The New York Times reports that President Trump’s lawyer Michael Cohen says he paid “out of his own pocket” hush money to Stormy Daniels. That would be preposterous, since no one thinks Cohen would have in essence made a gift to Trump in the form of settling a claim. (If so, was the federal gift tax paid? Did Trump account for this as imputed income?) But wait. Cohen did not say the words “out of pocket” in his statement. He claimed no such thing, and it makes a difference.
As Orin Kerr points out, Cohen says he used his own funds “to facilitate” the payment and denies either the campaign or the Trump Organization reimbursed him. He says neither the campaign nor the Trump Organization was party to the agreement. He does NOT say he made the payment out of his own volition, nor does he say Trump personally didn’t foot the bill and sign the agreement. In fact, it is impossible to contemplate a binding deal for Daniels’s silence without Trump being a party.
Now, from Cohen’s statement, it is not altogether clear that money from Cohen went to Daniels. Kerr observes:
To “facilitate,” the dictionary tells us, means to assist with or to make something easier. Given that, I would think that the most literal reading of Cohen’s statement is just that he used his own funds to arrange the payment. He’s not making any statement about whose $130,000 was paid. For example, if it took Cohen a few hundred dollars to set up an entity to pay Daniels, and to wire someone else’s $130,000 to her, then he would have been using his own personal funds to facilitate that payment. Sending on the money would be a transaction between two parties, Daniels and the entity Cohen set up, and there would have been no need to reimburse Cohen $130,000 because it wasn’t Cohen’s money that was sent.
There are other explanations as well. For example, perhaps Cohen did pay the monies from a pool of money Trump gave him to settle such matters. In that case, Cohen needs to explain whether other claims were settled in such fashion. Tax and legal ethics specialists will need to opine whether there is anything illegal about this, well, peculiar arrangement.
Also possible is that Cohen paid Daniels and then got reimbursed from Trump personally. If that’s the case, Cohen — don’t laugh — has an ethics problem. Renato Mariotti, a Democratic candidate for attorney general in Illinois and former prosecutor, notes that the American Bar Association’s “Rule of Professional Conduct 1.8(e) prohibits lawyers from ‘provid[ing] financial assistance to a client in connection with pending or contemplated litigation.’ If Michael Cohen paid this money to Stormy Daniels to settle her claims against Trump, he violated the rule.”
The immediate issue for Cohen is whether the payment was an unreported donation to the campaign. The Post reported last month:
In a pair of federal complaints, Common Cause, a nonprofit government watchdog group, argued that the settlement amounted to an unreported in-kind contribution to Trump’s campaign. The group called on the Justice Department and Federal Election Commission to investigate. . . . This settlement should have been considered a campaign expense “because the funds were paid for the purpose of influencing the 2016 presidential general election,” Paul S. Ryan, a campaign finance expert at the group, said in a letter addressed to Attorney General Jeff Sessions and Deputy Attorney General Rod J. Rosenstein.
However, if he ultimately did not foot the bill (e.g. receive reimbursement), then Cohen didn’t donate anything. If Trump (as we imagine) ultimately paid the cost, then if it is a “campaign expense” the question becomes whether it was reported as an expenditure from the candidate.
In other words, if the Daniels payment is a campaign expense, then either Cohen or Trump should have reported it. “Regardless of where the money came from—if there was any connection to President/candidate Trump or anyone on his campaign (i.e., the campaign knew this was happening), then it had to be reported as an expenditure by the campaign committee and an in-kind contribution into the campaign committee,” Ryan tells me. ” If the money came from Trump himself, then there’s no illegal contribution because he can give as much of his own money to his campaign as he wants. But if the money was actually Cohen’s (or someone else’s)—then it appears to be an illegally-large contribution to the campaign.” And if the arrangement to set up a special company to pay the settlement was to avoid FEC reporting, that’s a problem, too.