Paul Manafort’s former business associate Rick Gates told a court Tuesday he helped to devise a scheme to forgive a fake loan to Manafort in an effort to help him secure a mortgage loan, an admission that cuts to the heart of prosecutors’ bank fraud case against Manafort.
Manafort at the time was facing questions from Citizens Bank about the $1.5 million loan on the books, from which he was seeking a mortgage loan.
Gates told the court the $1.5 million was always income, which Manafort received in 2012, but had been reported as a loan. Gates said that at Manafort’s direction, he reclassified income Manafort received for political consulting work in Ukraine as loans to reduce Manafort’s income taxes.
In one email from Manafort to Gates about Manafort’s potential tax liability from the income, Manafort replied, “I just saw this. WTF.”
To convince the bank that the fake loan was off the books, Gates said he created a loan forgiveness letter from Peranova Ltd., a Cyprus-based entity Manafort controlled, which was then submitted to Cindy Laporta in February 2016, one of Manafort’s tax preparers.
The backdated letter alleged the loan had been forgiven in July 2015.
Peranova was one of two overseas entities used to disguise income payments that were really income for Manafort’s political and policy work in Ukraine. The other was Telmar Investments, and previous witnesses in the case have said that a $900,000 Telmar loan was included on Manafort’s tax returns for 2014.
According to Gates, Manafort directed his bookkeeper to classify the payment from Telmar as a loan when it was actually income. Gates said there was no documentation for the loan, and he admitted to creating a loan agreement for a loan that did not exist.
A copy of the loan agreement involving Telmar was eventually provided to Manafort’s tax preparers.
Gates also told the jury that he informed Manafort’s tax preparers that his former business associate did not have foreign bank accounts, despite having knowledge that he did. Prosecutors allege, among the bank and tax fraud charges Manafort is facing, that he failed to report his foreign bank accounts on tax filings.
Though Gates couldn’t give an exact figure for how much money Manafort had in his overseas bank accounts, he estimated it was “several million dollars.”
The government said Manafort concealed millions of dollars he made through political consulting work in Ukraine and underreported his income to the Internal Revenue Service.
Gates detailed how Manafort set up the overseas entities in Cyprus and would receive payments for his work from other shell companies controlled by Ukrainian oligarchs.
But prosecutors also say Manafort falsified information on loan applications to bank in an effort to secure millions of dollars in loans.
Gates told the court during his testimony that he was in charge of collecting the documents that would ultimately be submitted to the banks and admitted to providing fake information to those institutions.
Manafort, Gates said, “requested certain things be changed” in the documents.
In one instance, Gates detailed how he, at Manafort’s direction, submitted false insurance policies in an effort to help Manafort secure mortgage loans.
He also testified that he falsely characterized another one of Manafort’s homes in New York City as a second residence, when it was really used as a rental property.
“He was looking for the most favorable terms in the mortgage interest rate,” Gates said.
Prosecutors sought to detail Manafort’s participation in the tax scheme by presenting as evidence agendas of meetings between he and Gates that Manafort helped to draft.
Some of the meetings included discussions of Manafort’s tax preparation, while others discussed wire transfers that had to be sent from the bank accounts Manafort controlled overseas.
Throughout the trial, members of the 12-member jury have seen evidence of what appeared to be fraudulent invoices submitted to one of the Manafort-controlled entities in Saint Vincent and the Grenadines from several vendors he worked with.
Gates told the court he created the fake invoices for banks located in Saint Vincent and the Grenadines, which required stricter documentation.
The invoices were for companies including Alan Couture, a high-end men’s clothing store, SP&C Home Improvement, Big Picture Solutions, and New Leaf Landscaping. Witnesses from each of the U.S.-based companies, who said Manafort was a client, told the court last week the forged invoices did not come from them.
They also said they did not receive payment for the invoices, which were addressed to Global Endeavour.
Gates said he never received services from any of the companies, and said Manafort told him to make payments to the vendors.
Payments that came from U.S.-based accounts were reported to Manafort’s bookkeeper, while those that came from Cyprus-based accounts were not.
Prosecutors estimate another hour of questioning for Gates before cross-examination.
