ALEXANDRIA, Va. -- Paul Manafort's longtime bookkeeper testified against him Thursday, telling a Virginia jury that his seven-figure lifestyle lasted until about 2015 when the cash ran out, the bills piled up, and he and his business partner began trying to fudge numbers to secure loans.
The potentially damaging testimony from the bookkeeper, Heather Washkuhn, appeared to undercut Manafort's defense against bank and tax charges, which is that his business partner is responsible for any financial misdeeds. But Washkuhn testified that Manafort approved "every penny."
Washkuhn, the trial's 12th witness, was the first to offer an inside look at how Manafort dealt with the people who kept his books. Prosecutors say that by hiding information from his bookkeepers, he made it easier to deceive the accountants who prepared his tax returns.
Washkuhn spent hours on the witness stand, describing account balances, bills received and payments. Her testimony is critical to the case being heard by a jury of six men and six women in Alexandria, Va., as Manafort, who was Donald Trump's campaign chairman for a period in 2016, is charged with running a yearslong scheme to hide millions of dollars from the Internal Revenue Service, and then, when his income dried up, lying to get bank loans so he could continue living the good life.
Washkuhn characterized Manafort as a "very knowledgeable" client. "He was very detail oriented. He approved every penny of everything we paid," she said.
That testimony is important to special counsel Robert Mueller's team as it looks to rebut defense arguments that Manafort can't be responsible for financial fraud because he left the details of his spending to others. That includes his longtime associate Rick Gates, who Manafort's team plans to portray as a liar and embezzler who is responsible for any financial chicanery found by the FBI.
On the witness stand, Washkuhn said she prepared ledgers for Manafort's finances, which she would eventually hand off to his accountants to file his tax returns. She said she sometimes saw transactions in those accounts from other accounts to which she did not have access.
When prosecutor Greg Andres read off some of the offshore companies to Washkuhn, she said Manafort never told her about them. She said she would have documented them for tax purposes if he had.
Prosecutors have already introduced evidence that Manafort used foreign accounts to pay for millions of dollars of clothes, cars, real estate and home remodeling.
Prosecutors charge that Manafort made $60 million between 2010 and 2014, while working for the Ukraine government, and hid millions in foreign accounts that were not reported to the IRS.
Washkuhn described how Manafort's firm, Davis Manafort Partners, took in millions of dollars a year before its revenue cratered in 2015. The firm reported only $338,542 in income in 2015 and a $1.2 million loss in 2016.
Prosecutors say that's because Manafort's biggest client -- what one associate called his "golden goose," Ukrainian President Viktor Yanukovych -- fled for Russia in 2014 as protests flared against his government.
As his business was gasping, Manafort was tapped to run Trump's presidential campaign in mid-2016. He received no pay for the job, even though his firm was losing hundreds of thousands of dollars a month, according to election filings and evidence presented to the jury.
Trying to pay Manafort's bills became a problem, Washkuhn testified, and he needed more than $1.1 million to pay off credit cards and other expenses.
"I asked multiple times for his bills to be paid, and there weren't enough funds to pay them, including our bill," said Washkuhn.
"$120K is urgently needed for your personal bills," Washkuhn wrote to Manafort in one email presented in court. Manafort's company also was struggling to pay its bills. In an email to Gates in April 2016, Washkuhn warned that the firm's health insurance was going to be canceled because the bill hadn't been paid.
BOOKS TAMPERING
Washkuhn's testimony is important not just for the tax charges against Manafort, but the bank fraud counts as well.
Prosecutors say Manafort engaged in a scheme to doctor documents submitted to banks, wildly overstating his firm's 2015 revenue.
After being shown paperwork submitted to two banks indicating Davis Manafort Partners made $4.5 million that year, Washkuhn testified that was "4 million more than what was reported on the documents that we created."
Prosecutors said Gates altered the document before it was sent to banks, and they showed jurors a series of messages detailing an alleged effort to inflate income.
According to the messages, early on March 16, 2016, Gates asked Washkuhn to send him a Microsoft Word document version of the previous year's financial records, rather than a scanned pdf. Word documents can be edited; pdfs cannot. Washkuhn replied to Gates that she could not comply with his request.
After a back and forth, Gates then asked her to add $2.6 million in "accrued revenue" for 2015, something he said in a previous email Manafort had requested. She said she could not because the firm operates on a cash basis, recording money when it comes in rather than when it is earned.
Gates then emailed another employee at the bookkeeping firm, Laura Tanner, and, "per email with Heather," told her to add the $2.6 million to the 2015 income.
It's unclear what Tanner did. But prosecutors showed jurors an attachment Gates sent to Banc of California. "It is similar in some respects" to the Davis Manafort Partners financial statement prepared by the bookkeeping firm, Washkuhn testified, but she said the disclaimer was missing, the font was different, and "the numbers are different."
Manafort's lawyer Thomas Zehnle tried to show that Gates played an important part in any financial misdeeds, getting Washkuhn to concede that Gates had authority to direct wire transfers from overseas.
Gates "handled a lot of the business affairs," Washkuhn said.
But later, the line of questioning seemed to backfire on the defense. In response to questioning, Washkuhn said Manafort kept a tight grip on financial decisions for the firm and himself.
"He approved every expenditure on the personal and business side," Washkuhn said.
EXPENSIVE TASTES
Before the bookkeeper's testimony, jurors heard more details of Manafort's expensive tastes.
The owner of a landscaping company in the Hamptons testified that he charged Manafort about $450,000 for landscaping over the years, to maintain the grounds of a 1-acre property in Bridgehampton. The lawn featured red flowers in the shape of the letter "M."
Manafort also spent $20,339 for a video and karaoke system at that house, but that cost was dwarfed by his bills for television and home entertainment systems for his homes on the East Coast, which totaled more than $2.2 million, according to a witness, Joel Maxwell, who said the work was paid for with wire transfers from foreign accounts.
On Wednesday, witnesses testified that Manafort spent more than $1 million on business suits and luxury clothes over five years.
The testimony about Manafort's high-priced purchases has angered U.S. District Judge T.S. Ellis III, who said Thursday morning that he would not let prosecutors "gild the lily" by asking witnesses to explain in detail Manafort's spending.
"All the evidence of the fancy suits really is irrelevant and besmirches the defendant," Ellis said. "It engenders some resentment."
Prosecutors had filed a motion in the morning asking to be given more leeway in explaining Manafort's purchases, arguing that it was essential to showing the jury evidence that the foreign accounts used to pay for those luxury items were under Manafort's control. They also said they needed to show Manafort's extravagances to explain why he would resort to bank fraud when his business foundered.
While he has been tough on prosecutors at the trial, the judge has been pleasant to the jurors, giving them permission to have a cake in the jury room today for what apparently is one juror's birthday.
Prosecutors also said that Gates, the key witness in the case, could testify as early as today.
Gates pleaded guilty earlier this year to lying to the FBI and conspiring against the United States, and agreed to cooperate against his former boss and partner in the hopes of getting a lighter sentence.
Prosecutors told Ellis they expect to rest their case next week, noting that they are ahead of schedule.
Manafort has a second trial scheduled for September in the District of Columbia. It will address allegations that he acted as an unregistered foreign agent for Ukrainian interests and made false statements to the U.S. government.
Information for this article was contributed by Rachel Weiner, Justin Jouvenal, Devlin Barrett and Matt Zapotosky of The Washington Post; by David Voreacos, Andrew Harris and Daniel Flatley of Bloomberg News; and by Chad Day, Eric Tucker and Anne Flaherty of The Associated Press.
A Section on 08/03/2018