By Sam Brunson
After a late night watching baseball, I woke up this morning to news of Paul Manafort’s indictment.[fn1] And the 31-page indictment is filled with tax evasion. But, after laying out the fact of and ways in which Manafort evaded taxes, none of the counts seem to charge him with tax evasion. (I find that puzzling, though I’ve never been a litigator, much less involved in criminal tax cases, so I don’t really have any experience with which to judge the strangeness or not of not charging him with tax evasion.)
Even without charges, though, there’s a fascinating romp through tax haven-aided tax evasion here.
Between 2007 and 2012, Manafort set up a dozen Cypriot entities. (He also set up two entities in the Grnadines and one in the UK.) Though the indictment doesn’t provide details about how the money went to foreign entities, it looks like Manafort probably had his foreign clients pay his offshore entities for the lobbying services he provided. Then, rather than having the entities pay him (either as compensation or as dividends or other distributions of earnings and profits), he directed the entities to buy him stuff directly. Like, lots of stuff. His Cypriot entities spent $934,350 at an antique rug store in Alexandria, VA, and almost that much at a men’s clothing store in New York. And he was able to get cash (tax-free!) from the offshore entities by having them buy real property for him, and then borrowing from banks using that real property as collateral.[fn3]
Now, I don’t know how the payments were structured, but Manafort should have included that money in income, either when it was paid to the offshore entities (if the payments were for his services, not for services provided by the offshore entities) or when the offshore entities bought him stuff (as a deemed dividend/distribution). But he doesn’t appear to have included it at either point.
Now, some of this income is probably outside the statute of limitations. But the statute of limitations, while generally 3 years, expands to 6 years when, among other things, the offenses involve defrauding the government. And Count One of the indictment literally charges him with “knowingly and intentionally conspir[ing] to defraud the United States.” So many of Manafort’s offenses would seem to fall within the statute of limitations.
Of course, with 12 counts, maybe Mueller just didn’t want to muddy the waters. Or maybe he’ll throw in tax charges later. But whether or not Manafort ends up being prosecuted for tax evasion, the indictment lays out the incredible lengths he went to to hide his money and avoid paying taxes that he owed, while, at the same time, living the lifestyle of a person with that much money.
[fn1] Richard Gates was indicted, too, and Trump campaign advisor George Papadopoulos pleaded guilty to lying to the FBI. But there’s nothing in Papadopoulos’s guilty plea that’s tax-related, and all of the allegations against Gates are shared with Manafort, so I’m going to focus on that.
[fn2] It’s worth remembering that, until 2015, the OECD listed Cyprus as a tax haven.
[fn3] Quick refresher for the non-tax people: borrowed money isn’t included in the borrower’s gross income, under the theory that the borrower has to pay it back eventually.
The Surly Subgroup 