Ex-Manafort aide Gates testifies his mentor hid income in Cyprus

ALEXANDRIA, Va. (Reuters) – Former Trump campaign chairman Paul Manafort’s longtime aide testified at trial on Tuesday that Manafort instructed him not to tell their firm’s bookkeeper about payments from accounts in Cyprus that held millions of dollars in earnings from consulting work for pro-Russian politicians in Ukraine.

Rick Gates, the U.S. government’s star witness in Manafort’s trial on tax and bank fraud charges, told a federal court jury in Alexandria, Virginia, that there were hundreds of emails showing Manafort approved payments out of the Cypriot accounts.

Gates’ testimony on the trial’s sixth day was part of the prosecution’s effort to prove that Manafort was responsible for financial maneuverings that he and other witnesses have testified include filing false tax returns and failing to report foreign bank accounts.

Gates is expected to face a tough cross-examination later on Tuesday by defense lawyers in the first trial to arise from Special Counsel Robert Mueller’s investigation into Russian interference in the 2016 U.S. election. The Kremlin denies election meddling. U.S. President Donald Trump has called for the investigation to be shut down.

One part of Gates’ testimony led to some laughter in the courtroom.

“Not happy. I just saw this. WTF,” Manafort wrote to Gates in an email entered into evidence showing Manafort’s reaction when he learned how much money he would have to pay in 2014 taxes.

Gates, 46, said that he helped create documents to convert some income to a loan to lower Manafort’s tax bill.

“You created a loan agreement for a loan that didn’t exist?” prosecutor Greg Andres asked him. “Yes, we did,” he replied.

Manafort, 69, has pleaded not guilty to 18 counts of bank fraud, tax fraud and failing to disclose foreign bank accounts.

Manafort’s defense is seeking to pin the blame on Gates himself, who has acknowledged embezzling from Manafort’s firm.

Gates, who also was an official on Trump’s campaign, pleaded guilty in February to lying to investigators and conspiring to defraud the United States. He agreed to cooperate and testified in court that he has met with prosecutors about 20 times.

It is unclear what other information he may have provided to Mueller’s investigation, which so far has led to the indictments or guilty pleas of 32 people and three companies.

On Tuesday, Gates also testified about “modified” invoices for payments to U.S. vendors that he said were created at Manafort’s request to meet document requirements for wire transfers out of Manafort’s accounts in Saint Vincent and the Grenadines. The payments were legitimate even if the invoices were fake, Gates said.

He testified about a complex scheme in which earnings from Manafort’s political work in Ukraine would be paid by Ukrainian businessmen using companies in Cyprus to other Cyprus-based companies controlled by Manafort.

Prosecutors showed contracts laying out that Manafort would be paid $4 million a year in quarterly installments of $1 million, all channeled through Cyprus. The funds were logged as loans in order to meet later audits in Cyprus that required documentation of transfers between bank accounts, but Gates testified they were in fact compensation to Manafort.

“A lot of these loan agreements are backdated,” Gates said.

Money from the Ukraine work dried up after pro-Russian President Viktor Yanukovych was forced from power in 2014, Gates testified. A $1 million payment for work in 2014 was “significantly past due” and “Mr. Manafort was quite upset the money had not been sent,” Gates told the court.

Manafort’s Kiev-based aide Konstantin Kilimnik was able to collect $500,000, Gates said, but “to my knowledge it was never paid in full.” Kilimnik was indicted in the Mueller investigation in June.

While outside the scope of the trial, Mueller is also investigating whether Trump campaign members coordinated with Russian officials, an allegation Trump denies.

Gates admitted in testimony on Monday that he did steal money through inflated expense reports, but he said it was hundreds of thousands of dollars, not millions as defense lawyers stated.

Manafort’s lawyers are expected to use the theft to try to undermine Gates’ credibility as a witness. They also are likely to bring up his making false statements to investigators.

One issue that could be a challenge for prosecutors on Tuesday is the extent to which they are allowed to admit evidence about Manafort’s Ukraine work and the oligarchs who paid him. On Monday, U.S. District Judge T.S. Ellis repeatedly clashed with prosecutors about the relevance of such testimony.

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