PARAGUAY TAKES MAJOR STEP ON TERRORISM LEGISLATION

C O N F I D E N T I A L ASUNCION 000420 SIPDIS SIPDIS S/CT FOR ARNOLD SIERRA; NSC FOR JOSE CARDENAS; SOUTHCOM FOR POLAD; USAID A/AA/LAC MARK SILVERMAN E.O. 12958: DECL: 04/26/2027 TAGS: PTER KCRM PREL ECON PA SUBJECT: PARAGUAY TAKES MAJOR STEP ON TERRORISM LEGISLATION REF: 2006 ASUNCION 730 Classified By: PolCouns James P. Merz; Reasons 1.4(b),(d) ¶1. ACTION REQUEST: See para. 12. ¶2. (C) SUMMARY: Paraguay's House of Deputies voted May 3 to pass a Penal Code Reform bill that includes provisions to strengthen penalties for IPR violations and money laundering, and criminalizes ) for the first time ) terrorist financing. This bill will next come under review by the Senate with a view to a vote in June. A companion bill to reform the procedural code is still under debate by the Legal Reform Commission and will likely face some controversy when ultimately submitted to the Congress for formal consideration. Passage of the Penal Reform bill in the Lower House represents a significant first step for Paraguay towards establishing the legal framework to criminalize and prosecute terrorist financing. We will be meeting with representatives of the private sector to encourage them to back this legislation publicly. Separately, we request the Department and USUN consider approaching UNCTC Chairman Ruperez to ensure he is informed of developments and encourage him to call the Paraguayan sponsors of this legislation to congratulate them and urge continued progress. END SUMMARY. LEGAL REFORM OPENS DOOR TO KEY CHANGES ¶3. (C) Stand-alone bills on money laundering and terrorism had languished in Paraguay's Congress since they were submitted respectively at the end of 2004 and 2005. Not a few Congressmen viewed the legislation as imposed by the U.S. and/or were concerned the money laundering legislation would infringe on their extracurricular business activities. Thus, when Congress created a special commission to reform the Paraguayan legal code, we perceived an opportunity to help Paraguay fix its broken legal system and, in the process, pursue inclusion of new provisions to stiffen penalties for IPR violations and money laundering, and criminalize terrorist financing. POST'S RLA ) A MODEL IN TRANSFORMATIONAL DIPLOMACY ¶4. (C) AmEmbassy's Resident Legal Advisor (RLA) developed a strong rapport with the Senate President and Vice-President of the Legal Reform Commission, winning an invitation to participate as a permanent member in the proceedings of both the Commission on the Penal Code and the Commission on the Procedural Code. To build support at the grassroots level for Paraguay's embrace of an accusatory system of justice more akin to the U.S. system, Post's RLA conducted a series of seminars throughout Paraguay with judges and prosecutors speaking to the benefits an accusatory system would deliver over Paraguay's present legal system. He also sponsored a trip for key Congressmen and their staffers, Supreme Court Judges, the Attorney General, appellate court judges, and prosecutors to Puerto Rico that gave visitors a first hand view of accusatory system in action. The effect was transformational: individuals previously skeptical about significantly changing Paraguay's legal system became enthusiastic advocates of wholesale reform. They also developed an appreciation for the kinds of changes we sought on IPR, money laundering, and terrorist financing. PART ONE: PENAL CODE REFORM ¶5. (U) Paraguay's present legal system is largely a hodgepodge of special laws laying out the specific procedures available to prosecute specific crimes; the underlying code dates to 1914 and has been modified only once -- in 1999. The Penal Code Reform Bill adopted by the House of Deputies May 3 represents an attempt to create a single penal code that would include stipulations about every crime and the attendant penalties, thereby replacing the wide and disparate array of laws that serves as the basis for Paraguay's penal system. In the process of bringing together treatment of all of Paraguay's crimes in one place, the Penal Code Reform Commission agreed to changes in the present law as pertain to the definition of certain crimes, applicable penalties, and the introduction of new crimes and penalties. This draft code passed on May 3 presently includes 67 articles. The issues most relevant from the standpoint of U.S. interests included the following: -- The present law on IPR infringements as applied to rights of authorship and trademarks stipulates a penalty of either 3 years or a fine based on the value of the assets. Judges, almost without fail, opt to apply the fine which serves as little disincentive from engaging in future IPR infringements given the profits collected. The new code raises the penalty to 5 years making it more difficult under Paraguay law for those convicted to escape some jail time. (NOTE: An effort to similarly raise sentences on logo infringement and imitation faced stiff resistance resulting in a decision to retain the current penalty of 3 years or a fine in the draft adopted by House. However, at least one of the Senate sponsors of the bill has signaled his desire to reintroduce stricter penalties for logo infringement and imitation. END NOTE.) -- The present law imposes a penalty of 5 years for money laundering and prosecutors cannot open a money laundering case absent a conviction of a defendant for a predicate offense. The new code would raise the penalty to 8 years. More significantly, it drops the requirement for conviction on a predicate offense, allowing prosecutors to conduct investigations into money laundering as an autonomous offense. -- There is no provision on terrorism or terrorist financing in Paraguayan law presently. The draft Penal Code bill just passed by the House criminalizes acts of terrorism, terrorist financing, and association with terrorists, punishable by prison terms of 10 to 30 years. ¶6. (SBU) The draft legislation passed by the House will come under review by the Senate Legislation Commission headed by Senator Marcelo Duarte of the opposition Beloved Fatherland Party. Duarte also happens to be Vice-President of the Legal Reform Commission; he and Commission President Senator Bader Rachid of the Colorado Party are joint sponsors of the bill. Duarte told PolCouns and RLA May 16 he intends to submit the bill in coming days to the full Senate for consideration under a special provision that will give Senators a period of 15-30 days to define any objections to the bill. Duarte will then work to accommodate those objections, as appropriate, with a view to submitting a modified draft by the end of June to the Senate for a formal vote. The modified draft will then revert back to the House for a vote on those provisions the Senate has changed. If the House makes changes to the Senate draft, the law goes back to the Senate to have final say over which draft is adopted into law. This process could take several months to conclude but Duarte expressed confidence the draft approved by the Senate will win out. PART TWO: PROCEDURAL CODE REFORM ¶7. (SBU) Meanwhile, Duarte is working closely to conclude revisions of the Procedural Code with a view to giving prosecutors more tools to prosecute complex crimes including IPR violations, money laundering and terrorist financing. His commission (composed of Congressmen, prosecutors, and the RLA) is on Article 393 out of some 500 articles, holding sessions twice a week in hopes of producing a final draft by the end of July. The RLA will host two weekend off-site meetings of the group in June to force greater progress. ¶8. (SBU) The draft Penal Procedure Code will likely attract greater attention and controversy because the reforms it will introduce will substantively strengthen the hands of prosecutors. We can expect a fair number of judges, defense attorneys, and civil rights groups to lobby against the changes contemplated. Judges reign supreme over Paraguay's current system; many judges will be concerned about a loss of control and dominance under a new set of procedures. Assistant Attorney General Carlos Arregui described Paraguay's current legal as a "festival" for defense attorneys as it deprives prosecutors of the most basic tools they need to build strong cases; defense attorneys represent a powerful lobby group and will resist reforms strenuously. Civil rights groups have long memories of the abuses that occurred under the Stroessner regime which used the legal system to expand its power and deny justice; they will object to reforms they view as giving the Attorney General's Office the upper hand in legal proceedings. PART THREE: FIU REFORM ¶9. (C) The last piece of legislation we still need is a draft bill to give Paraguay's Secretariat for the Prevention of Money Laundering (SEPRELAD),the autonomy and authority it needs to function effectively as an FIU, not to mention avoid possible suspension from Egmont. Strategically, however, we are holding back on pushing for movement on this bill at the present moment for three reasons. First, Congress has all it can handle with the Penal and Procedural Code bills. Reintroducing the SEPRELAD bill at this juncture will only call unwelcome attention to the fact that these bills collectively strengthen the ability of prosecutors to investigate money laundering -- something that concerns some implicated Congressmen. Second, we presently have no Congressional sponsors for this bill ) a factor that has proven critical to the progress we have achieved to date on the Penal and Procedural Code bills. We will likely want to look to Sens. Duarte and Rachid to take ownership - and they have too much on their plate now. Third, we have lost confidence in the current Director of SEPRELAD, Carlos Yegros, and have asked that he be replaced. Institutionally, he would be the point person to introduce and defend this bill. Until he is replaced, we are ill-advised to push ahead on this bill. ¶10. (C) COMMENT. Paraguay took a major step May 3 when the House of Deputies passed the Penal Code Reform bill that includes provisions stiffening penalties for IPR violations and money laundering and criminalizing terrorist financing. Notwithstanding vocal opposition by some civil rights groups, Sen. Duarte, the bill's sponsor is confident the bill will pass the Senate perhaps as early as June. This is Paraguay, though, and we can expect some significant pushback if the new draft includes provisions to stiffen penalties for imitation. Meanwhile, Duarte is working hard to finalize The Procedural Code bill. We can expect this bill to face opposition from various quarters, but Duarte is committed to plowing ahead, hoping it may escape close inspection by Congressmen who will be more focused on campaigning for elections scheduled in April 2008. The time is not yet ripe to push the SEPRELAD bill. But that should come next. ¶11. (C) Post's RLA has proved critical to the success we have achieved on this front. It is impossible to put a price on having our legal expert serve as a member of Paraguayan commissions drafting legislation that will establish Paraguay's legal framework for years to come. Of course, adopting good legislation will ultimately be only the first step towards effecting change in Paraguay when it comes to prosecuting money laundering and terrorist financing cases. Follow-on training by RLA in how to conduct investigations and properly implement legislation will be crucial. Post appreciates the support it has received from the Department, USAID (which has loaned two of its local Paraguayan legal experts to work on the reform commissions),Treasury (which has provided excellent support in the form of OTA advisors) and the rest of the Washington agency community. END COMMENT. ¶12. (SBU) ACTION REQUEST: UNCTC Director Javier Ruperez visited Paraguay in July 2006 to push for progress on adoption of terrorism legislation, meeting with both Senators Rachid and Duarte, the President and Vice-President of Paraguay's Legal Reform Commission, in the course of his visit. Presumably, Paraguay's Mission to the UN has informed Ruperez of the May 3 vote by the House of Deputies to pass the Penal Code Reform Bill. It would be helpful for Ruperez to call both Rachid and Duarte to 1) congratulate them on this significant step; and 2) urge them to move ahead Senate adoption of this bill as well as Congressional adoption of the Procedural Code bill. Rachid's office number is 595-21-414-5259; Duarte's number is 595-21-414-5367. END ACTION REQUEST. CASON