Gates admits crimes with -- and embezzlement from -- Manafort

ALEXANDRIA, Va. (AP) -- The government's star witness in the financial fraud trial of Paul Manafort testified Monday that he embezzled hundreds of thousands of dollars from the former Trump campaign chairman -- and told jurors that he and Manafort committed crimes together.

Rick Gates, described by witnesses as Manafort's "right-hand man," calmly related his criminal conduct as prosecutors looked to provide jurors with damning testimony from a co-conspirator they say carried out an elaborate offshore tax-evasion and fraud scheme on behalf of his former boss.

Gates, who is expected to continue testifying for several hours Tuesday, has been regarded as a crucial witness for the government ever since he pleaded guilty this year to two felony charges and agreed to cooperate in special counsel Robert Mueller's investigation into possible ties between Russia and the Trump campaign.

The courtroom testimony brought Gates face-to-face with Manafort, his longtime boss and fellow Trump campaign aide, for the first time since his plea deal. His testimony, given in short, clipped answers as Manafort rarely broke his gaze from the witness stand, follows that of vendors who detailed Manafort's luxurious spending and financial professionals who told jurors how the defendant hid millions of dollars in offshore accounts.

Gates told jurors that he siphoned off the money without Manafort's knowledge by filing false expense reports. He also admitted to concealing millions of dollars in foreign bank accounts on Manafort's behalf and to falsifying documents to help his former boss obtain millions of dollars more in bank loans.

"We didn't report the income or the foreign bank accounts," Gates told jurors, noting that he knew he and Manafort were committing crimes each time.

Under questioning from prosecutors, Gates read off the names of more than a dozen shell companies he and Manafort set up in Cyprus, St. Vincent and the Grenadines and the United Kingdom to stash the proceeds of Ukrainian political consulting work.

Asked whether the money in the accounts was Manafort's income, Gates said, "it was."

Gates said he repeatedly lied to conceal the bank accounts and, at Manafort's direction, he would classify money that came in as either a loan or income to reduce Manafort's tax burden.

Gates, who also served in a senior role in Donald Trump's presidential campaign, is expected to face aggressive cross-examination once prosecutors are finished questioning him. Manafort's defense signaled early in the trial that they intend to blame Gates for any illegal conduct and to cast him as a liar and embezzler who can't be trusted.

Gates pleaded guilty to a conspiracy charge and to lying to investigators as part of his plea agreement. He is awaiting sentencing, and he told jurors Monday that in exchange for his truthful testimony prosecutors agreed not to oppose his attorney's request for probation at a later date. That recommendation is nonbinding as a federal judge will ultimately decide his sentence. He faces 57 to 71 months in prison under federal sentencing guidelines.

The criminal case has nothing to do with either man's work for the Trump campaign and there's been no discussion during the trial about whether the Trump campaign coordinated with Russia -- the central question Mueller's team has tried to answer. But Trump has shown interest in the proceedings, tweeting support for Manafort and suggesting he had been treated worse than gangster Al Capone.

U.S. District Judge T.S. Ellis III, who repeatedly interrupted prosecutors last week as they tried to present evidence about Manafort's lavish life such as $900,000 in expensive suits and a $15,000 ostrich jacket, clashed again with prosecutor Greg Andres on Monday when Andres delved into the status and identities of the Eastern Europeans who made payments to Manafort.

Ellis said all that's relevant is that Manafort was paid and whether he hid the income from the IRS.

"It doesn't matter whether these are good people, bad people, oligarchs, Mafia. ... You don't need to throw mud at these people," Ellis said.

Andres said he was entitled to show the jury why Manafort was getting tens of millions of dollars in payments.

"When we try to describe the work, Your Honor stops us and tell us to move on," he said.

Prosecutors say Manafort used those companies to stash millions of dollars from his Ukrainian consulting work, proceeds he omitted year-after-year from his income tax returns. Later, they say, when that income dwindled, Manafort launched a different scheme, shoring up his struggling finances by using doctored documents to obtain millions more in bank loans.

All told, prosecutors allege that Manafort failed to report a "significant percentage" of the more than $60 million they say he received from Ukrainians. They aimed to show jurors how that money flowed from more than a dozen shell companies used to stash the income in Cyprus.

Last week, a tax preparer named Cindy Laporta admitted that she helped disguise $900,000 in foreign income as a loan in order to reduce Manafort's tax burden. Laporta, who testified under an immunity deal with the government, acknowledged that she agreed under pressure from Gates to alter a tax document for one of Manafort's businesses.

Under cross-examination Monday, defense attorney Kevin Downing pressed Laporta on the complexities of Manafort's finances as he worked to paint a picture of a political consultant who left the details to professionals and, in particular, to Gates.

Downing also accused Gates of embezzling "millions," a higher amount than Gates later admitted to in his testimony.

Laporta said she had grown to distrust the information Gates was providing her, though she didn't know about the embezzlement.

But she said she believed Manafort was directing Gates' efforts to disguise loans and conceal income, noting that Manafort was copied on her email traffic with Gates.

"In most instances, it was clear that Mr. Manafort knew what was going on," she said.

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Associated Press writers Eric Tucker and Stephen Braun contributed to this report.