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story.lead_photo.caption Kevin Downing, attorney for Paul Manafort, walks 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)

ALEXANDRIA, Va. -- 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 tax burden of President Donald Trump's former campaign chairman.

The testimony of tax preparer Cindy Laporta, who works at Kositzka Wicks & Co. in Alexandria, Va., 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.

Laporta, who testified with a grant of immunity because she feared prosecution, recounted the creation of a $900,000 loan booked to a Cyprus company that had the effect of disguising income in that amount on Manafort's 2014 tax return. Laporta said that Gates sent her a backdated document purporting to memorialize the loan and that Manafort saved $400,000 to $500,000 in taxes.

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 said she felt regret as soon as the return was filed. A day later, Laporta said, she emailed Gates to ask if the loan money had been wired in 2014 to reflect the transaction listed on the return. Asked why she sent the email if she knew the loan wasn't real, she said: "I was still feeling pretty disturbed about the tax return filed as it was."

Laporta 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."

Asked why she engaged in misconduct, Laporta said she had few good choices.

"I could have called them liars," she said of Manafort and Gates. "But Mr. Manafort was a longtime client of the firm, and I didn't think I should do that."

Laporta also testified about two additional loans for a combined $1 million that she said had no supporting documentation. They were booked to the same Cyprus entity, bringing the total to $1.9 million. She said Gates told her he was handling the documentation even though he knew the loans were phony. Manafort was aware of the reported loan, which served to reduce his income, she said.

Laporta also told jurors about another $1.5 million loan on the books of Manafort's company that caused Citizens Bank to balk at issuing a new loan on property Manafort owned in Manhattan. After the bank expressed reservations about the size of Manafort's debt, Gates sent her documentation showing the $1.5 million loan had been forgiven. Asked by Assistant U.S. Attorney Uzo Asonye if she believed it was forgiven, she said: "Uh, no."

U.S. District Judge T.S. Ellis III asked Laporta about her understanding of the forgiven loan.

"You believed it was false?" Ellis said. She said she knew it was false "because of the date."

The judge said: "But you still went ahead and used it?" She said yes.

The proceedings ended before Manafort attorney Kevin Downing could cross-examine her.

Her 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.

Most of the email evidence introduced Friday implicated Gates more directly than Manafort in a scheme to convert income into loans. But Manafort was copied in on several emails discussing the matter.

Laporta also described an effort by Manafort and Gates to falsify financial records that would allow Manafort to obtain mortgage loans.

As late as August 2016 -- the same month he resigned from the Trump campaign -- Manafort was sending emails to Laporta asking her to alter a profit-and-loss statement for his company.

At that time, his company had not received any income in 2016, but Laporta testified that Manafort directed her to reflect that he expected to receive $2.4 million in income later that year.

Laporta said Manafort provided no documentation to back up the claim. Nevertheless, she wrote an email to loan officers saying the income would be received by November of that year.

Laporta testified that it was one of several times she accepted questionable financial statements pressed on her by Gates or Manafort, including some involving other loans prosecutors say were shams to conceal income.

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 special counsel Robert Mueller's team, which is 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 election 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 told jurors that he handled Manafort's business and personal taxes for two decades and that his client always had a command of his complex returns. Manafort claims that Gates embezzled millions of dollars from his political consulting business.

Ayliff said that although he dealt with both Manafort and Gates, the man in charge was always Manafort. He said he would talk to Gates about Manafort's tax returns because Manafort had authorized it. But Ayliff was unaware of any deception by Gates, he said.

"Did Rick Gates ever tell you to hide any information from Paul Manafort?" Asonye asked. Ayliff said no.

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 renting it out. Classifying the property as a personal residence would have made it easier to obtain the mortgage at a low rate.

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

Prosecutors say that email exchange occurred around the time Manafort was using doctored documents to secure loans, including some papers that a witness previously testified inflated his income by about $4 million.

Asonye walked jurors through Manafort's tax returns on Friday to back the prosecution's claim that he hid his foreign accounts and income from U.S. tax authorities. Prosecutors say that Manafort, a political consultant who made more than $60 million working in Ukraine over that period, failed to report much of that income. They also say he falsely reported that he had no financial interest in foreign bank accounts.

Jurors also saw on each tax return that Manafort answered "None" to the question of whether he had foreign accounts. Prosecutors said that Manafort used tax-free income stashed in Cyprus accounts to support a lavish lifestyle.

Ayliff began his testimony on Thursday, when he said his clients attest to the accuracy of the tax returns he prepares and that his firm wasn't responsible for checking the accuracy of information provided by clients.

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.

Information for this article was contributed by Matthew Barakat, Stephen Braun, Chad Day and Eric Tucker of The Associated Press; and by David Voreacos, Andrew Harris and Daniel Flatley of Bloomberg News.

A Section on 08/04/2018

Print Headline: Disguised Manafort income, tax preparer testifies

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