IRS agent testifies that Manafort had $16.5M US in unreported income

A U.S. Internal Revenue Service agent testified on Wednesday that former Trump campaign chairman Paul Manafort, who is on trial on tax and bank fraud charges, had $16.5 million in unreported taxable business income between 2010 and 2014.

Rick Gates faces tough questions about credibility from Manafort's lawyers

Paul Manafort has pleaded not guilty to 18 charges. His lawyers attacked his former colleague Rick Gates character and credibility in court this week. (Matt Rourke/Associated Press)

A U.S. Internal Revenue Service agent testified on Wednesday that former Trump campaign chairman Paul Manafort, who is on trial on tax and bank fraud charges, had $16.5 million in unreported taxable business income between 2010 and 2014.

IRS agent Michael Welch said the total includes foreign wire transfers to U.S. vendors like landscapers and clothiers, wire transfers to buy property, and income reclassified as loans. Welch said the monetary figure was based on an accounting method used by Manafort.

Welch testified after the government's star witness, Rick Gates, ended three days of testimony on Wednesday after admitting he lied, stole money and cheated as lawyers for Manafort, his former boss, attacked his character and credibility.

As Gates took the witness stand for the final time, Manafort lawyer Kevin Downing asked if his "secret life" spanned the years 2010 to 2014.

"I have made many mistakes over many years," Gates, 46, replied in Federal Court in Alexandria, Va. Downing spent several hours on Tuesday firing questions at Gates to attack his credibility as a witness, bringing up lies, an extramarital affair in London he used the firm's expenses to pay for and money he embezzled from Manafort.

Downing also asked whether he submitted personal expenses when he worked for Republican Trump's inaugural committee.

Fake tax returns, foreign accounts

Manafort is the first person to be tried on charges brought by special counsel Robert Mueller's investigation into Russian interference in the 2016 U.S. presidential election. Manafort made millions of dollars working for pro-Russian Ukrainian politicians before he took an unpaid position with the Trump campaign that lasted five months. 

Gates, who pleaded guilty to charges in February and is co-operating for the possibility of a reduced sentence, testified that he helped Manafort falsify his tax returns, lie to banks to get loans and hide foreign bank accounts. Gates, a married father of four, faced tough questioning under cross-examination on Tuesday about leading a "secret life."

Gates, who has pleaded guilty to a federal crime, testified that he organized fraudulent paperwork both with and without Manafort's knowledge. (Alex Brandon/Associated Press)

"In essence, I was living beyond my means," Gates said. "I'm taking responsibility for it. I made a mistake."

Prosecutors on Wednesday planned to call an FBI forensic expert who traced Manafort's accounts.

Manafort, a longtime Republican political consultant, has pleaded not guilty to 18 counts of bank fraud, tax fraud and failing to disclose foreign bank accounts.

Attacking credibility

According to testimony, he used the accounts to receive payments from Ukrainian oligarchs. Manafort's defence team's has tried to pin much of the blame for financial crimes on Gates and raise doubts about his ethics and morals.

Prosecutor Greg Andres addressed the defence lawyer's questions about whether the special counsel's office had tried to coach Gates on how to testify.

"The only answer I was told was to tell the truth," Gates replied. Manafort's conviction would undermine efforts by Trump and some Republican lawmakers to paint Mueller's inquiry as a political witch hunt, while an acquittal would be a setback for Mueller.

Moreover, Manafort remains a central figure in the broader inquiry into the Trump campaign's dealings with Russia, including a 2016 Trump Tower meeting at which Russians promised "dirt" on Democratic presidential candidate Hillary Clinton and his role in watering down the 2016 Republican Party platform position on Ukraine.

In detailed testimony, Gates walked prosecutors through the step-by-step process on how he and Manafort doctored and backdated documents. In one example, Manafort and Gates emailed each other copies of a doctored profit and loss statement they later sent a bank to help Manafort obtain a loan.

Gates also admitted that he covertly wired funds out of Manafort's offshore accounts to line his own pockets, using the same tricks he deployed to help doctor and falsify records for Manafort. Downing seized on those admissions to try and cast doubt on whether the jury can trust Gates's claims that he only carried out the fraud alleged by prosecutors at Manafort's behest.