What Mueller’s Manafort Case Means for the Trump Battle to Come

(Bloomberg Businessweek) -- After more than a year of intense scrutiny and political intrigue, the first trial stemming from the Russia investigation began with a bang on July 31 in a federal courtroom in Alexandria, Va. But rather than focus on Russian election meddling or questions of potential collusion with the Trump campaign, the opening shots of the trial included details of the lavish lifestyle led by defendant and former Trump campaign manager Paul Manafort, as well as venom directed at his former business partner Rick Gates, who pleaded guilty to tax fraud in February and is expected to be the government’s star witness.

The trial is the first chance to see special counsel Robert Mueller’s team of prosecutors in action and will be a test of their courtroom skills. And for Mueller, there’s more on the line than just winning a conviction. “What’s significant about this trial is what it represents beyond the legal result,” says Renato Mariotti, a former federal prosecutor. “It’s the new phase of the Mueller investigation, it’s the first trial for the man who’s being vilified by the president, and Mueller represents an existential threat for the president.”

The trial will also provide a window into how Manafort intends to defend himself against a host of evidence laying out an elaborate tax and bank fraud scheme. If the first days are any guide, the trial will feature plenty of drama but will likely lack any mention of the broader political ramifications of Mueller’s investigation.

Judge T.S. Ellis has made clear that prosecutors need to avoid politics. That means no mention of Mueller’s motives, his Russia investigation, or Manafort’s role in the Trump campaign. Instead, the trial will feature competing portraits of Manafort, a veteran political consultant who made more than $60 million from 2010 to 2014 advising Ukrainian President Viktor Yanukovych. Mueller intends to prove that Manafort failed to report most of that money on his tax returns and instead funneled it through foreign accounts, including in Cyprus, to disguise it as loans from offshore shell companies to fund a tax-free lifestyle. Prosecutors will try to cast Manafort as a globe-trotting, cash-hungry villain bent on skirting the law. Through documents and witnesses, they’ll aim to show that Manafort micromanaged the fraud, deciding which financial details to fudge or withhold from his bookkeepers and accountants.

Manafort’s defense appears to be building its case around the notion that Manafort was too busy as an international rainmaker to pay attention to the financial details of his consulting business. Instead, he mistakenly trusted his bookkeepers, tax accountants, and, crucially, Gates, his right-hand man. Manafort’s lawyers have made clear their intent to portray Gates as the real mastermind, alleging that he stole millions of dollars from the company by claiming fake bonuses and expenses. And when Mueller’s net closed around him, they said, he made up stories to avoid prison time. After the trial’s second day, it was unclear whether prosecutors still intended to call Gates as a witness.

Manafort appears likely to attack witnesses who helped him prepare his taxes, including two accountants who have been granted immunity, a rarity in tax fraud cases. Their testimony could be crucial, since the crux of Mueller’s case is that Manafort knew he was faking his taxes. The accountants “clearly are nervous about giving truthful testimony either because it implicates them or they previously said or did something which contradicts what they would truthfully say at trial,” says Richard Sapinski, a tax attorney at the firm Sills Cummis & Gross. “This could be where the battle is fought. I see no other place to fight it.”

Given the amount of evidence prosecutors have amassed, Manafort faces an uphill battle. Yet Judge Ellis hasn’t made it easy for Mueller. A quick-witted Reagan appointee, he clashed with prosecutors on the trial’s second day as he insisted on a faster pace. That tempo could work against prosecutors, who typically let jurors simmer in the details as they try to prove that a defendant had criminal intent when he filled out tax forms or loan applications.

While the trial is not about Trump, his name will come up. Stephen Calk, founder of Federal Savings Bank in Chicago, provided Manafort and a company tied to him with $16 million in loans. Prosecutors have said that Manafort submitted false data on his loan application at the same time Calk was seeking a job in the Trump campaign and administration.

Manafort faces a second trial on Sept. 17 in Washington that will examine how he lobbied the U.S. government on behalf of Yanukovych and his party. He’s charged in that case with money laundering, failing to register as a foreign agent, and obstruction of justice. Prosecutors say he and a former aide with ties to Russian intelligence tried to tamper with witnesses who could testify about their unregistered lobbying in Washington.

While there likely will be no legal spillover from one case to the other, the outcome of Manafort’s fraud case will have an effect on Mueller’s public image. If Manafort is convicted on all 18 counts of bank and tax fraud, Mueller will enjoy a fresh burst of support. But if Manafort is acquitted, convicted on just one or two counts, or the jury fails to reach a verdict, Trump could declare victory. “Trump and the pro-Trump people will say it’s a huge rejection of the Mueller team and more proof that this is a rigged witch hunt,” says Elie Honig, a former federal prosecutor. “Even if it’s just one juror holding out that will hang it, they will still declare victory.”

To contact the editor responsible for this story: Matthew Philips at mphilips3@bloomberg.net

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