PARAGUAYAN PRESIDENTS' CORRUPTION CASES HIGHLIGHT

C O N F I D E N T I A L ASUNCION 001275

SIPDIS

SIPDIS

E.O. 12958: DECL: 12/07/2026
TAGS: PGOV ECON KCRM KCOR PREL PINR PA
SUBJECT: PARAGUAYAN PRESIDENTS' CORRUPTION CASES HIGHLIGHT
IMPUNITY


Classified By: DCM Michael J. Fitzpatrick; Reasons 1.4(b),(d)


1. (U) SUMMARY: Seventeen years into its transition to
democracy, respect for the rule of law remains an elusive
ideal for the Paraguayan justice system. All three of
Paraguay's former Presidents in the post-Stroessner era are
in various stages of the legal process for multiple financial
crimes mostly tied to corruption. They have proven adept at
manipulating Paraguay's judicial system, drawing on their
wealth and influence. A recent USAID and the University of
Asuncion report highlighted excessive delays in economic
crime and corruption cases, which usually end without
resolution when the statute of limitations expires.
Paraguayans regularly identify the judiciary as one of the
most corrupt institutions in the country. Paraguay's MCA
program is rightly focused on combating impunity. However,
until Paraguay can effectively apply justice to the rich and
powerful and institute genuine respect for rule of law, its
transition to democracy will remain egregiously incomplete --
and thus at risk. END SUMMARY.

WASMOSY DECISION ON HOLD FOR TWO YEARS
======================================

2. (C) Corruption was a hallmark of the Stroessner
dictatorship (1954-1989) serving as a tool for the dictator,
to curry favor and wield influence over key political and
economic players. General Rodriguez, interim President from
1989 until Paraguay's first post-Stroessner election, was
widely accused of corruption and links to drug trafficking.
Unfortunately, Paraguay's first civilian-elected President in
the post-Stroessner era, Juan Carlos Wasmosy (1993-1998),did
not usher in a new era of "clean" government. Accused of
having authorized irregular financial relief for a local bank
that did not meet the minimum requirements for that
assistance, Wasmosy was convicted for fraud and sentenced to
four years in prison in 2002. This conviction was
subsequently overturned by the Appellate Court and the
prosecution's appeal to the Supreme Court is about to enter
its third year without a decision. Rene Fernandez,
prosecutor in the Economic Crimes and Corruption Unit in the
Attorney General's Office, blamed "pure politics" for the
courts' failure to deliver and stand firm on a guilty
verdict. The Supreme Court is dominated by judges aligned
with the ruling Colorado Party, many of whose key leaders do
not want to see Wasmosy's conviction reinstated.

CUBAS CASES: SEVEN YEARS AND COUNTING
=====================================

3. (C) Three criminal cases against former President Raul
Cubas (August 1998 - March 1999) remain caught up in legal
procedures. Cubas was forced out of office and fled to
Brazil in the wake of the assassination of Vice President
Argana and the subsequent killing of seven student
protesters. The original charges against Cubas include
obstruction of justice (connected to freeing his patron, the
coup-plotting General Lino Oviedo, from prison); breach of
trust (connected to a withdrawal of some 2 billion guaranis
(approximately USD 370,370) from government reserve funds);
and manslaughter (for the death of VP Argana and the seven
students in 1999). Cubas was arrested and confined to
several months of pre-trail detention when he returned to
Paraguay in 2002. Ultimately, he was released on bail but is
not allowed to leave Paraguay. As the case against Cubas
originated under the old Criminal Procedure Code, no statute
of limit applies though historically cases are considered
effectively dead after 10 years. Cubas' daughter was
kidnapped in 2004 and found killed in 2005. (NOTE: As if to
highlight that Paraguayan justice can be both swift and
severe when there is sufficient political will, leftists from
Patria Libre have already been captured, tried, convicted and
sentenced to as much as 35 years in prison for her murder.
END NOTE.) Imprisoned General Oviedo -- and not his
front-man, Cubas -- remains the target of most Paraguayans'
grief over Argana's assassination. Conventional wisdom
suggests the charges against Cubas will likely remain dormant
-- out of sympathy over his daughter's murder and given the
fact that he (unlike Ovideo) manifests no desire to reenter
the political fray.

GONZALEZ MACCHI: DOWN, BUT HARDLY FINISHED
==========================================

4. (SBU) Luis Gonzalez Macchi, who assumed the Presidency in
1999 when elected President Raul Cubas stepped down, was
convicted of financial crimes in June 2006. He was sentenced
to six years for his involvement in the illegal transfer (to
private bank accounts in the U.S. and the Cayman Islands) of
USD 16 million from two banks that were in financial ruin and
in the process of being liquidated in 2000 while he was
President. This court decision was overturned shortly
afterwards, however, when the Appellate Court subscribed to
the arguments presented by the defendant's legal counsels and

dismissed charges against him, ruling that there was no
material evidence of conspiracy. The prosecution's request
the sentence be reinstated is now before the Supreme Court
for consideration.


5. (U) In a separate decision, Gonzalez Macchi was
sentenced December 4 to eight years in prison for illegal
enrichment and for providing false documents in connection to
the case involving the illegal transfer of the USD 16 million
noted above. The court also fined him 3 billion guaranis
(approximately USD 600,000),and impounded assets worth up to
USD 362,000. Gonzalez Macchi has appealed this decision and
remains under detention at the Presidential Guard Regiment
pending a ruling by the Appellate Court. Gonzalez Macchi's
wife, Susana del Pilar Galli, and businessman Reinaldo
Dominguez Dibb were acquitted on charges connected to
Gonzalez Macchi's case. (NOTE: The prosecution lost the
ability to prosecute Gonzalez Macchi for separate
embezzlement and illegal enrichment charges on November 19
when the defense ran out the statutory time limit with
abusive delatory tactics. END NOTE).


6. (C) Rene Fernandez, the prosecutor in this case, was
excited about his win in the case convicting Gonzalez Macchi
for illegal enrichment and false documentation, stressing the
importance of the case for the Paraguayan justice system. He
stated that he is cautiously optimistic about the conviction
against Gonzalez Macchi being confirmed by the Appellate
Court. By statute, the case should be heard within 30 days,
but Fernandez said in reality the process will more likely
drag out for six months. He indicated that he was exploring
the possibility of introducing new charges against Pilar
Galli and Dominguez Dibb for illegal enrichment as
accomplices of Macchi.
NDF: THE NEXT PRESIDENT TO FACE CORRUPTION CHARGES?
============================================= ======

7. (C) Nicanor Duarte Frutos, Paraguay's current President,
has also been accused in the press of corruption and illegal
enrichment. Duarte grew up poor and has worked for the
government for almost his entire life (except for a stint as
a newspaper reporter and consultant to a publicity firm)
making a modest salary at best. Nevertheless, he reportedly
owns several large properties; applied for membership at the
country's most exclusive country club (Members must pay a
$35,000 initiation fee; he ultimately withdrew his
application in the face of controversy); and has used an
airplane registered to a military official who similarly
lacks the resources to have acquired such an expensive asset.
A high-profile prosecutor from the Attorney General's Office
- already investigating several close associates of Duarte -
has an open file on the question of the President's use of
the airplane. A recent series of articles revealing how
friends and family members have gotten rich off government
contracts has drawn much attention. Duarte is vying to amend
the Constitution to allow him to run for reelection, and
should that fail, will seek election as a Senator. Duarte's
ambition to remain at the center of Paraguay's political
future is driving his effort; but a welcome corollary for him
of holding political office will be the protection it avails
from criminal prosecution. (Even as a Senator, it would
require a two-thirds majority vote to strip him of his
immunities.)
COMMENT
=======

8. (C) COMMENT: These cases against Paraguay's former
Presidents are a testament to high-level corruption in
Paraguay and how that same corruption undermines the judicial
process. Former President Gonzalez Macchi's conviction
reflects a positive development in building respect for the
rule of law. However, corruption remains a serious problem
and flaws within the penal and procedure codes often obstruct
the effective prosecution of criminal defendants. Wealth and
influence, taken together with the strict (if usually
ignored) time limits of the law allow savvy defendants to use
delay tactics to run roughshod over due process. These
tactics permit well-connected defendants to file "nonsense"
motions to prevent legal progress and guarantee the statute
of limitation runs out in this Paraguayan version of "Beat
the Clock." A USAID/University of Asuncion (UNIDA) study on
the universe of economic crime and corruption cases
prosecuted between 2001 - 2005 reinforces this point, finding
that 77 percent of the cases ultimately expired under the
statute of limitations. Significant measures to reform the
penal code are presently before Congress; if adopted, they
should resolve many of the problems with the legal system.
But until Paraguay can get a grip on the overarching problem
of corruption and impunity for wealthy, influential
defendants, all the reforms in the world will only serve as
little more than window dressing. As December's riots over a
court decision minimizing the crime and punishment in the
Ycua Bolanos Supermarket tragedy suggests, the patience of

the Paraguayan public for "routine" corruption and
non-delivery of justice has clear limits. END COMMENT.
CASON