Under questioning by defense attorney Kevin Downing on Tuesday, Gates also admitted he wrote a fraudulent letter to prospective investors in a movie project and that "it's possible" he submitted to Trump's inaugural committee personal expenses, which may have been improper.
Manafort's lawyer suggested that the affair - which included a London pad, first-class plane trips and luxury hotels - cost up to $3 million.
Paul Manafort's longtime deputy told jurors Tuesday how he spent years disguising millions of dollars in foreign income as loans to lower the former Trump campaign chairman's tax bill.
Prosecutors summoned Gates to give jurors the first-hand account of a co-conspirator they say helped Manafort carry out an elaborate offshore tax-evasion and bank fraud scheme.
She said even though she worked with Gates a lot, it was clear to her that Manafort "knew what was going on" in most instances.
"He always had control over the accounts", Gates said of Manafort, and the income was not reported to his bookkeepers, his accountants or the USA tax authorities. This time, however, Manafort himself provided Gates the template to be used for vendor payments, according to the witness.
In another heated exchange, Downing tried to press Gates into explicitly saying that he had embezzled money from Manafort.
Gates pleaded guilty in February and agreed to cooperate with prosecutors under a deal that could lead to a reduced sentence.
"I'm here to tell the truth and take responsibility for my actions", Gates said in response to a question from Downing about his trustworthiness.
Manafort and Gates were the first two individuals indicted in Mueller's investigation into potential collusion between Russian Federation and the Trump campaign.
"In Cyprus, they were documented as loans".
After Gates described his theft as "unauthorized transactions" instead of embezzlement, Downing prodded him to use the latter term - and Gates ultimately relented, saying, "It was embezzlement from Mr. Manafort".
Downing wondered aloud why Gates had shown "perfect recollection" during examination by the government but was now much less precise under cross-examination by Manafort's defence.
The veteran Republican operative is not on trial for anything he did while serving for three months in 2016 as chairman of Trump's presidential campaign.
Gates said he and Manafort turned to a Cypriot lawyer, whom he referred to in court as "Dr K", who set up bank accounts and shell companies on Manafort's behalf and "handled everything".
Manafort to Gates in 2011, telling him to "proceed" with secret foreign wire transfers.
In other testimony, Gates recounted how he falsified documents for Manafort, including converting a PDF of a profit-and-loss statement to a Microsoft Word document so he could doctor it to inflate the business' income.
Sometimes, however, Gates said he would perform the same task without Manafort's direction or knowledge in order to embezzle funds from his employer.
Prosecutors had braced for the tough questioning by getting Gates to come clean about his own crimes.
And there were Manafort's emails, which prosecutors showed to the courtroom.
After saying Monday that he committed crimes with Manafort, including concealing offshore accounts to avoid reporting them to the US government at tax time and claiming false income to get loans, Manafort defense attorney Kevin Downing asked the witness, "This jury is just supposed to believe you after all the lies that you've told and the fraud you've committed?"
And Gates faced fraud charges from the special counsel after it discovered he had written a letter to a Swiss movie production company falsely claiming that his own production company was investing in a film project by his friend, Steve Brown.