Recent revelations surrounding the business clients of Michael Cohen, Donald Trump’s personal attorney, demonstrate the seedy underbelly of the lobbying business in Washington. At least one company that hired Cohen admitted that it got suckered by someone who couldn’t deliver what he promised. Many companies consider these types of expenditures the cost of doing business.
Last Tuesday, attorney Michael Avenatti released a report claiming that Cohen’s firm, Essential Consultants, received millions of dollars in payments from various companies, including one linked to a Russian oligarch. Avenatti, a Trump critic, represents onscreen prostitute Stormy Daniels in a lawsuit seeking to nullify a non-disclosure agreement Daniels and Cohen reached regarding the former’s alleged affair with Trump.
Although the claims in the Avenatti report were unverified, and Cohen’s attorney has disputed its details, several companies named in the report spent Wednesday responding to its allegations. Among other companies, telecommunications giant AT&T and pharmaceutical company Novartis confirmed payments to Cohen’s consulting firm.
While Avenatti’s original report claimed Novartis paid Cohen just under $400,000, the company later confirmed payments totaling three times that amount, or $1.2 million. In an interview, an unnamed Novartis employee gave commentary into what amounts to a corporate comedy of errors:
He [Cohen] reached out to us…With a new Administration coming in, basically, all the traditional contacts disappeared and they were all new players. We were trying to find an inroad into the Administration. Cohen promised access to not just Trump, but also the circle around him. It was almost as if we were hiring him as a lobbyist.
To paraphrase the British phrase used when a new sovereign assumes the throne: “The (Old) Swamp is dead! Long live The (New) Swamp!”
Unfortunately for Novartis, however, the firm locked itself in to a one-year agreement at a $100,000 monthly retainer—ridiculously high by most Washington lobbying standards—only to discover that Cohen could not deliver. According to the Novartis employee, it took but one meeting for the bloom to come off of the rose: “At first it all sounded impressive, but toward the end of the meeting, everyone realized this was probably a slippery slope to engage him. So they decided not to really engage Cohen for any activities after that.”
Yet rather than risk angering Cohen or Trump by terminating the contract early, instead Novartis continued to pay Cohen $100,000 monthly—to do nothing, essentially—for the remainder of the year. As the saying goes, it’s nice work if you can get it.
AT&T and Novartis admitted on Wednesday that the office of special counsel Robert Mueller contacted both about their relationships with Cohen. In analyzing their behavior, assume that both companies acted legally—that their payments to Cohen were solely for consulting services, and not as part of some quid pro quo scheme directly tied to an official act, whether by Cohen, Trump, or anyone else.
On one hand, the companies exercised exceedingly poor judgment. Novartis CEO Vas Narasimhan (who was not running the company when Novartis signed its 2017 agreement with Cohen) admitted on Thursday that the company “made a mistake in entering into this engagement,” signing away more than a million dollars in shareholder money to someone without undertaking any due diligence as to whether he could deliver what he had promised.
Novartis also vastly overpaid Cohen, even if it had engaged him for more activities than a single meeting. As I noted on Twitter, I could have cautioned them about the dim chances for Obamacare repeal for half the $1.2 million they paid Cohen. (If they had asked nicely, I might have done so for even one-quarter that sum.) Very few if any Washington lobbying firms can command a six-figure monthly retainer from one client, yet Novartis paid that much to a single individual.
On the other hand, consider the vast effects Washington has on the lives of big companies, particularly those in the health-care sector. In addition to Obamacare repeal, Novartis had interests ranging from the opioid crisis to drug prices to tax reform, each of which could affect their company to the tune of hundreds of millions, if not billions, of dollars.
As Politico noted, Trump’s “2016 victory rattled corporations enough that clients were eager to pay top dollar to anyone who could help them understand the Administration in its first months.” Because no one thought Trump could win—and therefore spent little time reaching out to him or his campaign in the summer and fall of 2016— after the election corporations felt the need to overcompensate, throwing money at anyone with a connection to Trump, in the hopes of ingratiating themselves with the new administration. I saw some of this myself in late 2016 and early 2017, when companies and financial firms came out of the woodwork asking me to predict what the new Congress and administration would do on health care. (Trust me: My offers didn’t come anywhere close to $1.2 million.)
Firms often spend sizable sums on lobbying. Novartis has “nearly a dozen lobbying firms on retainer,” for which it paid $8.6 million last year. In some cases, companies or industries have so many lobbying firms on retainer that the ineffective ones often attempt to take credit for the “wins” achieved by the effective ones. However, given how federal policy initiatives can affect both a company’s revenue and its stock price—witness the market volatility surrounding President Trump’s proposals on drug pricing—companies have little choice but to play the K Street game.
It seems ridiculous to pay $1.2 million to an individual for a single meeting, and it is. But only a smaller role for the federal government—in taxing, spending, and regulations—would bring an end to the types of influence-peddling stories like those surrounding Cohen this week. Unfortunately, it’s the price of doing business for many companies—and a symptom of a government run amok.