Delaware has once again found itself at the center of a national conversation over secrecy surrounding the creation of limited liability companies, after The Wall Street Journal last week reported that an attorney for President Donald Trump used a private Delaware firm to enable a payment to an adult-film star in order to stop her from talking about a supposed 2006 sexual encounter with Trump.

According to the report, the lawyer, Michael Cohen, created Essential Consultants LLC in October 2016—weeks before the presidential election—to transfer $130,000 to a client-trust account maintained by an attorney for Stephanie Clifford, who performed under the stage name Stormy Daniels, as a part of an agreement to make sure that details of the alleged affair did not become public.

Cohen has denied allegations of an affair or a payment.

The salacious report did not describe any illegal acts taken in Delaware, but it was the latest in a string of stories to link LLCs registered in the state to a range of nefarious activity, as open government watchdogs push for more transparency for the entities. In Delaware, home to approximately 880,000 active LLCs , the entities are not required to publicly disclose information about their beneficial owners.

Since the release of the Panama Papers in 2016, Delaware's lenient LLC formation system has come under scrutiny for supposedly allowing the wealthy and anonymous companies to hide corporate assets. LLCs have also been linked to separate schemes by Jack Abramoff, a disgraced lobbyist, and Russian arms dealer Viktor Bout, to launder money, according to media reports.

In a federal grand jury indictment, released in October, U.S. prosecutors alleged that former Trump campaign chairman Paul Manafort and Rick Gates, a former official in the Trump campaign, used nine Delaware LLCs to shield from U.S. authorities millions of dollars in payments from Ukraine.

Those disclosures have alarmed open-government advocates in Delaware who argue the state is not doing enough to ensure that LLCs are not used to advance illegal activity.

Last year, the Delaware Coalition for Open Government partnered with state Rep. John A. Kowalko Jr., D-Newark South, to craft legislation that would enlist the help of registered agents to prevent foreign nationals or countries that pose national security risks from forming LLCs in the First State. Under the bill, the agents would be required to screen for bad actors, and LLCs would be required to record with the Delaware secretary of state, in writing, the specific nature of their business if they plan to invest in industries “vulnerable to internal sabotage,” like financial operations, chemical manufacturing or defense and aerospace.

However, the bill, introduced last January as HB 57, met opposition from Delaware Secretary of State Jeffrey W. Bullock and many in the state's legal community and was tabled in committee.

Christine Whitehead, a member of DelCOG who helped draft the legislation, said that Kowalko planned to bring the bill back in 2018, perhaps as a substitute to last year's legislation. The most recent iteration, she said, would narrow HB 57 to its “essential element” requiring that scanning be done against a federal database.

“We really would welcome the support of members of the bar who think it's a good bill,” said Whitehead, herself a retired Delaware attorney. “We're not trying to be obstructionist. We're not trying to create a problem for the corporate bar, but this is a matter of safety and security for the U.S.”

Kowalko did not respond to a call Monday requesting comment.

The Delaware State Bar Association has not taken an official position on Kowalko's bill, but Matthew J. O'Toole, a partner with Potter Anderson & Corroon and former chair of the DSBA's corporation law section, testified against the bill in Dover last year.

“It's not a good piece of legislation for various reasons,” he said in an interview.

O'Toole said HB 57 would improperly turn Delaware's Division of Revenue into a federal law enforcement agency, and he noted that the state has already taken steps to ensure that federal authorities have access to information on LLCs to aid in their investigations.

Delaware, he said, is not unique among the states in not requiring beneficial owners of LLCs to be listed on formation documents, O'Toole said, and any changes should be part of a “50-state” solution to crack down on the “occasional misuse” of the entities.

“Federal legislation is greatly preferred,” O'Toole said.

Earlier this month, the State Department's Division of Corporations sent a letter to a group of registered agents, which act as liaisons between the companies and the state, emphasizing that agents are required to screen their clients against a federal sanctions database.

According to the letter, large commercial agents are required to check all new clients against the U.S. Treasury Office of Foreign Assets Control's list of persons and entities barred from doing business in the United States when they receive a request to form an LLC. The agents must also conduct quarterly checks of their complete registries of Delaware entity information against current OFAC listings.

The state said it would continue to conduct quarterly screenings for smaller agents. Failure to comply with the new directives could result in federal fines and criminal prosecutions, the Jan. 10 letter warned.

A spokesman for the State Department said that representatives had engaged in discussions with Kowalko last year and “would be happy” to continue the dialogue in the coming months. However, the spokesman said any changes to laws regarding beneficial ownership best left to Congress.

“In general, the Department of State continues to support congressional efforts to ensure that beneficial ownership information is readily available to law enforcement agencies that need it, regardless of where a business entity may be registered,” Doug Denison, the State Department's director of community relations said in a statement. “As Secretary Bullock has said in the past, this is a 50-state problem that deserves a 50-state solution.”

Meanwhile, O'Toole said the recent reports of wrongdoing involving Delaware LLCs showed that the state's system was effective in helping to uncover bad actors.

“The fact that it was discovered who was behind these LLCs, that kind of proves the point that there is a level of transparency,” he said. “Those instances don't really make the case that there's a problem with Delaware law with transparency of LLCs.”