PARAGUAY'S FY 2007 BUDGET REQUEST

UNCLAS SECTION 01 OF 06 ASUNCION 000488

SIPDIS

PASS TO INL ABBY SMITH

E.O. 12958: N/A
TAGS: ABUD AFIN SNAR KCRM PA
SUBJECT: PARAGUAY'S FY 2007 BUDGET REQUEST

REF: SECSTATE 27067


I. PROGRAM SUMMARY

Paraguay is a transit country for roughly 40-60 metric tons
of Andean cocaine en route to Brazil, Europe, the Middle
East, and the United States. Paraguay is also a source
country for high-quality marijuana consumed largely in Brazil
and Argentina. Paraguay is a principal money laundering
center, but there is no evidence as to what percentage is
drug-related. The multi-billion dollar re-export contraband
trade centered in Ciudad del Este facilitates money
laundering. The narcotics trade and money laundering have a
direct negative impact on USG political, economic and
security interests, particularly as a possible source of
terrorist financial support through the Tri-border region.
They also pose a continued threat to Paraguay's fragile civil
institutions, democratic order, and economic well-being.
Despite notable efforts by President Nicanor Duarte to combat
corruption, it remains embedded throughout the Paraguayan
government, judiciary, and economy.

As outlined in the Mission's MPP, the work plan for FY 2007
and beyond is designed to focus our limited assets on
strengthening the GOP's capability to disrupt cocaine
trafficking operations, pursue and arrest high-level
narcotics traffickers, and to combat money laundering. Our
goal continues to be working with the Anti-Narcotics
Secretariat (SENAD) and the Financial Analysis Unit (FAU) of

SIPDIS
the Anti-Money Laundering Secretariat (SEPRELAD) and SENAD's
Financial Crime's Unit (UIDF) to strengthen narcotics and
money laundering investigations, arrests and prosecutions.
Indicators of success feature prosecution of major narcotics
cases, the implementation of a special communications
program, and a notable reduction in the cocaine flowing
through Paraguay.

SENAD continues to work closely with DEA and SEPRELAD's FAU
to combat money laundering and piracy through new efforts to
change existing money laundering laws and to provide
training. A U.S. Department of Justice (DOJ) Resident Legal
Advisor (RLA),detailed to Post in June 2003, has assisted
the GOP in drafting a new money laundering law and is working
on developing the skills of prosecutors. A Department of
Treasury (DOT) Resident Enforcement Advisor (REA) was
assigned to the Embassy in 2004 to assess training and other
needs of SEPRELAD -- Paraguay's FIU -- to help mount an
effective anti-money laundering mechanism. Indicators of
success include passage and enforcement of the new money
laundering law and obtaining convictions in money laundering
cases.

Paraguay has made significant strides to professionalize its
anti-drug enforcement agency and improve its ability to
conduct complex operations based on intelligence. In
November 2004, cooperation between Brazil and Paraguay
produced the arrest of Carlos Mendes-Mesquita, a major
narcotrafficker of the Beira-Mar drug trafficking
organization tied to Colombia's FARC and wanted in the U.S.
as well as the seizure of 262 kilograms of cocaine - historic
by Paraguayan standards. Similar cooperation throughout 2004
enabled Paraguay to extradite to Brazil five additional
high-profile narcotraffickers. In January 2005, Paraguay
arrested Nilton Cesar Atunez, another notorious Brazilian
trafficker associated with the Beira Mar organization and
seized 103 kilograms. These arrests demonstrate an increased
ability and disposition on the part of SENAD to undertake
effective investigations of major drug traffickers, often in
collaboration with Brazilian counterparts.

SENAD is at a critical point in its development and is
demonstrating increasing will and ability to do the right
thing. The removal of all police from SENAD has transformed
it into a genuinely autonomous unit free of the corrupting
influence of the National Police. The addition of over sixty
new agents into the semi-vetted unit provides SENAD with the
additional manpower required to increase operations against
narcotraffickers. In addition, SENAD recently requested and
received approval from the President to hire another fifty
new agents that will also become part of the semi-vetted unit
and signals the GOP's commitment to dedicate increased
resources to combat drug trafficking. SENAD will need USG
support to polygraph and train the new recruits as well as to
provide bonus payments and increased funding for operations.

Post appreciates the challenge Washington faces in deciding
how to allocate a diminishing pool of resources allocated to
the Latin American regional account. Our budget submission
represents an appreciation for this reality and reflects a
consideration of pipeline funds. A comparison with our
submission from prior years will reveal we have significantly
reduced our request for funds. Nevertheless, USG funding in
several key areas remains crucial for Paraguay to build on
its progress in combating narcotics trafficking.
Notwithstanding our assertions to the contrary, the GOP will
interpret a cut in funding as a political statement signaling
U.S. dissatisfaction with GOP efforts and a lack of U.S.
commitment to GOP programs. More substantively, a cut in
funding will undercut SENAD's ability to sustain its
stepped-up effort to stem trafficking activities.

II. PROJECT DESCRIPTIONS: Under the FY07 Mission Performance
Plan (MPP) Performance Goal of Disruption of Criminal
Organizations, Post aims to to enhance Paraguayan law
enforcement institutions that counter transnational crime
harmful to U.S. national interests, including drug
trafficking, money laundering, IPR violations, and TIP.


A. Project Title: Institutionalize GOP anti-narcotics
Capabilities.


B. Project Description: This project involves continued
support of the SENAD's semi-vetted investigative unit which
was recently expanded by over sixty agents as mentioned
above. Additional growth is expected in 2005 with the hiring
of fifty new agents who will also be brought into the
semi-vetted unit. These field agents are located in four
regional offices, assigned to conduct investigations of, and
carry out operations against, suspected drug traffickers.
Funding will be used to purchase upgraded computers and
create and install a centralized database for storing,
retrieving, and analyzing narcotics intelligence. We will
also use funds to provide several training courses including
firearms identification, OPDAT training for judges and
attorneys, report writing and evidence handling, and the
provision of an intensive three-week drug investigation
course for all agents. The broader goal of identifying,
arresting and prosecuting traffickers and money launderers is
also supported through related projects such as training,
equipment and commodities, operational support and the
narcotics detection canine program.


C. Resources Requested: USD 205,000


D. Resource Justification: With the assistance of DEA and
thanks to INL funding, SENAD has taken significant strides
toward strenghtening its institutional capacity to combat
narcotics trafficking throughout the country. It has
signficantly enhanced the number of agents who have taken
polygraph exams and been assigned to one of the four regional
offices. In addition, the continued purchase and training of
new canine units have helped to increase overall cocaine
seizures for the past three years. This project will enhance
efficiency and provide critical information for the
investigation of narcotics traffickers. It will strengthen
the ability of SENAD to conduct investigations and serve to
professionalize law enforcement officials. GOP does not have
the resources to carry out these essential activities.
Failure to meet these resource requirements with impact
negatively on the ability of the GOP to conduct operations
and make seizures.


E. Performance Measurements: 10% increase in the number of
narcotics cases successfully prosecuted, 10% increase in the
number of operations successfully executed.


F. Sustainability: Currently, the GOP lacks the ability to
polygraph its agents and the funds to compensate them
properly. It also does not have sufficient funding to
purchase equipment and train its law enforcement and judicial
sector personnel. Ultimately, dedication of funds obtained
from sale of seized assets should help the GOP meet more of
its resource requirements. Train the trainer programs will
enable the GOP to better meet future training needs.


G. Evaluation Plan: DEA and GOP statistics on
investigations and seizures.

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A. Project Title: Control Money Laundering and Financial
Crime


B. Project Description: INL funds continue to provide
training and equipment for the SEPRELAD's FAU, which is
responsible for processing suspicious activity reports, the
SENAD's UIDF which conducts criminal investigations of
suspected drug-related money laundering cases, as well as
other judicial sector officials involved in prosecuting money
laundering cases. Complete and informative suspicious
activity reports and thorough investigations are critical for
the preparation of successful prosecution of money laundering
cases. The Duarte Administration has increased SEPRELAD's
budget by 500 percent, providing it with sufficient resources
to dismiss analysts hired by a previous director, who left
under suspicion of corruption, and to hire new employees, and
move into more secure quarters. The Treasury Resident
Enforcement Advisor (REA) will work with the director to
increase reporting of suspicious activities and will assist
in training the new analysts. OPDAT may share training
expenses. The expected increase in activity will require an
expanded computer infrastructure, the purchase of vehicles,
and equipment for the SEPRELAD and SENAD teams.


C. Resources Requested: USD 50,000


D. Resource Justification: Funding will be used to provide
equipment and training for SENAD's UIDF and SEPRELAD's FAU to
enhance their capacity for collecting and analyzing
suspicious activity reports and other intelligence received
from financial institutions and obligated entities and for
conducting criminal investigations of suspected money
laundering violations. It will also be used to train
prosecutors and judges in prosecuting money laundreing cases.
Ultimately, the goal is to create an effective anti-money
laundering mechanism that will eventually draw in
professional organizations, and Customs and border control
officials. SEPRELAD has taken significant steps to hire
professional analysts and establish respectable operating
procedures to analyze cases. However, its analysts and
investigators of finanancial crimes from other GOP agencies
require specialized training in the entire conduct of
investigation from analysis of SARs to prosecution of
defendants. The U.S. is the only entity capable of providing
this kind of training. Without it, the GOP's ability to
investigate and prosecute money laundering cases will be
significantly hampered.


E. Performance Measurements: The goal of this project is to
develop cases actually investigated through Resident
Enforcement and Legal Advisor-led training, and coalition
building among financial institutions and investigative
units. Progress toward achievement of the project will be
measured in terms of the number of successful prosecutions of
money laundering cases presented to the Attorney General's
Office.


F. Sustainability: The GOP's ability to secure funds seized
in assets will impact significantly its capacity to meet
future training requirements. Train the trainer programs
will also address sustainability requirements.


G. Evaluation Plan: GOP statistics.

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A. Project Title: Demand Reduction Assistance


B. Project Description: This project is focused on
expanding current efforts to educate school-aged children on
the dangers of illegal use of drugs. The funds requested are
directed primarily toward SENAD's school and
neighborhood-based prevention programs, and to possible
support for the creation and airing of public service
announcements (PSAs.) Plans for this year involve expanding
the program to reach children, parents, and teachers within
Asuncion and in remote areas of the country.


C. Resources Requested: USD 30,000


D. Resource Justification: Public awareness of the
seriousness of drug use in Paraguay will help build public
support for GOP anti-narcotics interdiction and production
programs. It will also educate children, parents, and
teachers about the dangers of drug abuse. Much research has
shown effective programs to prevent first use of drugs by
youth are critical to reducing the number of adults who
consume and abuse drugs.


E. Performance Measurements: Receipt of demand reduction
courses by at least 50% of the students attending schools in
Asuncion, and a 10% decrease in instances of narcotics abuse
in targeted areas, as measured by surveys and statistical
data. Greater public awareness (particularly by school-aged
children) as measured by reliable polls on the dangers posed
by drug use and the drug trade to Paraguayan society.


F. Sustainability: Historically, the GOP has dedicated few
resources to programs aimed at reducing demand. It may be
necessary for other governments or NGO's to meet resource
requirements absent U.S. funding.


G. Evaluation Plan: GOP statistics.

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Project Title: JIATF South - Embassy Conops

Project Description: JIATF South and the Embassy have
elaborated a plan to enhance support for GOP interdiction
efforts in collobaration with USG agencies. The plan
includes eventual use of radar or other intelligence assets,
such as air surveillance platforms that would lend us more
insight in air traffic of drugs, particularly in the Chaco
region. The plan also calls for providing the GOP
assistance in maintaining the two helicopters the GOP relies
upon to conduct operations. This project would provide the
necessary funds to meet fuel storage, transport and
procurement requirements for these helicopters.

Resources Requested: USD 120,000

Resource Justification: Much of the trafficking of drugs in
Paraguay centers upon the Chaco, an area the size of Arizona.
The Chaco is highly remote and the lack of any radar in
Paraguay provides traffickers with an expansive corridor for
moving cocaine through the region. Helicopter coverage is
vital for conducting operations in this harsh terrain where
passable roads are few and distances great. The cost of
helicopter fuel is prohibitive for the GOP. These funds are
critical for making the JIATF South-Embassy Conops
operational and effective.

Performance Measurements: Increase in operations conducted
with helicopter support; increase in number of traffickers
seized as a result of these operations.

Sustainability: The GOP will be able to rely on sale of
assets for meeting future resource requirements.

Evaluation Plan: GOP Statistics.

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Project Title: Culture of Lawfulness

Project Description: This project would foster a culture of
lawfulness to counter the culture of corruption that prevails
in Paraguay through programs focused on schools and civil
society. The project's core would be integrated into the
curriculum of targeted schools to ensure community buy in and
long term impact. Separately, the project would identify NGO
partners for community-based efforts particularly focused on
identifying future leaders of the private and public sector.

Resources Requested: $50,000

Resource Justification: Corruption is endemic in Paraguay.
According to Transparency International's most recent survey,
Paraguay ranked as the second most corrupt country in South
America and the Caribbean after Haiti, and the sixth worst in
the world. There are many reasons for this problem and the
Duarte government has adopted several reforms to deal with
it. However, much of the problem resides in cultural
attitudes towards corruption that foster and sanction its
practice. Until the society as a whole embraces a culture of
lawfulness that views corruption as not only illegal but
morally wrong and the cause of Paraguay's poverty , it will
remain difficult to transform Paraguay's longterm record and
develop deeply rooted institutions. In a society where
corruption is the norm, Paraguay could benefit significantly
from such a program geared towards education on the benefits
of lawfulness. Funds would be used towards development of an
education campaign, similar to the demand reduction program,
focused on school-aged children, their parents and teachers.
Also, the development of Public Service Announcements on
anti-corruption could target all levels of society.

Performance Measurements: Number of participants in the
program; change in attitudes of participants about corruption
per polling.

Sustainability: National and local authorities would be
required to commit their own resources for continuation of
the project.

Evaluation Plan: GOP and USG statistics.


III. RESOURCE TABLES


A. PROJECT RESOURCE REQUEST TABLE - BY COST COMPONENT

Project 1 - Strengthening Host Country Enforcement Capability

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Cost Component FY04 FY05 FY06 FY07 FY08

Operational 262.2 130 100 100 100
Support

Equipment and 274.5 100 100 80 80
Commodities

Training 46.8 30 25 20 15

Canine Program 30 30 20 20 20

Total Project 613.5 250 245 220 215
Request


Project 2 - Money laundering and financial crimes

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Cost Component FY04 FY05 FY06 FY07 FY08

Commodities 94 30 30 30 30

Training 100 20 20 20 20

Total Project
Request 194 50 50 50 50


Project 3 - Demand reduction assistance

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Cost Component FY04 FY05 FY06 FY07 FY08

Commodities 2.3 5 5 5 5

Training 20 25 25 25 25

Total Project
Request 22.3 30 30 30 30


Project 4 - ODC concept of operations

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Cost Component FY04 FY05 FY06 FY07 FY08

Commodities 100 130 120 100



Project 5 - Culture of lawfulness

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Cost Component FY04 FY05 FY06 FY07 FY08

Commodities 10 10 10 10

Training 20 30 30 20








B. PROGRAM DEVELOPMENT AND SUPPORT TABLE - BY OBJECT CLASS

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Object Class FY04 FY05 FY06 FY07 FY08

Salaries 40 54 54 54 54

Awards 0 0 0 0 0

Commodities 3.5 6 2 2 2

Training/
Travel 12 6 6 6 6

ICASS 23.4 40.5 45 50 50

Total 78.9 101.1 107 112 112




C. SUMMARY TABLE

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Project FY04 FY05 FY06 FY07 FY08

Project 1 613.5 290 245 230 215

Project 2 194 50 50 50 50

Project 3 22.3 30 30 30 30

Project 4 100 130 120 100
Project 5 30 40 40 30
PD&S 78.9 101.1 107 112 112

Subtotal
(without PD&S) 848.1 601.1 602 582 537

Total 927.1 500 495 470 425



D. RESOURCE ALLOCATION TABLES


1) ALLOCATION BY FUNCTIONAL ACTIVITY

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Category FY04 FY05 FY06 FY07 FY08

-- Institutionalize
GOP anti-drug
capabilities 778.1 421.1 422 382 337

-- Demand Reduction
Assistance 20 30 30 30 30

-- JIATF Conop
Support 100 130 120 100

Subtotal 868.1 551.1 582 532 467


Transnational
Crime

-- Control M/L 50 50 50 50 50


Rule of Law

-- Culture of
lawfulness 30 40 40 30


2) COST ALLOCATION BY TARGET DRUG

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Drug FY04 FY05 FY06 FY07 FY08

Cocaine $830.8K 581.1 582 562 517

Marijuana $17.3K 20 20 20 20

Total $848.1K 601.1 602 582 537
KEANE