Kevin Downing, left, and Thomas Zehnle, attorneys for Paul Manafort, walk to the Alexandria Federal Courthouse in Alexandria, Va., Friday, Aug. 3, 2018, on day four of President Donald Trump's former campaign chairman Paul Manafort's tax evasion and bank fraud trial. (AP Photo/Manuel Balce Ceneta)

Income was disguised to help Manafort, tax preparer says

August 03, 2018 - 1:44 pm

ALEXANDRIA, Va. (AP) — One of Paul Manafort's tax preparers admitted Friday that she helped disguise $900,000 in foreign income as a loan in order to reduce the former Trump campaign chairman's tax burden.

The testimony of tax preparer Cindy Laporta came as prosecutors from special counsel Robert Mueller's office focused on the heart of their financial fraud case against Manafort, with jurors hearing testimony that he inflated his business income by millions of dollars and concealed foreign bank accounts he was using to buy luxury items and pay personal expenses.

Manafort's defense has sought to blame any criminal conduct on his longtime deputy Rick Gates, while witnesses for the prosecution have testified that Manafort was heavily involved in his own finances and personally directed Gates' actions.

On Friday, Laporta acknowledged that she agreed under pressure from Gates during a conference call in September 2015 to alter a tax document for one of Manafort's businesses to show the $900,000 loan.

When Laporta and a colleague provided an assessment of how much tax Manafort would owe, Gates responded that Manafort didn't have the money to pay it. After a back-and-forth discussion about how much income should be reclassified as a loan to aid Manafort, they settled on $900,000, she testified.

The result, Laporta said, was an altered tax payment that Gates told her "could be paid by Mr. Manafort."

Laporta, who testified under a grant of immunity from prosecutors, said she knew what she did was "not appropriate," adding that "you can't pick and choose what's a loan and what's income."

That testimony is important as prosecutors try to rebut defense arguments that Manafort can't be responsible for financial fraud because he left the details of his spending to others. Those others include Gates, who pleaded guilty earlier this year and is expected to testify soon as the government's star witness.

Manafort faces charges of bank fraud and tax evasion that could put him in prison for the rest of his life. It's the first courtroom test of Mueller's team, which is tasked with looking into Russia's efforts to interfere with the 2016 U.S. election and whether the Trump presidential campaign colluded with the Kremlin to sway voters.

In Friday's testimony, and throughout the trial thus far, neither Trump nor Russia has been discussed, as evidence has focused on Manafort's work as a consultant in the years before he joined Trump's campaign in the presidential year.

While the question of collusion remains unanswered, Manafort's financial fraud trial has exposed the secretive world of foreign lobbying that made him rich. It has also revealed how, when income from his Ukrainian political consulting work dried up, he struggled to pay his bills and, prosecutors say, began obtaining bank loans under false pretenses.

Laporta's testimony built on that of another of Manafort's accountants, Philip Ayliff, who told jurors that Manafort denied on multiple occasions that he controlled foreign bank accounts when asked. That's why the accounts weren't reported on years' worth of Manafort's tax returns as required by federal law, Ayliff said.

Ayliff also testified that he sometimes communicated with Gates about the former Trump campaign chairman's personal and business tax returns. But he said Manafort authorized those discussions, and Gates and Manafort never contradicted each other.

In one instance, Ayliff testified that Manafort pressed him to tell bankers considering a loan application that one of Manafort's New York properties was being used as a personal residence when in fact he was using it to rent out. Classifying the property as a personal residence would have made it easier to obtain the mortgage.

Ayliff responded to Manafort that "we have always treated it as a rental. ... Not sure where that leaves us."

That email exchange occurred around the time prosecutors say Manafort was using doctored documents to secure loans.

Bookkeeper Heather Washkuhn testified earlier in the trial that a series of profit-and-loss statements Manafort submitted with his loan applications were fake including one that inflated the net income of his business by about $4 million.

Washkuhn also testified that Manafort never told her that millions in foreign wire transfers were coming from companies prosecutors say he controlled.

"I would say he was very knowledgeable," Washkuhn told jurors. "He was very detail-oriented. He approved every penny of everything we paid."

Other witnesses testifying this week said Manafort paid them millions from offshore accounts tied to foreign shell companies for landscaping, expensive clothing and even a karaoke machine.

During cross examination, Manafort attorney Thomas Zehnle pressed Washkuhn to say that Gates was heavily involved in approving expenses. But Washkuhn said that while Gates dealt with some business matters for Manafort's consulting firm, "mainly Mr. Manafort was the approval source."

The trial in northern Virginia is the first of two for Manafort. A second trial is scheduled for September in the District of Columbia. That case involves allegations that he acted as an unregistered foreign agent for Ukrainian interests and made false statements to the U.S. government.

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Associated Press writers Chad Day and Eric Tucker contributed to this report.

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