Gates Recounts Ups & Downs of Manafort Finances

ALEXANDRIA, Va. (CN) – Returning to the stand to testify against Paul Manafort, Rick Gates walked the jury Tuesday morning through the money problems that threatened the lavish lifestyle to which his erstwhile employer had become accustomed.

This courtroom sketch depicts Rick Gates, right, answering questions by prosecutor Greg Andres as he testifies in the trial of Paul Manafort, seated second from left, at the federal courthouse in Alexandria, Va., on Aug. 6, 2018. U.S. District Judge T.S. Ellis III presides as Manafort attorney’s including Kevin Downing, left, Thomas Zehnle, third from left, listen. (Dana Verkouteren via AP)

Gates had begun his testimony on Monday with some context as to the ostrich jackets and other outsize expenses that prosecutors detailed a week earlier.

He explained that Manafort had earned millions doing lobbying work in the Ukraine for a pro-Russia political party known as the Party of Regions.

But that revenue stream disappeared, Gates testified Tuesday, in 2014 when then-Ukrainian President Viktor Yanukovych was ousted amid widespread protests in the country.

Gates said Manafort had been hoping to do more work for the Opposition Bloc, which was the successor to Yanukovych’s Party of Regions, but work was scarce because the party was not in power.

Indeed the the 2014 parliamentary election was the last Ukrainian election on which Manafort worked, Gates added, and he had never been completely paid for it.

The Opposition Bloc won just 8 percent of the vote in that election, and a series of strategies that Manafort mocked up for the party to move forward is one exhibit that prosecutors have entered into evidence at Manafort’s trial.

“The hope was that this effort would lead to an additional contract,” Gates said Tuesday.

Manafort became “quite upset,” Gates testified, that the party was slow in paying him.

Ultimately, Gates continued, Opposition Bloc leader Serhiy Lyovochkin offered to send along a small portion of what was owed. To Gates’ knowledge, however, Davis Manafort Partners International was never paid in full on the contract.

He said Manafort’s income from his consulting work had “substantially decreased” by July 2015, and it became difficult for Manafort to pay his bills.

Manafort has been a copious note taker since the start last week of his trial in Alexandria, Virginia, but with the latest witness the defendant’s focus appears to have drifted from his notepad.

In his testimony Monday, Gates claimed to have helped Manafort move $30 million from foreign accounts into the United States without declaring it. He said he also hid the existence of foreign accounts from accountants and tax preparers, omitting Manafort’s ownership of foreign bank accounts on the requisite disclosure forms.

A father of four, Gates had been indicted alongside Manafort initially but has been cooperating with Mueller’s office since entering a guilty plea in February.

President Donald Trump’s Campaign Chairman Paul Manafort is surrounded by reporters on the floor of the Republican National Convention in Cleveland on July 17, 2016. Rick Gates, a former business associate to Manafort and former campaign aide to Republican presidential candidate Donald Trump, is center rear. (AP Photo/J. Scott Applewhite)

As Gates testifies, he sits mere feet away from Manafort inside the ninth-floor courtroom where U.S. District Judge T.S. Ellis III is presiding.

Gates counted 15 Manafort-controlled companies that his former benefactor used to funnel his earnings.

Asked by prosecutor Greg Andres why Manafort set up such accounts, Gates responded plainly: so Manafort could avoid disclosing his taxable income.

Gates laid out the standard method by which Manafort would get paid by his clients. He said he and Manafort had been instructed by “Ukrainian businessmen” to establish the accounts in Cyprus, and that Manafort and the client would sit together once the accounts were set up, and a consulting agreement was drafted.

After a Cypriot attorney reviewed the contract, Gates said political consultant Konstantin Kilimnik would conduct a final review, and that it was up to Manafort then to tweak the agreement.

Andres produced for the courtroom Tuesday a handful of such consulting agreements between Manafort and Ukrainian clients. Most were from 2012, detailing how various Manafort shell companies – Black Sea View Ltd., Leviathan Advisors and Peranova Holdings Ltd. – would be paid by Ukrainian-held companies Telmar Investments Ltd. and Dressler Ltd.

Telmar Investments, the government explained, is owned by Ukranian politician Lyovochkin, and Dressler is owned by fellow politician Serhiy Tihipko.

“What was this money for?” Andres asked Gates.

“It was money received for policy work,” Gates said.

“Did [Black Sea View, Leviathan or Peranova] sell any products or have any employees?”

“No,” Gates said.

“What was their purpose?”

“Their purpose was to accept and make payments,” Gates said of Manafort’s shell companies.

Gates further said some of the payments on these consultancy agreements were set up as loans, even though they were actually compensation for consulting work Manafort had performed in Ukraine. Even without being involved in the “day-to-day” preparation of the payments, Manafort was aware of what was going on, Gates said.

Gates also testified Tuesday about how he collaborated with Cypriot lawyer Kypros Chrysostomides to open Manafort’s offshore accounts.

“Dr. K,” as Chrysostomides was also known, helped Manafort establish points of contact at the Bank of Cyprus and Marfin Popular Bank, Gates said.

Gates said Manafort had kept his name listed on records connected to the accounts that Dr. K established prior to 2012. This changed, however, when Manafort learned he was being targeted in a lawsuit in Ukraine.

Gates said he followed his boss’s instructions at that point to remove Manafort’s name removed from any account information.

“Why would he do this?” Andres said.

Gates said Manafort told him he wanted the information removed so “individuals could not find information on him or who paid him.”

Eventually Gates had Manafort’s name removed from the bank records as well. He said Dr. K determined that it was time to open new accounts elsewhere in 2012 when a banking collapse gripped Cyrpus.

This time the funds would be routed through St. Vincent and the Grenadines.

Manafort and Gates opened two accounts there for the Manafort shell companies Global Endeavor and Junette. As they had done with other accounts, Gates said Kiliminik became the point of contact with the bank.

Gates also testified Tuesday about how he and Manafort used “dummy” invoices from vendors with which Manafort did business to disguise his accounting practices.

One bogus invoice entered into evidence this morning was for Manafort’s clothier, Alan Couture. Gates said the $42,000 invoice was actually a front for wire transfers from Global Endeavor.

Other invoices purported to show purchases from New Leaf Landscaping, House of Bijan and SP and C, the company that renovated Manafort’s home in Bridgehampton, New York.

Building on their strategy to put Manafort at the helm of these practices, prosecutors asked Gates to confirm who signed off the fabricated bills and who gave Gates permission to sign off on wire transfers or wire-transfer agreements.

It was Manafort, Gates said repeatedly.

Andres displayed an email from February 2016 from Manafort to Gates and asked him to read it aloud.

“I need you to sign my name to another document,” Gates said, reading an email from Manafort on a computer monitor.

“Usually he reached out to me to sign the documents,” Gates added.

Gates spent more than an hour after a morning recess describing the methods he said he and Manafort used to help artificially rejuvenate Manafort’s dried-up money stream. In another email chain Gates read from the stand, an exasperated Manafort wrote “WTF” while responding to a newly delivered tax estimate from his accountants that was higher than expected.

Gates said that even though he was often the one interacting with the tax preparers, Manafort was always aware what was happening and often even instructed Gates on what to say to the accountants.

Most of his testimony during the second half of Tuesday morning doubled back on ground Manafort’s tax preparers covered earlier in the trial, but from a different perspective. Gates explained that his role was to collect the documents to support loans for which Manafort was applying, sometimes converting them from PDF to Word files so he could alter them.

Gates said he was specifically involved in “the idea of exchanging income for loans.”  He testified about his role in reclassifying a loan one of Manafort’s companies gave to Davis Manafort Partners International. Gates said the loan from Peranova Holdings was never actually a loan, but was rather income that Manafort classified in such a way as to shield it from U.S. taxes.

Gates testified Manafort instructed him to ask Cindy Laporta, Manafort’s accountant, to prepare a cover letter on her firm’s letterhead informing a representative of a bank from which Manafort was seeking a mortgage loan that Peranova had forgiven the loan to Davis Manafort Partners International in 2015. Gates also helped prepare a document from Peranova certifying to the bank the loan was forgiven, he said.

He testified that Manafort personally approved the letters and that Manafort was copied on the email sending them to the bank in support of the mortgage loan application.

Before the court broke for a brief lunch recess, Andres said he expects he will finish the remainder of his questions for Gates in less than an hour, with Manafort’s defense beginning cross-examination this afternoon. He also said the government could finish its case by the end of the week and that it does not plan to call all of the witnesses from its witness list.

With the man he once described as one of the most “brilliant” political strategists he’s ever known watching him intently, the 46-year-old Gates told jurors Monday that he committed crimes with Manafort, at Manafort’s direction.

It was Manafort, Gates said, who instructed him to falsify loan applications and financial statements. Special Counsel Robert Mueller is making the case that all of the illegal activity was done so Manafort could avoid paying taxes on income from his lucrative lobbying work in Ukraine.

On Monday, Gates admitted on the stand that he stole from Manafort, pumping up his own salary by hundreds of thousands of dollars by adding money to expense reports and creating expense reports that were purposefully inaccurate.

Manafort’s attorney Thomas Zehnle meanwhile painted Gates as a thief and a liar last week during opening arguments.

This story is developing…

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