Explain how people wire large sums to each other. My question arose from the $130,000 transfer from Michael Cohen to Stormy Daniels, but consider it more general. I’d post in GQ but I find the whole transaction too confusing to formulate a single clear question.
The First Republic Bank reported the $130k transfer as suspicious. Why? Did they associate it with the election campaign; was that why it got flagged? (Or was the report of “suspicion” just a formality; filed routinely and then routinely ignored by the Feds?)
The wire wasn’t from Cohen to Stormy; it was from “Essential Consultants LLC” to Stormy’s lawyer. Why? Was the invention of a (brand-new) company name intended to make the transaction less “suspicious”? Why did Cohen go to the bother of creating a brand-new company? Did that stunt backfire?
Tax evasion doesn’t seem to be a motive; in fact Trump’s $35,000 monthly payments to Cohen are allegedly intended to cover not only the various hush moneys paid by Cohen, but extra funds to cover the tax on this income from Trump. So using a “conduit” to mask a payment Trump–>Stormy as Trump–>X–>Stormy meant X had to report the money passing through him as taxable income? How do penny-pinching millionaires put up with this inefficiency?
What about Stormy’s taxes? Was a 1099 created for her? I guess there’s no IRS code for “hush money” — is that the underlying problem here? Is Stormy’s tax problem one reason the payment was sent to her lawyer?
$130,000 just doesn’t seem like very much to me. It might have been a real-estate down payment or a book advance. How much would Stormy charge to make a marathon porn film with a dozen of Cohen’s friends? Did Cohen know the bank might flag the transfer as “suspicious” and if so, wouldn’t there have been smarter ways to structure the payment? What ever happened to big bags of cash?
To answer, what I think, is your main question. IIRC, any transaction over a set amount and/or considered out of the ordinary for that account is automatically flagged as “suspicious”, and by suspicious, I mean, the feds are given a heads up that it happened. What they do with that info, I don’t know, but I believe the banks are required to let the feds know.
As for using a 3rd party, I’m sure that’s just to create some distance between the original payer and the final recipient. Similarly, I’ve always heard that the US does not, ever, pay ransom, but I saw a documentary (or maybe it was a podcast) about what are essentially shill corporations that make the payments. For example, the US might refuse to pay ransom to get a reporter out of a hostage situation, but “The Coalition For Peace in Iraq” coincidentally makes a donation in the same amount to the people that were demanding the money.
FTR, I’m going from memory here, I could be wildly incorrect about either of these things.
Well, when a mommy bank account and a daddy bank account love each other very much…
Ok, facetious.
But yes, the real answer is that although companies and individuals wire each other large sums all the time, more rigorous AML (anti-money laundering) laws and regulations and more robust fraud modeling on the parts of financial institutions means we basically live in a surveillance state when it comes to financial transactions now.
This one in particular sounds like it had a lot of potential red flags going for it - it was a first transfer between two parties who had never had any money flows between them before, for a fairly large amount, with one party an individual and another party a freshly established company. There could have been a lot of other fishy things with it that we don’t know about going on too (ie overseas bank accounts, overseas holding companies, newly established bank accounts, whatever).
If you were an accountant looking at your company’s books and didn’t immediately understand what was going on, wouldn’t you flag this particular transaction as something to look into further?
Well, so it happens in the banking world too, as part of complying with AML laws. And flagging itself doesn’t mean the transaction doesn’t go through - it just means it was kicked up for a higher level of scrutiny, for what seem to be fairly legitimate reasons.
In terms of taxes, that is a complex question that undoubtedly varies widely between the parties and circumstances of any given large wire transfer, and I leave it to the CPA’s in the house to speculate any further.
Banks are required to file a “suspicious activity report” or “SAR” with the Department of Treasury Financial Crimes Enforcement Network (FINCEN) if the banks suspect that the transaction is related to illegal activity. Banks can be heavily penalized for failing to file a report but there is no disincentive to filing a wrong report. In fact:
[ul]
[li]There is no filing fee to submit a SAR. [/li][li]SARs are confidential and non-discoverable. If a bank customer or anyone else asks whether the bank has filed a SAR about him, the bank can’t tell him. If the customer sues to find out, the bank still won’t have to disclose the SAR. The bank can’t even disclose the SAR in response to a subpoena. So, there is no reason to think the bank will lose a customer if it files a SAR. [/li][li]Banks are immune from slander judgments for the statements they make in a SAR, even if they make them in bad faith. Under the statute that requires banks to file SARs, banks “shall not be liable to any person under any law or regulation of the United States or any constitution, law, or regulation of any State or political subdivision thereof, for such disclosure or for any failure to notify the person involved in the transaction or any other person of such disclosure.”[/li][/ul]
So, if a bank is mildly suspicious of a transaction, there is every reason to file a SAR and no reason not to file a SAR. As a result, banks file lots of “defensive SARs” every year for things that raise only the faintest of red flags.
Unless somebody involved in the filing spills the beans, it is effectively impossible for us to know whether any presumed Cohen SAR was because bank actually thought something illegal was going on or whether it was a defensive SAR.
Banks are subject to a number of regulatory requirements under Know Your Customer (KYC) and Anti Money Laundering (AML) laws. So it is certainly possible that the sudden creation of a brand new company for the sole purpose of transferring money could be flagged as suspicious.
Anti-money laundering laws relate to cash deposits and withdrawals, not wire transfers. In this case the bank likely deemed the transaction as suspicious because of one or more of the following red flags:
large amount
to personal (as opposed to business) account
fell well outside the norm of activity for the account(s) in question
It sounds, as I suggested in OP, that the bank’s filing a SAR was rather routine.
I’m still interested in related questions:
Why did Cohen create a new company (“Essential Consultants LLC” ) just to make the transfer? Was it an effort to obfuscate directed at bank or IRS? I’d think the attempt to obfuscate would increase suspicion.
Why pay Stormy’s lawyer instead of Stormy herself?
Is it likely to be true, as Giuliani claimed, that the money funneled from Trump to Stormy et al via Cohen is taxable income for Cohen; so that Trump’s payments to Cohen included compensation for the tax? That tax seems like a lot of money to pay for any accounting convenience. Why not just give her a suitcase of cash? Or have one of Trump’s Russian friends hire Story for a very expensive photo shoot?
I am neither a a lawyer nor an accountant, but all of these shenanigans suggest guilt. This leads to follow-up questions:
Are legitimate business deals structured with similar oddities?
Is it really so hard for criminals (or, giving Cohen-Trump the benefit of the doubt, quasi-criminals) to transfer money?
I get the impression that extortion, bribery, etc. are “no problem” but these “businessmen” go to great lengths to avoid any charge of tax evasion.
The objections to the alternatives mentioned are clear, I guess: Cohen-Trump wanted documented compensation to Stormy in order that the hush-for-pay contract was legally enforceable. So … was there no way for Trump to distance himself legally without creating a contrived tax liability for a middleman like Cohen?
Another bimbo was compensated by being paid for a National Enquirer story that was never run. Ignoring that prosecution might be impossible, legally should that have been reported as a taxable gift to Trump?
I’m really just guessing here because the only people who can really know are Cohen and Trump.
You don’t have to publicly disclose the owners of a privately-held LLC so it may have helped to conceal from outsiders that Trump, Cohen, or someone else owned the entity. Of course, the concealing effect is reduced when the entity was established by a lawyer who admits to having essentially only one client.
It could also help make the contribution to the LLC look like a capital investment and the distribution from it to look like an ordinary business expense. Both of those would make it look more like a deductible business expense rather than a personal payment. I have no idea if Trump or Cohen deducted this payment.
Sometimes, payments to lawyers are just for the convenience of the lawyers making the arrangements. Lawyers routinely act as trustees for their clients in receiving and distributing settlement funds. It’s not really unusual. In this case, it may also have further separated the paper trail between Cohen’s client and the ultimate recipient of the money, and further made it look like a tax deductible business expense of Essential Consultants rather than a non-deductible payment in response to a personal debt of Mr. Cohen or Mr. Trump.
Giuliani’s explanation sounds like near-complete horse shit to me. I think Giuliani is saying that Trump paid Cohen a retainer of $35,000 per month for legal services and Cohen was able to use this as he saw fit to deal with Trump’s problems. Giuliani implies that the retainer is income to Cohen and that to offset the income tax on that income, Trump paid Cohen more money so that Cohen could make the payments to Ms. Daniels after paying the income taxes. There are at least four reasons that this is a stupid explanation of what happened.
(1) Retainer fees aren’t income until they are earned. Retainer payments can be structured in different ways but, most commonly, retainer payments are basically pre-payments for legal services to be received in the future. So Cohen could have received a $35,000 monthly retainer for future legal services. Under Rule 1.5(d)(4) of the New York rules of professional responsibility for lawyers, the retainer fee must be refundable. A refundable deposit like this isn’t taxable for Cohen until it has been earned. It is earned when Cohen does billable work, which he can then charge to the retainer fee. So, no taxes are due just because Cohen received an ordinary retainer.
(2) Some retainer fees would be taxable to Cohen when received but that doesn’t explain why Trump is paying someone else’s income taxes. Under the same rule 1.5(d)(4) above, retainer agreements can contain a “reasonable” minimum fee clause. So, perhaps Cohen received a retainer payment of $35,000 that was wholly treated as a minimum fee of $35,000. I would question whether that was reasonable under the circumstances but we’ll assume it was. In that case, the whole fee would be revenue to Cohen right away. But no lawyer I’ve ever heard of says, “My fee is $500 per hour, plus my income taxes on the income I earn.” No real business in the world prices its services at some amount plus its income taxes. I doubt Trump volunteers to pay the income taxes for all the other people who work for him. Giuliani suggesting that Trump pays Cohen extra for income taxes is basically ridiculous.
(3) Cohen wouldn’t own any taxes on the retainer payment if he was supposed to use all the money to pay Trump’s expenses. Cohen only owes income taxes on his revenue after expenses. If one of Cohen’s expenses is to pay Trump’s debts, that expense is deductible to Cohen. It will offset the revenue he received and thus the payment will have no effect on his income taxes.
(4) Attorneys are not supposed to commingle their personal money with funds that they hold for their clients’ purposes. See New York Rule of Professional Conduct 1.15. Violating this rule is the leading reason that attorneys get disbarred. It sounds like Trump’s purported retainer payments were supposed to be a mix of legal fees (i.e., Cohen’s money) and a slush fund for Cohen to pay people off to make Trump’s problems go away. The problem is, these are separate funds. The client slush fund portion is supposed to be segregated in a separate bank trust account for Cohen’s clients’ benefit from the beginning. Cohen can’t just take a bunch of money from his client, call some arbitrary portion of it legal fees and treat the remainder as client funds.
The only theory where Giuliani’s explanation makes any sense to me is if Trump wants the payment to Daniels to look like it came from Cohen’s money rather than from Trump’s. (Remember that this was the early story - that Cohen made a deal with Ms. Daniels and Trump had no knowledge of and nothing to do with the payment.) To try to remove the nexus between Trump and Daniels, Trump could have payed Cohen a bunch of money on a bullshit minimum fee retainer agreement to Cohen. Cohen would know that he is required to pay a bunch of that money out to Ms. Daniels under his tacit agreement with Trump and that he will earn a bunch of revenue on the minimum fee retainer agreement as a result. But, since Cohen’s payment to Ms. Daniels is not supposed to be from Trump but rather is supposed to be Cohen’s personal deal with her, Cohen’s payment to Ms. Daniels would not be a deductible business expense. Cohen would thus wind up owing taxes on the retainer agreement amount without any offsetting expense for payments to Daniels. So, Cohen presumably tried to get Trump to pay both the “retainer fee” equal to the amount he payed to Ms. Daniels and the income taxes that would result. The “retainer agreement” (if it even exists) sounds like it was just a shabby way to further conceal Trump as the true origin of the payment to Ms. Daniels. If Trump was trying to conceal the payment for illegal reasons (e.g., to avoid campaign finance disclosures), this would be illegal money laundering.
Cohen wanted a signed legal agreement that he could enforce against Daniels and he wanted proof that he had made the payment. He wanted a paper trail. He just didn’t want a paper trail that started with his client or one that ended at a porn star. It’s an understandable goal though he failed spectacularly by both illuminating the trail to both ends and failing to create an enforceable agreement.
Hiring Ms. Daniels for a photo shoot does nothing to stop her from taking the money, posing for the photos, and then going straight to 60 Minutes days before the election to tell the story of her affair with the presidential candidate. The goal was not just to pay her but to buy her silence.
“Similar” leaves a lot of wiggle room but I’ll just say no. This seems like a weird deal however you interpret it.
It’s a minor point, perhaps, but I think I was victimized by a mistaken report. Essential Consultants LLC may have started life just for the Help-Stormy-Reform funding, but it became the company name used to receive huge bribes from Novartis and presumably from AT&T and Korea Aerospace.
BTW, were these huge bribes intended to pay Michael Cohen’s legal fees? Or help buy his silence? Or was it expected he had some way to kick the money back to The Trump Organization?
