VZCZCXYZ0000
OO RUEHWEB

DE RUEHAC #0384/01 1651542
ZNR UUUUU ZZH
O 131542Z JUN 08
FM AMEMBASSY ASUNCION
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6995
INFO RUCNMER/MERCOSUR COLLECTIVE PRIORITY
RUEAWJB/DEPT OF JUSTICE WASHDC
RHMFISS/HQ USSOUTHCOM MIAMI FL
RUEKJCS/SECDEF WASHDC
RHMFISS/USSOCOM MACDILL AFB FL

UNCLAS ASUNCION 000384 
 
SIPDIS 
 
TO INL/LLP ASMITH, DGRAHAM, WHA/BSC KBEAMER 
 
E.O. 12958: N/A 
TAGS: SNAR PGOV PA
SUBJECT: MAJORS LIST SUBMISSION 
 
REF: SECSTATE 29120 
 
 
¶1.  Below find Post's submission on the Government of Paraguay's 
cooperation on counter-narcotics as requested in reftel A. 
 
------------------------- 
Cultivation/eradication 
------------------------- 
 
¶2. The USG asked the GOP to reduce the cultivation of marijuana in 
Paraguay, and to focus eradication efforts in national parks and 
surrounding areas. 
--Paraguay has become the largest producer of cannabis in South 
America, with a high content of tetrahydrocannabinol (THC).  The 
crop is primarily cultivated in the departments of Amambay, San 
Pedro, Canindeyu and Concepcion and it is harvested year round. 
Cannabis production has dramatically increased in recent years, 
spreading to nontraditional rural areas of the country.  There are 
approximately 5,500 hectares (UN and SENAD estimates) of cannabis 
scattered around the country. 
 
--In 2007, SENAD destroyed 1,552 hectares of cannabis.  SENAD has 
made significant advances by increasing the amount of marijuana 
cultivations destroyed and by reaching more remote areas than in 
previous years. 
 
------------------------------- 
Consumption / Demand Reduction 
------------------------------- 
 
¶3. The USG asked the GOP to extend SENAD's Demand Reduction Program 
to Pedro Juan Caballero (PJC) in addition to the Central Department. 
 
 
-- SENAD has the principal coordinating role under the "National 
Program against Drug Abuse" and works with the Ministries of 
Education and Health and several NGOs on demand reduction. 
Unfortunately, SENAD's budget for the Demand Reduction Program is 
very limited, which prevents SENAD from reaching out to more areas 
of the country on its own. SENAD's Prevention Unit does significant 
outreach work primarily in schools in the Central Department. This 
year, SENAD conducted demand reduction activities in PJC with 
positive results. 
 
-- The Prevention Unit held 1,476 workshops in 247 schools reaching 
45,000 people including students, parents and teachers with its drug 
awareness program during 2007. These figures represent an increase 
in comparison to the prior year's statistics, reflecting a 
meaningful GOP effort to increase drug awareness in its population. 
 
 
----------------------------- 
Trafficking and interdiction 
----------------------------- 
 
¶4. The United States Government (USG) asked the GOP to continue to 
keep pressure on major international drug organizations through 
investigations, arrests, and prosecutions of their key members and 
seizures of their assets. 
 
--Paraguay is a major transit country for Andean cocaine destined 
for Brazil, other Southern Cone markets and Europe. According to 
SENAD and DEA Country office, 30-40 MT of cocaine annually transits 
Paraguay's porous borders en route to Brazil and other Southern Cone 
markets as well as to Europe, Africa and the Middle East, where the 
commercialization and/or resale value is much higher.  Paraguayan 
marijuana is also trafficked to Brazil, the Southern Cone, and 
Europe. 
 
--SENAD has taken serious measures to control drugs and their 
negative effects on the general population by going after major drug 
trafficking organizations and their assets.  In 2007, SENAD's drug 
seizures broke all existing records since its creation in 1991. 
SENAD seized 820 kilograms (kg) of cocaine, 100 metric tons (MT) of 
cannabis and 18 vehicles. 
 
--SENAD arrested several well-known drug traffickers, including 
Edmar Dois Rei Almeida, Jesus Hernando Gutierrez and six members of 
his cartel, Jarvis Pavao's stepfather Paulo Larson Dias, and Ronie 
Alves de Campos.  SENAD detained 170 persons and extradited two last 
year. 
 
--SENAD agents arrested Brazilian national Sandro Jose Olivera (AKA 
Gordao) on March 13, 2008, an important member of Commando Vermelho. 
Gordao is wanted by the Brazilian Federal Police for drug 
trafficking and other crimes. He is also the brother-in-law of 
Brazil's most wanted drug trafficker, Fernadinho Beira Mar. Gordao 
ran a trafficking network that supplied the Brazilian interior with 
marijuana. 
 
--Leoncio Mareco, an associate of Ivan Mendez de Mezquita, was 
sentenced to 20 years in prison in August 2007 for drug trafficking 
and money laundering.  His wife, Zulma Rios de Mareco, was sentenced 
to 10 years in prison for money laundering. (NOTE: Both sentences 
have been appealed, which is the most common tool used by drug 
traffickers and corrupt official to avoid the weak judicial system. 
END NOTE). 
 
--Despite SENAD's efforts, the Government of Paraguay's (GOP) 
ability to prosecute and fight transnational and organized crime is 
hampered by resource constraints, competing government priorities, 
weak laws and pervasive public sector corruption.  SENAD's total 
budget is $1.5 million, of which only $150,000 is allocated to 
counter-narcotics operations, while the rest covers salaries and 
administrative expenses.  The Fernando Lugo administration, which 
will take office August 15, should allocate additional resources to 
law enforcement agencies and implement legal tools to facilitate 
investigations, the seizure and forfeiture of assets and prosecution 
of major offenders. 
 
¶5.  The USG asked the GOP to expand SENAD's operations in Ciudad del 
Este (CDE) in the tri-border area, to emulate its success in Pedro 
Juan Caballero (PJC) and to increase efforts to shut down 
clandestine airstrips in the Chaco region that are used by drug 
traffickers. 
 
-- INL funding permitted SENAD to open a Canine Unit at the airport 
in Ciudad del Este in 2007.  It houses three officers and one dog; 
they screen airport passengers and cargo for illegal drugs. 
 
-- SENAD opened a new base in PJC in August 2006 on Paraguay's 
border with Brazil, an area notorious for drug trafficking and other 
illegal activities. The base allows SENAD to assign upwards of 25 
agents to a region which was previously "off limits" to law 
enforcement personnel because of corruption and lack of state 
presence. The U.S. provided USD 500,000 to complete this facility to 
include the construction of a helicopter pad and support facilities. 
This new facility greatly enhanced SENAD's capability to launch 
effective operations targeting major traffickers and their 
activities in the region. 
 
-- SENAD has identified a number of airstrips in the Chaco region 
used by narcotraffickers.  These airstrips are currently under 
surveillance by SENAD, and several important arrests and seizures 
have been made in the region. 
 
¶6. The USG asked the GOP to provide adequate funding for SENAD, so 
that it can continue to execute its responsibilities and conduct 
operations against major narcotics traffickers. 
 
-- The Paraguayan Congress' decision in 2007 to provide expanded 
funding for SENAD to hire 50 new SENAD agents represented an 
important milestone.  The newly hired Special Agents are working in 
different sections of SENAD and completed DEA training in January 
¶2008.  SENAD continues to operate on limited funding for helicopter 
fuel and is unable to expand its operations throughout the country 
due to budget constraints.  SENAD continues to request that the 
Paraguayan Congress provide it with additional funding. 
 
--------------------- 
Precursor chemicals 
--------------------- 
 
¶7. The USG asked the GOP to regulate the importation of pseudo 
ephedrine, and to improve the law enforcement efforts for other 
cocaine precursor chemicals. 
 
-- Paraguay has a chemical control law. However, enforcement is 
weak.  SENAD and the Health Department have limited resources to 
enforce the law throughout the country, but strictly regulate 
individuals or companies obtaining precursor chemical permits. 
 
-- The GOP through SENAD and the Department of Health also regulates 
the importation of pseudo ephedrine.  Violators can be charged with 
illegal importation of controlled substances and other related 
crimes, such as tax evasion, and can face sentences of five or up to 
ten years in jail. 
 
-- DEA is noting an emerging trend in ephedrine/psuedoephedrine 
production and trafficking in Paraguay.  SENAD made two important 
seizures of ephedrine destined for Mexico in May-June in Asuncion. 
----------------- 
Money Laundering 
----------------- 
 
¶8. The USG asked the GOP to allocate additional financial and human 
resources to SEPRELAD's FIU, SENAD's UIDF, and the Attorney 
General's Office (Fiscalia), to enable them to effectively 
investigate and prosecute money laundering, terrorist financing and 
other financial crimes. 
 
-- The Fiscalia incorporated their Economic Crimes Unit and their 
Public Corruption Unit into one unit, and then in 2007 added three 
financial crimes prosecutors.  This allowed for additional 
prosecutors to engage in cases involving money laundering.  These 
prosecutors will need to be trained in the prosecution of economic 
crimes, particularly under the new penal code which will enter into 
force in 2009. 
 
¶9. The USG asked the GOP to apply other initiatives that would 
improve the effectiveness of the GOP's anti-money laundering regime 
including: conducting outreach activities to sensitize financial 
institutions about reporting requirements and improving coordination 
and information sharing protocols between the SEPRELAD FIU, the 
SENAD UIDF and the Public Ministry that prevent compromise of 
law-enforcement-sensitive information. 
 
--Bank secrecy laws in Paraguay do not prevent banks and financial 
institutions from disclosing information to bank supervisors and law 
enforcement entities. Bankers and others are protected under the 
anti-money laundering law with respect to their cooperation with law 
enforcement agencies. The Superintendence of Banks enforces these 
reporting obligations for banks, but they are not enforced for other 
financial institutions. In November 2007, the Ministry of Industry 
and Commerce issued new regulations that define reporting 
requirements and sanctions for noncompliance for the insurance 
industry and credit unions. 
 
--In recent years, the GOP has made significant efforts to 
strengthen it anti-money laundering secretariat (SEPRELAD), but weak 
leadership and suspicious activity caused SEPRELAD to falter in the 
first half of 2007.  Since August 2007, when Gabriel Gonzalez became 
its new director, SEPRELAD made significant progress.  SEPRELAD has 
sought to improve information sharing with other financial 
intelligence units and has signed agreements for information 
exchange with regional FIUs. In addition, Gonzalez is working on 
creating information sharing mechanisms for Paraguayan law 
enforcement agencies. 
 
--SEPRELAD entered a backlog of 3,000 Suspicious Activity Reports 
(SARS) since August 2007.  It also hired several new analysts, who 
have been vetted and trained.  SEPRELAD incorporated information 
from the Trade Transparency Unit (TTU) into its analyses of 
discrepancies in trade data that could be indicative of customs or 
tax fraud, trade-based money laundering, or terrorist financing. 
 
 
¶10.  The USG asked the GOP to control the movement of bulk cash 
across its borders as it is another key issue that calls for greater 
active involvement by the GOP. 
 
--Although the airlines give out forms upon entry into Paraguay to 
declare cash, the government does not utilize the forms.  Customs 
does not enforce the administrative law that requires the reporting 
of cash brought into or taken out of Paraguay. 
 
 
¶11.  We asked the GOP to refocus SEPRELAD into a more effective and 
efficient organization, providing it with greater independence and a 
new bureaucratic structure. 
 
--The Government of Paraguay took a number of positive steps in 2007 
to combat money laundering, particularly with the passage of the new 
penal code and the GOP's money laundering convictions. However, it 
should continue to pursue other initiatives to increase its 
effectiveness in combating money laundering and terrorist financing. 
Most important is passage of terrorist finance legislation that 
brings Paraguay into compliance with its international obligations. 
 
¶12.  We asked the GOP to ensure SEPRELAD received adequate financial 
and human resources to operate as an effective and fully functioning 
FIU. 
 
--SEPRELAD continues to lack adequate financial and human resources 
to operate as an effective and fully functioning FIU. Paraguay will 
be suspended from the Egmont Group in June 2008 without terrorist 
finance legislation, and narrowly escaped expulsion from the 
Financial Action Task Force for South America (GAFISUD) due to a 
failure to pay USD 76,000 in membership dues.  In December 2007, 
SEPRELAD made a partial payment of its membership dues.  In 
February, the GOP paid its dues in full and incorporated its dues 
into SEPRELAD's annual budget.  The GAFISUD payment was a positive 
sign that the GOP is concerned about meeting its international 
obligations. 
 
-------------------- 
Legislative Measures 
-------------------- 
 
¶13.  The USG asked the GOP to adopt an anti-money laundering and 
anti-terrorist financing legislation in order to meet its 
international obligations. 
 
--Congress passed a new penal code amending 70 criminal statutes in 
December 2007, which includes a new money laundering statute which 
makes money laundering an autonomous crime punishable by up to five 
years in prison.  President Duarte vetoed three statutes of the 
penal code, which is now again pending in Congress for final 
approval.  The new laws, including the money laundering statute, 
will go into effect one year from the date of Congress' final 
approval.  Prosecutors will need training on the effective use of 
the new money laundering statute. 
 
--Paraguayan authorities have also drafted a new criminal procedures 
code. These revisions will help move their judicial system toward a 
true oral system instead of the current hybrid 
accusatory-inquisitive mix which has been shown to be ineffective. 
 
-- The three new investigative units within the Ministry of Finance 
are using the tools they have at hand to investigate violations of 
Paraguayan law.  Tax, customs, unjust enrichment, and public 
corruption cases are being referred to the Public Ministry for 
prosecution. 
 
------------------- 
Official Corruption 
------------------- 
 
¶14. The USG asked the GOP to take active measures to rid the ranks 
of law enforcement of prosecutors and judges suspected of having 
links to drug traffickers, money launderers and others who commit 
drug related crimes. 
 
-- There is no evidence that the government or any senior official 
facilitates the distribution or production of narcotics or other 
controlled substances.  Nevertheless, corruption and inefficiency 
within the Paraguayan National Police (PNP) and the judicial system 
negatively affects SENAD operations. Combating official corruption 
remains a considerable challenge for the GOP. 
 
-- The Lugo administration should take serious measures to enable 
effective investigations leading to the arrest and prosecution of 
major drug traffickers and corrupt officials.  Many arrests are 
made, but many cases are dismissed on technical grounds (e.g., 
expiration of a statute of limitations) or on appeal.  For example, 
Christian Villalta was sentenced on drug charges in June 2006 for 
cocaine trafficking, but he was released on technical grounds; he 
served less than three years of his sentence.  (NOTE: Villalta was 
the son of Faustino Villalta, the Colorado party leader in PJC and a 
defense attorney for drug traffickers, who was shot and killed by 
gunman in front of his house in October 2006. END NOTE). In another 
case, Roberto Carlos Benitez Salinas, Mendes Mesquita's accountant, 
was recaptured by the Argentinean authorities and extradited to 
Paraguay after he escaped Paraguayan law enforcement a few years 
ago. Benitez is now being charged with money laundering USD 15 
million.  Notwithstanding Benitez' previous flight from authorities, 
the court set a low bail for him.  (NOTE: The prosecutor appealed 
the low bail, and while the case risked dismissal due to an expiring 
statute of limitations, trial is now scheduled to begin August 4. 
END NOTE). These cases demonstrate judicial corruption that plagues 
Paraguay's counternarcotics efforts.  Additionally, several 
anti-corruption prosecutors opened cases against government 
officials last year which were impeded by corruption and 
inefficiency which frequently resulted in dismissals on technical 
grounds. 
 
 
¶15. We have asked the GOP to address illegal activities in the 
customs service and Finance Ministry (tax authority). 
 
-- In 2006 and in 2007, under the MCC Threshold Program, Paraguayan 
authorities in the Finance Ministry and customs agency conducted 
internal investigations of improper conduct. Over 80 cases were 
referred to the Public Ministry for prosecution.  Members of 
USG-supported units voluntarily took polygraph tests which 
demonstrated their political will and cooperation to root out 
corruption. 
 
CASON