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FILE PHOTO: Former Trump campaign manager Paul Manafort is shown in a court room sketch, as he sits in federal court on the opening day of his trial on bank and tax fraud charges stemming from Special Counsel Robert Mueller's investigation into Russian meddling in the 2016 U.S. presidential election, in Alexandria, Virginia, U.S. July 31, 2018. REUTERS/Bill Hennessy(reuters_tickers)
By Sarah N. Lynch, Nathan Layne and Karen Freifeld
ALEXANDRIA, Va. (Reuters) - An accountant for U.S. President Donald Trump's one-time campaign chairman Paul Manafort admitted in trial testimony on Friday that she helped backdate documents and falsify financial records at Manafort and his business partner's request to reduce his tax burden and help him qualify for loans.
Cynthia Laporta, who prepared Manafort's tax returns starting in 2014, told a jury in federal court in Alexandria, Virginia, that she was testifying under an immunity agreement with the government to avoid being prosecuted as Manafort was charged with bank fraud and tax fraud.
One member of the jury nodded in apparent agreement when U.S. District Judge T.S. Ellis cut off the prosecution's questioning to ask her if she was afraid of being prosecuted herself.
"Correct," answered Laporta, explaining that she went along with accounting maneuvers suggested by Manafort and his longtime business associate Rick Gates because she did not want to create problems for her firm or lose a top client.
"I very much regret it," Laporta said on the trial's fourth day as prosecutors build their case that Manafort hid tens of millions of dollars he earned working for pro-Russian politicians in Ukraine to evade taxes.
Laporta, the 14th witness to testify for the prosecution, was the most damaging yet for Manafort in the first trial arising from Special Counsel Robert Mueller's probe of Russian meddling in the 2016 U.S. election.
Manafort has pleaded not guilty to 18 counts of bank and tax fraud and failing to disclose foreign bank accounts, charges that largely pre-date the five months Manafort worked for Trump, some of them as campaign chairman.
Once the jury had been dismissed for the day, Ellis gave defense lawyers a green light for detailed cross examination of Laporta on Monday. "You are not limited in your cross examination of her," Ellis said.
Both Laporta and fellow accountant Philip Ayliff, her predecessor who handled Manafort's tax filings at the firm KWC, testified that they had no knowledge that Manafort controlled foreign bank accounts. The government has provided trial evidence of Manafort controlling a web of overseas accounts in Cyprus and elsewhere. Such accounts must be reported to tax authorities if they contain $10,000 or more.
Laporta also detailed multiple examples in which Manafort and Gates sought to doctor financial records. One instance involved classifying revenue from a Cyprus-based company as a loan to lower his taxable income, Laporta testified.
"It’s hard-hitting testimony that creates an uphill battle for the defense, but that’s what cross examination is for," said Andrew Boutros, a former federal prosecutor who is now a white collar defense lawyer. "I don’t know if there is enough to convict him right now, but they’re laying the groundwork for it."
A conviction would give momentum to Mueller's probe, in which 32 people and three companies have been indicted or pleaded guilty. Trump, angered by any questions about the legitimacy of his election win, has called Mueller's investigation a witch hunt and wants it to be shut down.
After spending the first two days of the trial laying out Manafort's lavish spending, the prosecution is now digging into how he accounted for the more than $60 million (46.14 million pounds)he made in Ukraine and his efforts to allegedly mislead banks to get loans once the income from Ukraine dropped off precipitously in 2014.
Manafort's attorneys have signaled they will seek to blame Gates, who was Trump's deputy campaign chairman in 2016. Gates pleaded guilty in February and is expected to testify against Manafort, possibly next week.
Prosecutor Uzo Asonye focused some of his questioning on money transfers from a Cyprus-based company called Telmar Investments Ltd, which records showed had paid Manafort's firm more than $5 million for consulting work.
That income posed a problem for Manafort when it came time to prepare his business tax returns in September 2015, Laporta testified. She said Gates told her in a conference call the income level "was too high" and proposed reclassifying a portion of it as a loan.
Laporta said she knew it was "inappropriate" but agreed to alter the records to show that Manafort’s firm received a $900,000 loan from Telmar in 2014, a change that would save Manafort nearly a half million dollars in taxes, Laporta said.
Manafort signed an agreement to account for that loan that was backdated, according to Laporta and an exhibit shown to the jury.
Trial consultant Roy Futterman, who is following the trial but not involved in it, said, "The prosecution is doing a very good job of keeping a brisk pace, putting witnesses on for short direct examinations, keeping it lively and keeping very tight messages for each witness."
Manafort's attorneys do not seem to have scored a lot of points on cross-examination, Futterman said, but added that the witnesses who have testified so far are not "the main targets."
Earlier on Friday prosecutors asked Ayliff about Manafort's accounting of a $1.5 million transfer in 2012 from Peranova Holdings Ltd as a loan, even as records showed that no interest or principal was paid on it in subsequent years. Peranova is one of numerous Cypriot entities that prosecutors have said Manafort controlled.
Ayliff testified that KWC did not know Manafort controlled Peranova, and that if the transfer was a payment related to his consulting work in Ukraine it would have been treated as income - not as a loan - on his tax returns.
(Reporting by Sarah N. Lynch and Nathan Layne in Alexandria, Virginia; additional reporting by Karen Freifeld and Susan Heavey; Writing by Warren Strobel; Editing by Will Dunham and Grant McCool)