Law & the Courts

More Thoughts on the Manafort Indictment

Paul Manafort leaves the U.S. Federal Court building in Washington, D.C., following his arraignment, October 30, 2017. (Reuters photo: James Lawler Duggan)
It contains puzzling gaps and non-standard tactics that may or may not end up making sense.

You never know what’s going to set people off.

In a Monday column on special prosecutor Bob Mueller’s indictment of former Trump campaign chairman Paul Manafort, I opined that the case seems to be “much ado about nothing,” and that some of the allegations that have been brought appear “shaky and overcharged.” Some commentators took this to mean that, being in the tank for Trump, I am pooh-poohing Mueller’s opening gambit.

Not so. Readers who follow these columns know that I am not knee-jerk pro- or anti-Trump. I’ve opined that “Paul Manafort is a sleazeball.” And, while I concededly have strong political views, I try to be coldly clinical about legal questions and prosecution theories. That is my professional training, and the skill of being a prosecutor involves recognizing weaknesses in the case — you never want the defense lawyers to spot them first.

Much Ado about Nothing

To be clear, I am not saying the case is unserious for Manafort and Richard Gates. I am saying it is “much ado about nothing” in the greater scheme of things — meaning: Mueller’s (highly elastic) mandate is to investigate Russian meddling in the 2016 election and any possible Trump-campaign collusion therein; yet the Manafort case is utterly unrelated to that. (Maybe I should have said the indictment is “nothing about much ado”!)

Moreover, when I said the case is “shaky and overcharged,” I qualified that with “at least in part.” That is because there are felonies of which Manafort and Gates appear to be guilty, which is a very consequential matter for them. Nevertheless, the indictment’s presentation of much of the case is overhyped.

Unquestionably, Mueller is not done with his investigation. I am more than a little surprised to be criticized by some for purportedly suggesting that this is the end, rather than the start, of the special counsel’s case. I have been saying since the summer that Mueller is trying to squeeze Manafort into becoming a cooperating witness. Necessarily, that means he plans to keep building his case.

More to the point, there is a glaring omission in the indictment, which suggests that Mueller is planning to supersede it with more charges.

The Missing Tax Charges

In my haste to cover what is in the indictment, I left out of the column what is not: There are no tax charges. The indictment not only mentions tax evasion in various places; the commission of tax crimes is a key element of the money-laundering conspiracy charged in Count Two. Yet despite detailing that Manafort and Gates submitted fraudulent tax returns, the indictment does not accuse them of tax-law felonies that the prosecutors would be required to prove beyond a reasonable doubt at trial.

This is curious, and I don’t know if the explanation is substantive or administrative.

By substantive, I mean that there could be legal and factual issues unknown to me that complicate the taxability of Manafort’s prodigious foreign earnings. As a former prosecutor, I try to stay mindful of something that gets harder to remember as my prosecutor days recede in the rear-view mirror: There were always things about my cases that struck outsiders as odd but would not have if they had known what I knew. The prosecutors know things about their evidence that we don’t. They may have a good reason that I haven’t figured out for eschewing tax counts.

The prosecutors know things about their evidence that we don’t. They may have a good reason that I haven’t figured out for eschewing tax counts.

Still, while I’m no expert in the specialized field of tax law, I have prosecuted tax charges. In principle, Americans have a legal obligation to report all income from foreign sources, and that income is taxable (although there are special rules that apply to it, like the foreign-earned-income exclusion, which shields a portion from taxation). So, it seems passing strange that there are no tax-fraud and evasion charges in a case that explicitly claims the defendants hid the existence of foreign income and dodged taxes — presumably, tens of millions of dollars owed on tens of millions of dollars in revenue.

Thus, I wonder if there is an administrative issue. By federal regulation, most criminal tax charges must be “conducted, handled, or supervised by” the Justice Department’s Tax Division. (See, section 0.70 of the Code of Federal Regulations, Title 28.) In my experience, Tax Division was notoriously slow to approve charges — in large part because many tax cases are complicated. I don’t know if this explains the absence of tax counts against Manafort.

If it does, I also have to wonder whether Mueller’s status is complicating things. As a special counsel, he is quasi-independent prosecutor — he reports to the deputy attorney general, but he operates largely outside the Justice Department chain of command and protocols. So, while the regs say the Justice Department has to approve tax charges, Mueller was appointed to handle the case precisely because the Trump Justice Department is conflicted and is thus trying to leave all major decisions to Mueller. Maybe they are just being extra careful to ensure that the Justice Department’s conflict of interest does not taint the case.

In any event, I have to believe that the Manafort-Gates indictment will eventually be superseded to add charges of tax evasion and false statements on tax returns. (Sections 7201 and 7206 of the Internal Revenue Code.) The money-laundering charge, as currently framed, depends on proving these offenses, so there is no reason not to charge them as separate crimes.

The Missing Fraud Charges

Another, similar oddity: In the section of the indictment where Mueller’s team describes “The Scheme” (p. 7, para. 14), there is a big wind-up about fraud. The prosecutors invoke the familiar statutory charging language: Manafort and Gates “devised and intended to devise, and executed and attempted to execute, a scheme and artifice to defraud, and to obtain money and property by means of false and fraudulent pretenses, representations, and promises . . . ” The victims, we’re told, included not only the United States but “banks and other financial institutions.”

Okay . . . so where are the bank-fraud counts? Mail fraud? Wire fraud? There are no such charges. In some ways, this omission is even more curious than the exclusion of tax offenses. Financial-institution fraud, especially in the high dollar amounts the indictment suggests, is a serious felony, and no Main Justice approval is required to charge it.

Notice, also, a critical difference between the lack of fraud charges against Manafort and the lack of “collusion” charges I discussed Monday in a column about the case against George Papadopoulos. Mueller did not charge Papadopoulos with a collusion offense, despite cataloguing extensive collusion evidence. Why? Because collusion is not a crime. By contrast, bank fraud is a major crime. It is an easy one to charge and prove, and the Manafort indictment indicates there is damning evidence of it.

Mueller did not charge Papadopoulos with a collusion offense, despite cataloguing extensive collusion evidence. Why? Because collusion is not a crime.

Hence, it is peculiar that there are no fraud counts. Consider this: The penalty for the conspiracy Mueller did charge in Count One is no more than five years’ imprisonment (see Section 371 of Title 18, U.S. Code); the penalty for bank-fraud conspiracy is up to 30 years’ imprisonment (see Section 1344). If, as I suspect, Mueller is trying to pressure Manafort, a bank-fraud conspiracy is a heavier hammer than anything currently in the indictment.

Maybe Mueller is planning on a superseding indictment that piles on tax and fraud charges. Since these offenses are not alleged, I suppose you could say the case is “undercharged.” I used the term “overcharged.” But I was referring to what is included in the indictment, not what is excluded.

These omissions do not make sense to me. Again, my operating theory is that Mueller is trying to squeeze Manafort into becoming a cooperating witness. Generally speaking, the way you do that is to blow the guy’s doors off from the first salvo: Make him understand that if, at age 68, he hopes to live any part of his remaining life outside of a U.S. penitentiary, his only real option is to plead guilty and tell the government everything he knows about everyone he knows. You don’t want to give him hope that he can beat the case.

So, in light of what Mueller put in the indictment, I’m scratching my head over what is left out. Why leave out counts when the underlying conduct that proves them (tax evasion, fraud . . . ) is described in the indictment anyway?

“Conspiracy Against the United States”

I said some of the allegations are “overcharged” because they are. Take the so-called “Conspiracy Against The United States” in Count One (p. 23). This is the offense charged under the aforementioned section 371 of the penal code. But there is no such offense under that statute. As its title conveys, section 371 criminalizes two types of agreement: conspiracy to commit an offense (which can be any federal crime), and conspiracy to defraud the United States (including any government agency). There is no “conspiracy against the United States.”

When I was a prosecutor, if defendants committed a conspiracy to, for example, sell counterfeit securities, we would call it a “conspiracy to sell counterfeit securities,” not a “conspiracy against the United States.” The United States is invoked only if it is mentioned in the criminal offense that is the object of the conspiracy (e.g., “conspiracy to defraud the United States”).

Maybe Mueller’s team made an honest mistake. But they are very smart lawyers so I doubt it. The cynic in me cannot help but think they are pushing the “Russia attacked our democracy” mood music that has accompanied the “Trump collusion” investigation, even though the Manafort indictment has nothing to do with the Putin regime’s interference in the 2016 election.

Inflating Charges

The indictment alleges a hair-raising $75 million in income, about a third of which is said to have been laundered. But there is no suggestion that Manafort’s earnings themselves are illegal (as opposed to his fraudulent reporting and manipulation of the money). And we also know that the five-year federal statute of limitations would knock out any crimes prior to 2012. If you strip out the sums before then, that $75 million figure drops dramatically.

As I explained on Monday, the indictment also turns the same false statement into two crimes by charging it under two different false-statement statutes. I’ve seen this kind of thing done before in abusive prosecutions. As I’ve previously described, it was done by the Obama Justice Department in the case against Dinesh D’Souza. I’ve seen prosecutors employ an underhanded padding trick that involves turning any single lie into two false-statement counts: The prosecutor charges the lie as a “false statement,” and then charges as a “material omission” the truth that the same lie was designed to conceal. Such tactics transgress double-jeopardy principles and they are unworthy of good prosecutors.

To wrap up on the matter of “overcharging,” the Justice Department virtually never prosecutes the failure to register as a foreign agent. But in Manafort’s case, it is the foundation of the prosecution, the subject of four separate counts — the Count One conspiracy, the two false-statement charges (that should be only one), and the money-laundering conspiracy (which we’ll get to). In the blink of an eye, it’s gone from something the government ignores to crime-of-the-century status.

Shaky Money-Laundering Theories

Finally, let’s turn to my judgment that parts of the case are “shaky.” On this, I was referring to two things: the multiplying of false statements charges referred to above, and the money-laundering conspiracy charge (Count Two, pp. 24–25). We’ve covered the former, so let’s talk money laundering.

On that, I used the term “shaky” advisedly — I did not claim the money-laundering charge was frivolous or groundless; I mean it is problematic. Money laundering is not an easy offense to prove. Generally, you have to show that the money was derived from crime before it starts being moved around — i.e., the money does not become criminal because you move it around. There is an exception: A section of the money-laundering statute (section 1956(a)(2)) proscribes international transportations of any money (i.e., not necessarily the proceeds of crime) with the intent of avoiding transaction-reporting requirements. Now, the indictment’s narrative description of Manafort’s conduct strongly implies that he did this, but that is not what Mueller alleges in the moneylaundering count.

Instead, Mueller’s theory is two-pronged. First, he alleges that Manafort transmitted money internationally for the purpose of carrying on “specified unlawful activity” — to wit, the failure to register as a foreign agent. But to repeat, such violations of “FARA” (the Foreign Agents Registration Act) are virtually never charged — only once successfully in the last half-century. Furthermore, it is anything but clear that Manafort’s purpose in moving money was to facilitate his foreign-agent work (it looks like it was to live lavishly). So, there is reason to question whether the prosecutors can prove both the knowledge and intent elements of a money-laundering offense: Was Manafort truly on notice that his conduct was illegal, and did he intend to use the money to commit this illegality?

Mueller’s alternative money-laundering theory is that Manafort conducted financial transactions with assets he knew to be the proceeds of criminal activity with the intent to engage in tax evasion. But, as I noted in Monday’s column, it is not illegal to be paid by a foreign government or faction, even an unsavory one, so there is some question whether the assets are criminal proceeds. And, to repeat, Mueller has not charged any tax-evasion crimes — at least not yet.

To my mind, these are shaky theories. It is not impossible that Mueller will come up with the proof he needs, or perhaps shift to a theory that may better fit the evidence he has described. Suffice it to say, though, that his money laundering charge is not a slam-dunk.

In any event, the big takeaway from the Manafort indictment is its lack of connection to purported Trump-campaign collusion in Russia’s cyber-espionage attack on the 2016 campaign. I believe the indictment’s only potential relevance lies in its usefulness in pressuring Manafort to cooperate. Assuming that is the goal, I think Mueller’s team could have improved the indictment’s credibility by toning down what is included and adding in what appears to have been left out.

READ MORE:

The Manafort Indictment: Not Much There, and a Boon for Trump

The Papadopoulos Case

A Guide to Understanding the Manafort Indictment

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