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Manafort trial Day 6: Gates details tax and financial schemes

Rick Gates described how Paul Manafort was paid for work he did for the benefit of former Ukrainian President Viktor Yanukovych and various electoral campaigns. | Brendan Smialowksi/AFP/Getty Images

Gates testified that Manafort was insistent on secrecy — at least in part — in order to avoid paying U.S. taxes

Rick Gates detailed how his ex-boss Paul Manafort used a web of offshore companies to receive tens of millions of dollars in payments from wealthy Ukrainian businessmen, during hours of dry but potentially crucial court testimony Tuesday.

The main event for the day at Manafort’s tax- and bank-fraud trial in federal court in Alexandria, Virginia, was expected to be withering cross-examination of the prosecution’s star witness by the defense team.

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But in the early going, Gates described how Manafort was paid for work he did for the benefit of former Ukrainian President Viktor Yanukovych and various electoral campaigns. Gates said the funds initially moved through one offshore banking haven, Cyprus, but later were transferred to the Grenadines in the Caribbean after a banking crisis in Cyprus in 2013.

Manafort’s defense has argued that the money changed hands in Cyprus because the Ukrainian benefactors wanted to keep their fingerprints off the funding to avoid a potential backlash in Ukraine. But Gates testified that Manafort was insistent on secrecy — at least in part — in order to avoid paying U.S. taxes.

Manafort trial

“The actual names of the individuals setting up the companies did not appear on any of the incorporation paperwork,” Gates said. Instead, the companies relied on directors who were employees of a law firm Manafort retained in Cyprus to receive the Ukraine-related payments.

Manafort’s is the first trial stemming from special counsel Robert Mueller’s investigation into Russian interference in the 2016 election, but the longtime GOP operative faces charges related to his earlier work in Ukraine. He will face a second trial on separate charges of money laundering and failing to register as a foreign agent in September in Washington.

Gates was once Manafort’s protege, but the relationship has soured, and Gates agreed to cooperate with prosecutors earlier this year as part of a plea deal. On Monday, Gates’ first day on the stand, he avoided eye contact with his former boss, whom he followed onto President Donald Trump’s campaign in 2016, while Manafort stared icily at his ex-employee. Gates admitted to siphoning off several hundred thousands of dollars in expenses that he never incurred.

It was unclear if Manafort was continuing the stare-down Tuesday, but the defendant — clad in a black pinstripe suit — was listening intently and jotting notes to his attorneys. Amid a mellower atmosphere in the courtroom, Gates seemed less apprehensive than he did Monday, but he still appeared to be avoiding looking directly at Manafort.

On Tuesday, Gates said Manafort would routinely ask him to wire money to pay various bills in the U.S. When the money in Cyprus was used, Manafort asked Gates not to inform Manafort’s bookkeeper, Heather Washkuhn, the ex-aide testified.

“Mr. Manafort basically requested that we did not need to inform Ms. Washkuhn of those payments,” Gates said.

Gates also said payments from some of the Ukrainian businessmen were sometimes classified as loans, which helped Manafort lower his tax bills at least temporarily. “At the time, I believe he was trying to decrease the income for that particular tax year,” Gates said.

Rick Gates is pictured. | AP Photo

Manafort was nervous about Cypriot bank accounts

At one point, Manafort and Gates were listed as points of contact for the Cypriot bank accounts, but they were assured that information wouldn’t be revealed.

“None of the information on the banking forms was publicly disclosed in any way,” Gates said. “I believe he understood that his name would not be reported, nor would mine.”

But even the possibility of such a disclosure made Manafort nervous, Gates said, particularly after the veteran political consultant and lobbyist became embroiled in a lawsuit. Gates didn’t identify the suit, but it appears to be one Russian oligarch Oleg Deripaska filed in 2014, demanding $ 18.9 million in connection with a failed attempt to buy a Ukrainian telecommunications firm.

“Mr. Manafort described that he was engaged in a lawsuit with somebody [and] was concerned that somebody might be able to find some information on the accounts and some of the Ukrainian businessmen,” Gates said. As a result, Manafort’s name was deleted from the bank files, and later Gates’ was as well, he testified.

Eventually, the money was moved to companies and bank accounts located in the Grenadines. The man listed as the point of contact on the accounts was Konstantin Kilimnik, a Russian-Ukrainian citizen who worked extensively with Manafort in Ukraine and who prosecutors have said has ties to Russian intelligence services.

Kilimnik also figured into a July 2015 email the prosecutor showed jurors illustrating that Manafort became hard-up for cash after Yanukovych was driven from power in 2014. Kliminik said they were trying to persuade a benefactor in Ukraine to follow through on a commitment to pay $ 1 million for work Manafort and his firm did in the 2014 election. Kilimnik said he was attempting to get a partial payment of $ 500,000 from the businessman and political leader, Sergei Lovochkin.

“This is to calm Paul down,” Kilimnik wrote.

Gates explained: “The payment was significantly overdue. Mr. Manafort was quite upset that the payment had not been sent.”

“Was he having issues paying his bills?” prosecutor Greg Andres asked.

“He was,” Gates replied.

“Did Mr. Manafort have any work in Ukraine?” Andres asked, referring to mid-2015.

“No,” Gates said, adding that Manafort’s consulting firm had no clients at all during that period.

Paul Manafort and Rick Gates are pictured. | AP Photo

Gates explains how he stole money

Gates said Tuesday that he began siphoning off money after the accounts were moved to the Grenadines. He said that country required “much more documentation” than Cyprus, so he began preparing forged or dummy invoices that suggested companies providing personal services to Manafort in the U.S. were actually doing business directly with the companies in the Grenadines.

Andres asked Gates if he’d ever done business with any of the high-end boutiques or contractors Manafort used and paid from his offshore accounts, such as luxury tailors Alan Couture in New York and House of Bijan in Beverly Hills.

“No,” Gates said with a tone suggesting the idea was absurd.

Gates said he understood the impact of those transfers was that Manafort avoided U.S. taxes. “In not reporting the wires that were done and not disclosing Mr. Manafort’s business income it was, in essence, diminishing the amount of income that should be reported on his tax return,” he said.

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