Embassy of the United States Asuncion, Paraguay

Paraguay

Paraguay is a major drug transit country and money laundering center. A multi-billion dollar contraband trade, fed in part by endemic, institutional corruption, occurs in the border region shared with Argentina and Brazil (the Tri-Border Area) and facilitates much of the money laundering in Paraguay. While the Government of Paraguay (GOP) suspects proceeds from narcotics trafficking are often laundered in the country, it is difficult to determine what percentage of the total amount of laundered funds is generated from narcotics sales or is controlled by drug trafficking organizations, organized crime, or terrorist groups operating locally. Trade-based money laundering and the trafficking in counterfeit goods are widespread. Weak controls in the financial sector, open borders, bearer shares, casinos, a surfeit of unregulated exchange houses, lax or non-enforcement of cross-border transportation of currency and negotiable instruments, ineffective and/or corrupt customs inspectors and police, and minimal enforcement activity for financial crimes allows money launderers, transnational criminal syndicates, and possible terrorist financiers to take advantage of Paraguay’s financial system.

Ciudad del Este, on Paraguay’s border with Brazil and Argentina, represents the heart of Paraguay’s underground or “informal” economy. The area is well known for arms and narcotics trafficking and violations of intellectual property rights with the illicit proceeds from these crimes a source of laundered funds. Some proceeds of these illicit activities have been supplied to terrorist organizations. A wide variety of counterfeit goods, including household electronics, cigarettes, software, computer equipment, video games, and DVDs are imported from Asia and transported across the border into Brazil. A small amount remains in Paraguay for sale in the local economy.

Many high-priced goods in Paraguay are paid for in U.S. dollars. In addition to bulk cash smuggling, the non-bank financial sector, particularly exchange houses, is often used to move illicit proceeds both from within and outside Paraguay into the U.S. banking system. Large sums of dollars generated from normal commercial activity and suspected illicit commercial activity are also transported physically from Paraguay through Uruguay and Brazil to banking centers in the United States. The Government of Paraguay (GOP) is in the early stages of recognizing and addressing the problem of the international transportation of currency and monetary instruments derived from illegal sources, so determining what portion of U.S. dollars are related to narcotrafficking is problematic.

As a land-locked nation, Paraguay does not have an offshore sector. However, Paraguay’s port authority manages free trade ports and warehouses in neighboring countries' seaports, which are used for the reception, storage, handling, and transshipment of merchandise transported to and from Paraguay. Such free trade ports are located in Argentina (Buenos Aires and Rosario); Brazil (Paranagua, Santos, and Rio Grande do Sul); Chile (Antofagasta and Mejillones); and Uruguay (Montevideo and Nueva Palmira). About three-fourths of all goods entering and exiting Paraguay are transported by barge on the large river system that connects Paraguay with Buenos Aires (Argentina) and Montevideo (Uruguay).

Do financial institutions engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or that otherwise significantly affect the U.S.: YES

Criminalization of money laundering:

“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes

Legal persons covered: criminally: YES civilly: YES

Criminalization of terrorist financing:

Ability to freeze terrorist assets without delay: NO

UN lists of designated terrorists or terrorist entities distributed to financial institutions: YES

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/s/ct/rls/crt/)

Know-your-customer rules:

Covered entities: Banks, finance companies, insurance companies, exchange houses, stock exchanges and securities dealers, investment companies, trust companies, mutual and pension fund administrators, credit and consumer cooperatives, gaming entities, real estate brokers, nongovernmental organizations, pawn shops, and dealers in precious stones, metals, art, and antiques.

Enhanced due diligence procedures for PEPs: Foreign: NO Domestic: YES

Suspicious transaction reporting requirements:

Covered entities: Banks, finance companies, insurance companies, exchange houses, stock exchanges and securities dealers, investment companies, trust companies, mutual and pension fund administrators, credit and consumer cooperatives, gaming entities, real estate brokers, nongovernmental organizations, pawn shops, and dealers in precious stones, metals, art, and antiques

Number of STRs received and time frame: 781 in 2010

Number of CTRs received and time frame: Not available

Money laundering criminal prosecutions/convictions:

Prosecutions: 9 in 2010

Convictions: 0

Assets forfeited: criminally: Not available civilly: Not available

Records exchange mechanism:

With U.S.: NO

With other governments/jurisdictions: YES

Paraguay is a member of the Financial Action Task Force against Money Laundering in South America (GAFISUD), a Financial Action Task Force-style regional body, of which Paraguay assumed the pro tempore Presidency in December 2010. Its most recent mutual evaluation can be found here: http://www.imf.org/external/pubs/ft/scr/2009/cr09235.pdf

Enforcement and implementation issues and comments:

The GOP took a huge step forward in regard to money laundering in June 2010 when it passed an anti-terrorism law making terrorism financing an illegal act punishable by five to fifteen years in prison.

Paraguay has shown a great deal of cooperation with U.S. law enforcement agencies. In March 2007, U.S. Immigration and Customs Enforcement created a Paraguay-based Trade Transparency Unit (TTU) to aggressively analyze, identify and investigate companies and individuals involved in trade-based money laundering activities between Paraguay and the United States. As a result of the TTU, Paraguay has identified millions of dollars of lost revenue and has helped target a criminal organization accused of supporting a terrorist entity.

Paraguay is a member of the “3 + 1” Security Group with the United States and the Tri-Border Area countries. Paraguayan and U.S. law enforcement agencies cooperate on a case-by-case basis. To date, the Paraguayan financial intelligence unit (FIU) has signed 29 MOUs with other FIUs and is in the process of signing eight more.

Prosecutors handling financial crimes have limited resources to investigate and prosecute. In addition, the selection of judges, prosecutors and public defenders is largely based on politics, nepotism, and influence peddling. The lack of interagency cooperation throughout Paraguay, and particularly within law enforcement, is an impediment to effective enforcement, prosecution, and reporting efforts.

Asset forfeiture legislation is desperately needed in Paraguay. Paraguayan law does not provide for freezing or seizure of many criminally derived assets. Law enforcement can only freeze assets of persons under investigation for a crime in which the state risks loss of revenue from furtherance of a criminal act, such as tax evasion. Enforcement agencies have limited authority to seize or forfeit assets of suspected money launderers. Assets seized or forfeited are limited to transport vehicles, such as planes and cars, and normally do not include bank accounts. When a seizure does occur, law enforcement authorities cannot dispose of these assets until a defendant is convicted. A draft bill requesting power be granted to the Secretariat for the Prevention of Money or Property Laundering (SEPRELAD) to administratively freeze assets without judicial approval is currently being reviewed by the Paraguayan Presidency. However, the administrative freeze would only be temporary unless either extended by a court order, or finalized through a conviction.

The non-bank financial sector operates in a weak regulatory environment with limited supervision. The organization responsible for regulating and supervising credit unions, the National Institute of Cooperatives, lacks the capacity to enforce compliance. Exchange houses are another non-bank sector where enforcement of compliance requirements remains limited.

There are no laws that regulate the amount of currency that can be brought into or out of Paraguay. Required customs declaration reports are seldom checked. Customs operations at the airports or overland entry points provide no control of cross-border cash movements.