MANAFORT’S CASE IS SIMPLER THAN HIS LAWYERS WANT YOU TO BELIEVE*
Untitled, Watercolor, 11” x 21.5”, Richard J Van Wagoner, Courtesy of Van Wagoner Family Trust**
While the “follow-the-money” investigation of Mr. Manafort was sophisticated and complex due to his alleged history of hiding assets and accounts throughout the world, laundering funds, and conscripting others into his scheme, the criminal charges in the first trial against Mr. Manafort are quite simple. Don’t let the length of the Indictment, the number of counts, the volume of exhibits, the number of witnesses, the indicted co-conspirator, the grant of immunity to five potential witnesses, or the thick stack of jury instructions trick you into believing otherwise. Mr. Manafort’s guilt will come down to very basic concepts of “knowledge,” “willfulness,” and “materiality.”
This is not to say Mr. Manafort’s defense team will not try to characterize the elements of the crimes as extremely complex and nuanced in order to claim the United States has failed to meet its high burden.
The questions on the tax and bank fraud counts, in simple terms, are (a) whether Mr. Manafort made and was aware he was making untrue representations or omissions to the United States Treasury (tax returns) or federally insured banks (loan applications) when he signed the documents under penalty of perjury and submitted them; if so, (b) were those misrepresentations or omissions of the type that would matter to or tend to influence the IRS or bank in making decisions about Mr. Manafort.
The questions on the failure to file reports concerning foreign bank or financial accounts are (a) whether he was legally required to file such reports; if so, (b) did he fail to file them; and (c)was he aware of that legal reporting requirement but chose to disregard it?
The word “knowingly” means consciously or with knowledge or understanding of the facts or circumstances.
“Willfulness” is whether there was a voluntary, intentional violation of a known legal duty
Something is “material” if it is sufficient that the statement has the capacity or a natural tendency to influence the determination required to be made.
FALSE TAX RETURNS
Did Mr. Manafort lie on tax returns by what he said or failed to say?
Examples might include failing to report income, mischaracterizing income as loans, placing assets in nominee accounts or with nominees as a means to hide or disguise them, failing to identify foreign accounts where income is deposited, or denying one’s ownership interest in such accounts.
If so, were his lies of sufficient quality or gravity to tend to influence the IRS?
The Indictment charges Mr. Manafort with five counts of subscribing to a false individual tax return, in violation of 26 U.S.C. 7602(1):
“Any person who willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 . . . or imprisoned not more than 3 years, or both, together with the costs of prosecution.”
When he signed and filed the returns:
• did the returns contain a misrepresentation or omission — a false statement?
• Did he know they contained a false statement when he signed and filed them or had them filed?
• Was the misrepresentation or omission of sufficient gravity that it would tend to influence the United States Treasury/IRS?
BANK FRAUD/CONSPIRACY TO COMMIT BANK FRAUD
Did Mr. Manafort lie on bank loan applications by what he said or failed to say?
If so, were his lies of sufficient quality or gravity to tend to influence a federally insured bank?
Did Mr. Manafort and Mr. Gates reach an agreement to commit bank fraud (subsumed in the prior questions) and engage in at least one act in furtherance of their agreement?
The Indictment charges Mr. Manafort with four counts of bank fraud in violation of 18 U.S.C. 1344 and four counts of conspiracy to commit bank fraud in violation of 18 U.S.C. 1349:
“Whoever knowingly executes, or attempts to execute, a scheme or artifice —
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;
shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.”
While the term “material” does not appear in the bank fraud statute, the United States Supreme Court has held “materiality” is an implicit element of the crime. What would be material to a bank? Before extending a loan or setting the terms of repayment, banks ordinarily want some measure of assurance the loan will be repaid. Banks require information from prospective borrowers in loan applications so underwriting can accurately assess risk. Does the prospective borrower have sufficient collateral, income, earning capacity and the like to reduce risk and warrant extending the loan? Is the prospective borrower already overextended? Does the person’s (credit) history reflect a need for underwriting to set parameters or conditions, including security interest in collateral or a higher interest rate? Generally speaking “material” information bears on the factors the bank considers in assessing risk in making underwriting decisions.
• Did Mr. Manafort sign and submit loan applications to federally-insured bank(s) that contained false information underwriting would use to assess the risk of extending a loans or setting the terms of loans to Mr. Manafort?
• Did he know the applications contained such false information when he signed and submitted the applications?
FAILURE TO REPORT FOREIGN ACCOUNTS
Did Mr. Manafort own or have signatory authority over foreign bank or financial accounts?
If so, did he fail to file reports required by the United States of persons who own or have signatory authority over such accounts?
If so, did he know it was his legal duty to file such reports but choose to disregard it?
The Indictment charges Mr. Manafort with four counts of failure to file reports of foreign bank and financial accounts, in violation of 31 U.S. C. 5314, 5322. Federal regulations give more specifics of what the statute requires. A U.S. person (citizen or resident) is required to file what is known as FinCEN Report 114 when s/he has a financial interest in, or signature authority over, one or more foreign financial accounts. The regulations create their own standard of “materiality” by including only those foreign financial accounts with an aggregate value greater than $10,000 at any time during the reporting period (calendar year). For what should be obvious reasons, the IRS has civil enforcement authority for this filing requirement. One purpose of the filing requirement is to prevent people from hiding income in foreign accounts from taxing authorities. Another is to attempt to prevent or otherwise expose laundering of ill-gotten gains, that is, the proceeds of illegal activity. Under United States tax laws, recipients of ill-gotten gains must pay taxes on the proceeds.
• Did Mr. Manafort have a financial interest or signature authority over one or more foreign financial accounts with an aggregate value greater than $10,000 at any time during the individual tax year?
• If so, did he file a FinCEN Report 114 with the United States?
• If not, was his failure to file the report “willful” — was he aware of the reporting requirement and chose not to satisfy his legal obligation?
What follows are the opening paragraphs of the Indictment which lay out, in summary fashion, the factual basis for the charges:
- Defendants PAUL J. MANAFORT, JR. (MANAFORT) and RICHARD W. GATES III (GATES) served for years as political consultants and lobbyists. Between at least 2006 and 2015, MANAFORT and GATES acted as unregistered agents of a foreign government and foreign political parties. Specifically, they represented the Government of Ukraine, the President of Ukraine (Victor Yanukovych, who was President from 2010 to 2014), the Party of Regions (a Ukrainian political party led by Yanukovych), and the Opposition Bloc (a successor to the Party of Regions after Yanukovych fled to Russia).
- MANAFORT and GATES generated tens of millions of dollars in income as a result of their Ukraine work. From approximately 2006 through the present, MANAFORT and GATES engaged in a scheme to hide income from United States authorities, while enjoying the use of the money. During the first part of the scheme between approximately 2006 and 2015, MANAFORT, with GATES’ assistance, failed to pay taxes on this income by disguising it as alleged “loans” from nominee offshore corporate entities and by making millions of dollars in unreported payments from foreign accounts to bank accounts they controlled and United States vendors. MANAFORT also used the offshore accounts to purchase United States real estate, and MANAFORT and GATES used the undisclosed income to make improvements to and refinance their United States properties.
- In the second part of the scheme, between approximately 2015 and at least January 2017, when the Ukraine income dwindled after Yanukovych fled to Russia, MANAFORT, with the assistance of GATES, extracted money from MANAFORT’s United States real estate by, among other things, using those properties as collateral to obtain loans from multiple financial institutions. MANAFORT and GATES fraudulently secured more than twenty million dollars in loans by falsely inflating MANAFORT’s and his company’s income and by failing to disclose existing debt in order to qualify for the loans.
- In furtherance of the scheme, MANAFORT and GATES funneled millions of dollars in payments into numerous foreign nominee companies and bank accounts, opened by them and their accomplices in nominee names and in various foreign countries, including Cyprus, Saint Vincent & the Grenadines (Grenadines), and the Seychelles. MANAFORT and GATES hid the existence and ownership of the foreign companies and bank accounts, falsely and repeatedly reporting to their tax preparers and to the United States that they had no foreign bank accounts.
- In furtherance of the scheme, MANAFORT used his hidden overseas wealth to enjoy a lavish lifestyle in the United States, without paying taxes on that income. MANAFORT, without reporting the income to his tax preparer or the United States, spent millions of dollars on luxury goods and services for himself and his extended family through payments wired from offshore nominee accounts to United States vendors. MANAFORT also used these offshore accounts to purchase multi-million dollar properties in the United States and to improve substantially another property owned by his family.
- In furtherance of the scheme, GATES used millions of dollars from these offshore accounts to pay for his personal expenses, including his mortgage, children’s tuition, and interior decorating and refinancing of his Virginia residence.
- In total, more than $75,000,000 flowed through the offshore accounts. MANAFORT, with the assistance of GATES, laundered more than $30,000,000, income that he concealed from the United States Department of the Treasury (Treasury), the Department of Justice, and others. GATES obtained more than $3,000,000 from the offshore accounts, income that he too concealed from the Treasury, the Department of Justice, and others.
*My brother the very talented fiction writer and novelist, Robert Hodgson Van Wagoner, deserves considerable credit for offering both substantive and technical suggestions to https://medium.com/@richardvanwagoner and https://lastamendment.com
**My daughter Angela Moore, a professional photographer, photographed more than 500 pieces of my father’s work. On behalf of the Van Wagoner Family Trust, she is in the process of compiling a collection of his art work. The photographs of my father’s art reproduced in lastamendment.com are hers.