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Paul Manafort's longtime deputy Rick Gates has told court that he spent years disguising millions of dollars in foreign income as loans to lower Donald Trump’s former campaign chairman's tax bill
MrGates, the government's star witness, testified that he and Mr Manafort used offshore shell companies and bank accounts in Cyprus to funnel the money, all while concealing the accounts and the income from US tax authorities.
“In Cyprus, they were documented as loans. In reality, it was basically money moving between accounts,” Mr Gates said during his second day of testimony in the bank fraud trial,
Under cross examination Mr Gates, admitted that he had “another relationship” involving first-class flights and luxury hotels, but denied these were funded with money embezzled from Manafort. Mr Manafort's defence called this "the secret Rick Gates".
Prosecutors summoned Mr Gates, described by witnesses as Mr Manafort's “right-hand man,” to give jurors the first-hand account of a co-conspirator they allege helped Mr Manafort carry out an elaborate offshore tax-evasion and bank fraud scheme.
On Monday, Mr Gates said the pair had committed crimes together by stashing money in foreign bank accounts and falsifying bank loan documents in order to disguise income from US tax officials.
He also acknowledged having embezzled hundreds of thousands of dollars from Mr Manafort.
Mr Manafort has pleaded not guilty to 18 counts of bank and tax fraud and failing to disclose foreign bank accounts.
The charges largely predate his five months on the Trump campaign.
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Mr Manafort’s defence hinges on pinning the blame on his former aide, and his attorneys have accused Mr Gates of embezzling millions of dollars from his former boss.
The case drew scores of people who waited in line for hours outside the courthouse and then jammed into both the courtroom and an overflow room that contained a video feed of the proceedings.
In early testimony on Tuesday, Mr Gates related his role in setting up offshore bank accounts for Mr Manafort, a complex arrangement that was requested by those paying for Mr Manafort's political consultancy work in Ukraine.
Mr Gates testified that Mr Manafort negotiated the offshore payment structure in person with Ukrainian business people, and then Mr Gates would then codify the details in writing.
Mr Gates also described to jurors how he repeatedly submitted fake financial documents allegedly at Manafort's behest as his former boss became concerned he was paying too much in taxes and, later, that his funds were drying up after the consultancy work fell away after 2014
Rick Gates has taken the stand again in the Paul Manafort trial in Alexandria, Virginia.
He entered the court room at 9:35 am wearing a dark navy suit and light blue tie.
Justice Department lawyer Greg Andres, who was questioning Mr Gates for all of yesterday's testimony, resumed his questioning.
He began by asking about the Cyprus bank accounts that Ukrainian businessmen had asked Gates and Manafort to set up for payment purposes as part of their political work in Ukraine.
Rick Gates has testified how much money each Ukrainian client contracted Manafort for — showcasing the amount of money that was flowing into what prosecutors have alleged were hidden Cypriot accounts in 2011 and 2012.
It amounted to five million Euros.
Prosecutors and Mr Gates showed the jury four different contracts where a Ukrainian's shell company agreed to pay a Manafort shell company for overseas political or policy consulting work.
Mr Manafort reported some of the payments to tax authorities in the US as loans — though they were income, Mr Gates said.
Rick Gates testified that he and Paul Manafort were asked to come in for voluntary interviews as part of a joint FBI and Ukrainian “forfeiture investigation” in 2014. His understanding was that neither he or Mr Manafort were under investigation.
Mr Gates said he was interviewed first and asked about their work in Ukraine. At that point he said most of their Cypriot accounts were already closed.
He said Manafort asked him to meet with Serhiy Lyovochkin to “notify him and determine the status of his Ukrainian company” because a lot of their payments came from him.
“We didn’t know a lot about” the company, Mr Gates said. They met Mr Lyovochkin in France, he said, and he answered their questions. He also agreed to start paying Manafort through one bank rather than through international wire transfers, Mr Gates said.
Prosecutors began to show emails between Mr Manafort and Mr Gates Tuesday morning that appeared to confirm Gates' story that Mr Manafort directed moving the money his consulting company earned from Ukraine through Cypriot accounts.
“There were hundreds of these,” Mr Gates said in court, referring to the emails.
One sent in November 2011 was especially condemning.
The “typical practice was Mr. Manafort would send me a list of wire requests,” Mr Gates testified to the jury Tuesday. Or, Mr Manafort would send the wire transfer requests to their Cyprus-based law firm.
The prosecution has alleged that Mr Manafort used the Cypriot accounts to avoid paying US taxes. Mr Gates' testimony is expected to be the centre of their case.
The defence will seek to show that it was Mr Gates who had control of the accounts and that Mr Manafort was wrong to trust him.
During testimony, Rick Gates has indicated that some payments he was directed to make for Mr Manafort were actually disclosed to bookkeeper Heather Washkuhn, though not all.
Mr Gates indicated that when he handled wire transfers for services or goods on behalf of Mr Manafort, he was instructed to hide payments from the bookkeeper if they were made through overseas accounts.
"The US payments were reported to Ms Washkuhn, the overseas ones were not," Mr Gates testified. "It was in essence diminishing the amount of money that would have to be represented on the US tax returns".
Documents presented by prosecutors appeared to show Mr Manafort in 2013 planning on discussing his "tax plan for April 15" with Rick Gates, his deputy at the time. Mr Gates said that Mr Manafort wanted to "facilitate faster transfers" between accounts at that time.
The document also lists "Yanks" as an agenda item, which Mr Gates later said referred to Yankees season tickets that Mr Manafort owned. The document continues to say "tickets going to Trump next week".
Mr Manafort was surprised in 2015 by the process he would need to take to reduce the tax burden he faced.
"WTF", Mr Manafort wrote in an email to Mr Gates then, after his deputy told him that they needed to find a way to lower the tax rate.
One of those strategies was to claim an outstanding loan on the taxes. Jurors had previously heard that a $900,000 loan from Telmar Investments was listed on Mr Manafort's taxes, but that Mr Manafort's accountant thought it was suspicious.
'It was not," Mr Gates told jurors during his Tuesday testimony when asked if the $900,000 was actually a loan.
Mr Gates then said that he had mentioned that payment to tax preparers, he said, "Mr Manafort's direction".
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