The indictment against former Trump campaign chair Paul Manafort stated nine Delaware business entities were used in the international money laundering and tax fraud scheme he’s charged with running.
The Mexican drug lord known as “El Chapo” allegedly used a Delaware LLC for his drug money.
And there also were reports this year that President Donald Trump’s former attorney Michael Cohen used a Delaware LLC to pay porn star Stormy Daniels to stay silent about her relationship with the president.
Those instances and thousands of others have prompted civic groups in Delaware to petition Attorney General Matt Denn to assign a special counsel to examine language in the state’s LLC — or limited liability company — laws that pave the way for criminal activity.
Under Delaware law, a LLC is granted a number of protections — including the privacy of its true owner.
The Delaware Coalition for Open Government said that means LLCs are sometimes used to hide money laundering, arms dealing, drug trafficking, and human trafficking.
“LLCs are not transparent, and they attract criminal enterprises whose members wish to remain anonymous,” the petition says. “Through years of legal engineering, [it] has evolved and, contrary to the purpose of law, is now clearly enabling crimes.”
Denn did not agree to an interview, but the petition is under review. The petition also asks for an independent counsel to study LLC laws, identify provisions allowing some to take advantage of them for criminal purposes, and recommend changes.
The Civic League for New Castle County, the League of Women Voters of Delaware, and the Delaware Press Association have also signed the petition.
With more than 800,000 LLCs, Delaware reportedly collects hundreds of millions in dollars from these companies.
The Coalition for Open Government has argued that the state turns a blind eye to unethical behavior in favor of generating tax revenue.
The tipping point was the coalition’s discovery that backpage.com, which has been accused of supporting human trafficking on its site, also uses a Delaware LLC, said Nick Wasileskio, coalition president.
“It’s OK if money launderers and narcotic traffickers and child sex traffickers form Delaware LLCs for the purpose of committing crimes, as long as Delaware gets its $300 a year in annual tax revenue,” he said. “I can assure you people who live in Delaware would not agree with that. Tax revenue does not justify criminal activity.”
“I don’t see how the state can ignore it. I don’t see how Delaware’s attorney general can ignore it. His mandate is to protect the public, families and consumers,” Wasileski said. “If money launderers, embezzlers, are using our laws, that cannot be ignored, and I think he needs to take action.”
Last year, state Rep. John Kowalko, D-Newark, introduced legislation aimed at weeding out the bad actors and putting restrictions on those identified by the feds as a threat to the country.
The bill was tabled when state Rep. Melanie George Smith, D-Bear, who serves as chair of the House Judicial Committee, said she was concerned because the measure didn’t go through the Delaware State Bar Association’s Section of Corporation Law.
“There is an insidious infiltration of the lawmaking process … where the special interests are the ones not only creating laws, but getting them passed and getting support for the laws … (because) these corporations, corporate bar commission, different entities, banking industry, are viewed as the experts, we have to abide by their wishes, and what it does is reflect poorly on the needs of the average citizen and taxpayer,” Kowalko said.
He said he plans to introduce legislation again next year, and he said the petition is a good first step in addressing an overall lack of government transparency in the state.
“I agree with the effort to try to bring some kind of transparency to our government, and transparency has to start with the laws we lay down for entities such as LLCs and corporations,” Kowalko said. “In two consecutive governorships, we’ve had this type of secrecy, which shouldn’t sit well with any member of the public. It’s being used as a secret method to employ tactics that are illegal or, at best, unethical for corporations. We have to resolve that.”