Prosecutors turn to Manafort taxes, unreported bank accounts

Prosecutors headed toward the heart of their financial fraud case against former Trump campaign chairman Paul Manafort on Friday, with jurors hearing testimony that he never told his tax accountants about offshore bank accounts containing millions of dollars.

'He approved every penny of everything we paid,' bookkeeper says at trial

Kevin Downing, left, and Thomas Zehnle, attorneys for Paul Manafort, walk to the federal courthouse in Alexandria, Va., on Friday. Court heard more details of Manafort's lobbying works and financials today. (Manuel Balce Cenata/Associated Press)

Prosecutors headed toward the heart of their financial fraud case against former Donald Trump campaign chairman Paul Manafort on Friday, with jurors hearing testimony that he never told his tax accountants about offshore bank accounts containing millions of dollars.

The testimony of longtime accountant Philip Ayliff builds on evidence presented by special counsel Robert Mueller's team that Manafort inflated his business income by millions of dollars and kept his bookkeeper and tax preparers in the dark about the foreign bank accounts he was using to buy luxury items and pay personal expenses.

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

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

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

Manafort's trial follows an array of financial charges brought by special counsel Robert Mueller, right. (Associated Press)

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.

Jurors hear of lobbying work, loans

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.

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."

Accountant Philip Ayliff, right, returns to court. He was asked to describe the details of Manafort's financial life. (Chip Somodevilla/Getty Images)

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

Bookkeeper Heather Washkuhn testified Thursday 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 US.

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."

Offshore accounts

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.