PARAGUAY: TRIAL SET FOR SUSPECTED TERRORIST

S E C R E T SECTION 01 OF 02 ASUNCION 001261

SIPDIS

STATE FOR S/CT
NSC FOR SUE CRONIN
TREASURY FOR OSIA MAUREEN WAFER
TREASURY FOR OTA WARFIELD, VAN KOCH, MILLAR
SOUTHCOM FOR POLAD DAN JOHNSON

E.O. 12958: DNG: CO OADR
TAGS: PTER PGOV KCRM KTFN ETTC PA
SUBJECT: PARAGUAY: TRIAL SET FOR SUSPECTED TERRORIST
FINANCIER HIJAZI


Classified By: Susan S. Sutter for reasons 1.4 (b) and (d).


1. (C) SUMMARY: Paraguayan courts will summon indicted
Lebanese businessman, Kassem Hijazi, who is charged with tax
evasion, criminal association, and violating accounting
regulations, to a preliminary oral hearing on October 25.
Because back taxes, interest, and fines could surpass USD 7
million, Hijazi could face a 10-year jail term if convicted
on the tax evasion charges. Hijazi, while not formally
charged with money laundering, is also suspected to have
laundered millions of dollars of profits stemming from
illicit activities in Ciudad del Este through money exchange
houses. A portion of these funds also is suspected to
support Lebanese Hizbollah activities. While Paraguayan
prosecutors originally sought money laundering charges
against Hijazi, to date no one has even been convicted of
money laundering in Paraguay, due to a deficient legal
framework. END SUMMARY.

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How Hijazi Operated
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2. (S/NF) Kassem Mohammad Hijazi is a Brazilian citizen of
Lebanese descent who owned a pawn shop, which he illegally
operated as a money exchange house known as "Telefax
Prestamos Prendarios" in Ciudad del Este (CDE),Paraguay
(located on the tri-border area of Brazil, Paraguay and
Argentina). Prosecutors on the case believe Hijazi illicitly
transported money via wire transfers to the United States,
the West Bank and Gaza, Lebanon, China, Chile, Taiwan and
Panama through a number of money exchange houses. According
to press reporting and conversations with the prosecutors on
the case, Hijazi laundered money for individuals involved in
illegal activities in the tri-border area such as smuggling,
piracy, tax evasion, and fees paid to mafia groups.
Sensitive reporting and press also indicate that Hijazi took
a portion of the laundered funds to support Lebanese
Hizbollah activities. Local media reported that millions of
dollars were sent through Hijazi to several banks in Beirut
controlled by Hizbollah. USG organizations know Hijazi to be
a principle Hizbollah fundraiser and activist and to support
Hizbollah terrorist-related activities. Aldolfo Marin, one of
the Paraguayan prosecutors of the case, noted to POLOFFS that
documents confirm Hijazi,s authentic signature authorizing
the transfer of USD 10.2 million from the total USD 65
million authorized by Hijazi (sometimes with false
signatures) that was transferred from exchange houses in
Ciudad del Este between October 2001 and December 2003. In
June 2005, Brazilian Federal Police also opened an
investigation into Hijazi,s money laundering operations in
the tri-border area.

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The Case Against Hijazi
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3. (C) Under pressure by Brazilian authorities, Paraguayan
officials arrested Hijazi in March 2004 in his clandestine
exchange house in Ciudad del Este and accused him of money
laundering. On February 8, 2005, prosecutors formally
charged Hijazi with the lesser crimes of tax evasion and
false documentation of commercial records. Although money
laundering in the case was evident, prosecutors lacked
sufficient evidence to make a legal case for his involvement,
largely due to the lack of evidence linking Hijazi to
predicate crimes, and therefore dropped the money laundering
charges. According to Paraguayan law, because back taxes,
interest, and fines could surpass USD 7 million, Hijazi could
face a 10-year jail term if convicted on the tax evasion
charges. At present, Hijazi remains free on bail, but he
must check in weekly with authorities and cannot leave
Paraguay. His case will appear before court for a
preliminary oral hearing on October 25, 2005. Currently,
there is no prosecutor assigned to the case, as Aldolfo Marin
recently resigned from the Public Ministry and Juan Carlos
Duarte relocated to another district. Agosto Mengual, expert
witness for the case, expressed his concern to POLOFF that if
no prosecutor is assigned to the case, the preliminary
hearing may be pushed back to February 2006.


4. (C) Local press has widely covered the investigation of
the case against Hijazi and the prosecutors involved. In an
attempt to protect Hijazi and discredit the prosecutors, some
press articles criticized the work of prosecutors Marin and
Duarte, accusing them of corruption and bribery. According
to the media, the prosecutors relied on the opinion of expert
witness Mengual, who found that Hijazi had evaded USD 3.8
million in taxes and ignored the reports of two other
experts, who found that Hijazi made daily suspicious deposits
of USD 10,000 and may have laundered up to USD 32 million.
Both prosecutors told POLOFF they never received a report
from the other experts, and therefore had to rely only on the
report filed by Mengual. (COMMENT: In the past, USG
officials have relied on Mengual for information relating to
this case with some level of confidence. END COMMENT.) (NOTE:
The role of the expert or "perito" in the Paraguayan
judicial system is to not only testify during the trial, but
also to investigate volumes of evidence and determine any
involvement of the defendant in the case. Oftentimes, the
perito is a banking expert or businessman; however, these
experts may have little understanding of the Paraguayan
criminal law or judicial system. END NOTE.)

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A Second Pending Case
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5. (C) In a separate case, prosecutors announced in
February 2005 that they would investigate 113 Ciudad del Este
businesses linked to the transfers made by Hijazi through the
money exchange house, Tupe Cambios, including 46 individuals,
of which 36 are of Arab descent and 10 are Paraguayan. These
individuals claimed to prosecutors that they loaned Hijazi
money, but were actually lending their signatures on
documents helping Hijazi evade taxes. Prosecutors charged
the 46 "name lenders" with criminal association and
obstruction of an investigation. This case is currently
before the Supreme Court,s Constitutional Chamber, where
prosecutors have until February 2009 to bring the case to an
oral trial, according to Paraguayan law.

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An Uphill Battle Against Money Laundering Prosecutions
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6. (C) Paraguay is a principal money laundering center.
Although no figures are known, Paraguayan Government
officials suspect criminals, drug traffickers, and terrorist
financiers use a range of illicit and licit activities to
launder funds. Paraguay still lacks sufficient capacity for
the enforcement, investigation and prosecution of criminal
offenses for money laundering cases. In fact, to date no
individuals have been convicted of money laundering, and many
only receive convictions for lesser crimes like tax evasion.
Adoption and implementation of a new money laundering law
that is currently before Congress will provide GOP
authorities with the necessary resources and mechanisms
essential for proper investigation and law enforcement.
Washington may wish to use the information contained in this
cable when considering designating Hijazi a terrorist
financier and/or money launder.
KEANE