpose would have even saved him annual fees.
Instead, the entity formed to protect a career evolved into an entity formed to profit from access. People who were involved in the first phase suddenly got a ticket to the second show as well. They told the world what they saw.
It’s mysterious how they got their hands on the suspicious activity reports Essential Consultants generated on both sides. There’s a Treasury investigation going on right now.
But connecting all the dots would have been a whole lot harder — maybe even impossible — if Cohen had thought through the confidentiality options at his disposal before writing or cashing any checks at all.
The payments could’ve come from a corporate accountant, anonymous and extremely challenging to trace back to Cohen’s ultimate clients. The accountant could’ve set up the bank accounts, providing additional space between Cohen himself and the transactions themselves.
Then, an entirely separate structure would emerge to handle the post-election consulting. There’d be zero direct link between them. The people getting paid in the first phase would have no awareness of the second structure, and their lawyers would be similarly in the dark.
Maybe we’ll eventually learn why Cohen didn’t just spend the $90 to create that space. If he had, we wouldn’t be talking about this at all. In the meantime, getting dragged into all this creates headaches for his clients — never a great look on a lawyer.
Either way, it isn’t the jurisdiction’s fault, Steve Oshins says.
"If we all overreact to the very few situations where a person has used the state laws to do wrong, then we are potentially violating the privacy of all of the do-gooders who are using the statutes for legitimate purposes. And we all know what happens when too much personal information is shared. Things get much, much worse!”