Civic groups want independent counsel to look at Delaware’s LLC law

The News Journal | by Christina Jedra

The Delaware Coalition for Open Government and other civic groups asked Attorney General Matt Denn on Monday to investigate the state’s system for limited liability companies — some of which have been connected to money laundering, narcotics and sex trafficking, and other offenses.

The group, which includes the Civic League for New Castle County, the League of Women Voters of Delaware, the Delaware Press Association and Network Delaware, wants Denn to appoint an independent counsel to identify weaknesses in the Delaware Limited Liability Company Act.

The law facilitates the use of Delaware LLCs as “as fronts to commit crimes,” according to the petition.

“The time has arrived where the Attorney General, who is the chief law enforcement officer of the state of Delaware, can take some action,” said DelCOG President Nick Wasileski. “And we expect that to happen.”

A spokesman for Denn’s office said Monday afternoon that the request was “just received and will be considered.”

Unlike other states, Delaware does not require beneficial ownership information of companies that incorporate here, meaning it’s unclear who the real owners are. Law enforcement officials, including at the U.S. Treasury, have complained of hitting dead ends in Delaware when following a paper trail.

“LLCs are not transparent, and they attract criminal enterprises whose members wish to remain anonymous,” the petition states. “Through years of legal engineering, the Act has evolved and, contrary to the purpose of law, is now clearly enabling crimes.”

Delaware benefits immensely from the current arrangement. The state, which has no sales tax, collected about $860 million in taxes and fees from its absentee corporations in 2011, or about a quarter of the state’s total budget, according to a 2012 New York Times investigation.

Denn should get involved because “his mandate is to protect the public, protect the consumer, protect families,” according to Wasileski. The state acts irresponsibility when it allows companies like, whose employees were hit in April with a 93-count indictment for conspiring to facilitate prostitution and money laundering, to remain in “good standing,” Wasileski said.

“When you have a company that is facilitating online sex trafficking registered in Delaware, that’s an issue,” he said.

Other Delaware LLCs have also made headlines in the past year.

Investigators working for Special Counsel Robert Mueller found nine Delaware corporations and limited liability companies helped former Trump campaign chairman Paul Manafort and political consultant Rick Gates shield millions of dollars in payments from Ukraine from U.S. officials, according to an indictment released in October.

President Donald Trump’s former attorney Michael Cohen used another company registered in Delaware, Essential Consultants LLC, to pay $130,000 to porn star Stormy Daniels before the 2016 election. The payment, which was not reported as a campaign contribution, has been the focus of questions about potential campaign finance violations.

Other Delaware LLCs have been connected to alleged cases of embezzlement, bribery and narcotic trafficking.

“We can no longer stand for this,” said Delaware Press Association Director Katherine Ward.

Gov. John Carney’s office did not respond to a request for comment.

Secretary of State Jeff Bullock did not respond directly to a request for comment. Deputy Secretary Kristopher Knight wrote in an email that Bullock “continues to support a national solution to the collection, maintenance and disclosure of Beneficial Ownership information.”

Rep. John Kowalko supports DelCOG’s petition. He has made multiple legislative efforts to change Delaware LLC laws in recent years, but he said the Section of Corporation Law of the Delaware State Bar Association has a strong grip on the Delaware legislature.

The petition excerpts minutes of a 2017 hearing in which the vice chair of the House Judiciary Committee, Rep. Melanie George Smith, indicated that when the General Assembly wants to take up legislation dealing with corporations, it takes the recommendation of the Section of Corporation Law.

According to the minutes, Smith said the organization’s lawyers vet legislation and that the process “sends a message of stability across the world.”

“The ‘process’ of proposing and approving amendments to Delaware’s LLC Act should not be controlled entirely by the Section of Corporation Law,” DelCOG’s petition states.

“The Delaware Attorney General’s Office also should play an active role in proposing and reviewing amendments to the LLC Act that will prevent the ability of bad actors to conceal criminal enterprise in their corporate activity.”

Corporation Law Section Chair P. Clarkson Collins did not respond to a request for comment on Monday.

Wasileski said there is a precedent for Delaware’s top prosecutor to appoint special investigators. In 2011, then-AG Beau Biden appointed an Independent Counsel and Special Deputy Attorney General to investigate Delaware campaign finance corruption.

The petitioners — which also include the nonprofits Pacem in Terris, American Promise Delaware, Delaware Get Money Out and Network Delaware — said they want an independent counsel to:

  • Study the language of the Delaware Limited Liability Company Act to identify provisions that facilitate the misuse of Delaware limited liability companies as fronts to commit crimes;
  • Investigate issues of fraud against the state committed by bad actors that form LLCs to commit crimes, prosecute when criminal liability is assessed, and levy monetary and other appropriate penalties;
  • Make recommendations for amendments to provisions of the Act.

Read original article.

Posted in News Articles.