TAX AUTHORITY VICE MINISTER NEUFELD REPLACED

C O N F I D E N T I A L ASUNCION 000547

SIPDIS

SIPDIS

STATE FOR WHA/BSC, INL/LP (JIM HIDES)
EB/IFD/OIA
STATE PASS TO USAID FOR LAC/AA
STATE PASS TO USTR FOR LYANG
NSC FOR SUE CRONIN
TREASURY FOR OSIA MAUREEN WAFER
TREASURY FOR OTA WARFIELD, VAN KOCH, MILLAR
COMMERCE FOR ITA SARAH COOK
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E.O. 12958: DECL: 06/29/2027
TAGS: PGOV PHUM PREL PA
SUBJECT: TAX AUTHORITY VICE MINISTER NEUFELD REPLACED


1. (C) SUMMARY: Vice Minister of Taxation Andreas Neufeld
Toews, who heads Paraguay's Tax Administration, resigned June
28 and will be replaced by Maria Gloria Paez, a close advisor
to Neufeld who is expected to maintain the Administration's
policies and maintain progress on the MCC Threshold Program
components that involve the Tax Adminitration. Neufeld was
indicted by a prosecutor investigating the common practice of
claiming salary bonuses for academic decrees not earned.
Neufeld appears to have acted in good faith and says he never
claimed to have a decree, only that he had completed all
coursework and a thesis, lacking only a public defense of his
thesis to have the engineering degree conferred. END SUMMARY.

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WANTED: A DEGREE
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2. (U) Vice Minister Andreas Neufeld, head of Paraguay's Tax
Administration, resigned June 28 after being indicted for
wrongfully collecting a salary bonus based on having a
university decree. In nearly four years as the Vice
Minister, Neufeld collected a total of approximately US$
4,400, or about $100 per month. Prosecutor Martin Cabreras
charged Neufeld June 27 with fraud and misuse of funds.
Carberas' investigation into Neufeld's credentials was part
of a broader crackdown that has found many professionals with
false certifications, including some doctors. With Neufeld's
successful efforts to increase tax revenue and reduce rampant
tax evasion, the press seized upon the news.


3. (U) Neufeld claims that he completed his engineering
decree at the University del Valle de Cochabamba, in Bolivia,
including his full thesis. He admits that he didn't receive
the actual degree since he only defended his thesis privately
and not publicly as required by the University to have the
degree conferred. Neufeld claims that the regulations
governing the salary bonus refer only to the number of
semesters of coursework completed, although Cabreras alleges
that for engineering degrees, the law requires an actual
degree.


4. (C) The former Director of Intellectual Property, Astrid
Weiler, who recently transferred to the Tax Administration to
work with Neufeld, told econoff that Neufeld applied for the
salary boost through the Ministry of Finance's Department of
Administration as per normal procedure. He submitted proof
of his course work but never claimed to have the degree,
according to Weiler, who believes that Neufeld acted in good
faith in accepting the bonus after it was approved by the
Department of Administration. In his post-resignation press
conference, Neufeld referred emotionally to having had to
explain to his nine year old daughter that, no, Papa didn't
have a fake diploma.

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THE REPLACEMENT
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5. (C) The interim Vice Minister replacing Neufeld is Maria
Gloria Paez, who was the Tax Administration,s Director of
Support under Neufeld. Paez is considered to be a close and
trusted colleague of Neufeld (possibly replacing Neufeld at
his request) and expressed publicly her intention to maintain
the same policies as Neufeld. Paez knows the organization
well and is regarded as having strong technical skills. She
is not considered to be politically well-connected to
President Duarte so it is unclear whether or not her interim
appointment will become permanent. USAID has worked closely
with both Neufeld and Paez through work on the MCC Threshold
Program and considers Paez to be a capable replacement. Post
doesn't expect the change to negatively impact progress under
the Threshold Program.

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COMMENT
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6. (C) Neufeld was a strong supporter of the MCA Threshold
Program and played a principal part in drafting Components
Six and Eight of Paraguay,s MCA proposal. He has been one
of the single most effective public servants with the most
concrete results to show for those efforts under the Duarte
Administration. He has been under more or less constant
attack in the press by those hurt by his successful efforts
to increase tax compliance from woefully low levels. It
appears that Neufeld's current problems result from a broader

investigation that was not specifically targeted against him,
but it does underscore the pressures reformers face here and
the need to avoid even the smallest error. It appears that
Neufeld acted in good faith in this case. Neufeld, who is a
Mennonite, recently took and passed a polygraph examination
to demonstrate leadership to his employees who were being
asked to undergo the examinations. It remains to be seen how
far the indictment is carried against Neufeld, who has
offered to repay the funds he received, but a harsh penalty
in an environment of immunity for far more serious crimes
could make it even more difficult to find honest, qualified
Paraguayans to carry the reform struggle forward. In the
short-term, post remains optimistic that Neufeld's
replacement will continue progress on the MCC components that
involve the Tax Administration.
CASON