INTERAGENCY COOPERATION ON TRI-BORDER AREA

C O N F I D E N T I A L ASUNCION 000688

SIPDIS

SIPDIS

PASS TO WHA/BSC, S/CT, EB, WHA/EPSC, INL, DS/IP/WHA,
DS/DSS/ITA, DEA HQS OEL/DESANTIS, TOTH, HARRIGAN

E.O. 12958: DECL: 07/26/2027
TAGS: SNAR PREL PGOV PA
SUBJECT: INTERAGENCY COOPERATION ON TRI-BORDER AREA

Classified By: Ambassador James C. Cason; reasons
1.4 (b) and (d).

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SUMMARY
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1. (C) Embassy Asuncion hosted August 8-9 a conference on
Tri-Border Area (TBA) terrorist finance and money laundering.
Forty USG participants from Paraguay, Brazil, Argentina,
Chile and Uruguay represented the departments of State,
Defense, Justice, Homeland Security and Treasury, as well as
the DEA and the FBI. Ambassador Cason challenged participants
to separate the hype about the TBA from concrete facts -- to
specify what illicit activities are underway there, to
identify the actors at work, to find gaps in our information
and intelligence, and to look for ways the interagency
community could work together to better fight terrorism,
money laundering and other illegal activities. The conference
confirmed the TBA is a hotbed of illicit activities including
trafficking in drugs, arms, and counterfeit goods, as well as
document fraud and money laundering. Keynote speakers noted
that a modified Hawala system is commonly used in the TBA to
launder money, and highlighted successes prosecutors have had
going after exchange houses for transmitting money without a
license. While five extended families in the TBA appear to
be the major actors in drug and large scale crimes, Embassy
Asuncion believes that the clear majority of the adult
working population of the Lebanese community (of 40,000
persons total) in the TBA may be involved in illicit
activity. Hizbollah has a small direct, non-operational
presence on the ground, but most Lebanese in the TBA are
Hizbollah sympathizers, if not financial supporters.


2. (C) SUMMARY CONTINUED: Participants also confirmed gaps in
our knowledge regarding the amount of money transmitted, its
destination, and the identity of the facilitators. Via two
days of intensive inter-agency cooperation, participants
identified several initiatives the USG should take to improve
its efforts in the TBA: form a virtual working group on TBA
issues that periodically reconvenes in person; improve
inter-agency communication and resource sharing; expand the
3 1 dialogue to encourage Brazil, Argentina and Paraguay to
share data on a range of customs, financial, narcotics and
weapons crimes; continue to tighten borders; monitor
Venezuelan and Iranian activities in the TBA; and, ensure
that officials at post focus on evidence prosecutors need to
make criminal cases. Many conference participants commented
that this conference was their first in depth opportunity to
discuss TBA issues and cooperation with other USG agencies in
the region. Given the scale and complexity of illegal
activity in the TBA, the USG will need to continue to improve
inter-agency cooperation in order to achieve ever-more
significant results. END SUMMARY.

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CONFERENCE CHALLENGES
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3. (C) Embassy Asuncion hosted August 8-9 a conference on the
Tri-Border Area (TBA) which focused on terrorist financing
and money laundering. Forty USG participants from Paraguay,
Brazil, Argentina, Chile and Uruguay represented the
departments of State, Defense, Justice, Homeland Security and
Treasury, as well as the DEA and the FBI. Guest speakers
included Mark Maldonado of DOJ's counterterrorism section,
Santiago Luna of Immigration and Customs Enforcement (ICE),
Adam Kaufmann of the Manhattan District Attorney's office,
Kevin Puvalowski of the U.S. Attorney's office in New York
City, Jose Soto and Dave Hulsey from the U.S. Special
Operations Command (SOCOM),and David Hathaway from DEA in
Asuncion. The Embassy's Resident Legal Advisor (RLA) Kevin
Sundwall organized the conference with State and Treasury
(OTA) support.


4. (C) At the conference's inception, Ambassador Cason
tasked participants to separate the hype about the TBA from
concrete facts -- to specify what illicit activities are
underway there, to identify the principal actors at work, to
find gaps in our information, and to look for ways the
interagency community could work together to better fight
terrorism, money laundering and other illicit activities.

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WHAT IS REALLY GOING ON IN THE TRI-BORDER AREA?
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5. (C) The conference confirmed the TBA is a sanctuary for
illicit activities including trafficking in drugs, arms, and
counterfeit goods, as well as document fraud and money
laundering. The average drug shipment of seven kilos of
cocaine moves from Paraguay to the Middle East, where profits
can reach up to 60 times cost (a shipment valued at USD 2,000
in Paraguay could be priced at USD 120,000 in Israel).
Paraguay's side of the TBA has become a hub for arms and
paramilitary sales, with guns moving among China, Bolivia,
Brazil, Uruguay, Chile and Colombia's FARC. Trade in
counterfeit goods largely involves high-end electronics and
counterfeit intellectual property goods from Japan, Hong Kong
and Singapore. The numbers round out the picture: 80 percent
of Paraguay's GDP (officially less than USD 8 billion total)
comes from illicit activity. A recent FinCen analysis
reported that upwards of USD 100 million leaves Paraguay
every month never to return. Speaker David Hathaway told
conference invitees that on a recent visit to Ciudad del
Este, he witnessed workers loading two planes in one day with
cash (three armored vehicles containing cash were loaded onto
each plane). While large amounts of cash are flowing out of
Paraguay, almost no money enters. U.S. Immigration and
Customs Enforcement estimates that USD 20 million left
Paraguay for the United States on a daily basis in 2006, but
less than USD one million was reported as coming in. Over a
six year period, Cash and Monetary Instrument Reports (the
customs forms which require persons entering the United
States to declare cash of USD 10,000 or more) showed USD 2.4
billion flowing out of Paraguay into the United States, but
only USD 56,000 leaving the United States for Paraguay. In
Paraguay's small, agriculture-based economy, with a per
capita income of only USD 1,553, there is little explanation
for this type of "nothing in, all out" cash flow.


6. (C) The conference's keynote speakers, Adam Kaufmann,
Kevin Puvalowski, and Mark Maldonado, informed participants
that a modified Hawala system is commonly used in the TBA to
launder money. The scheme works as follows: a customer goes
to a local (usually unlicensed) exchange house in Paraguay or
Brazil and asks to have money deposited into a Swiss or Grand
Cayman's bank account. The exchange house, which has an
account in a U.S. bank, sends (most commonly) a fax directing
the U.S. bank to make the transfer to the Swiss account.
Using this scheme, the only transaction that appears in the
financial system is the transfer from the United States to
Switzerland. In some cases, the money also passes through
Uruguay on its way to the United States. Money laundering
schemes in the TBA may also rely on double or false
invoicing.


7. (SBU) Keynote speakers highlighted successes prosecuting
exchange houses for transmitting money without a license.
New York prosecutors have actively pursued money laundering
cases because most money laundering schemes require dollars,
and often touch New York City as the world's financial
capital at some point in the laundering process. Long-time
New York District Attorney Robert Morgenthau has taken a
personal interest in these prosecutions, frequently raising
the profile of the issue by citing the statistic that USD 1.4
trillion (one-eighth of the total U.S. economy) is now on
deposit in the Cayman Islands. In the Merchants Bank/Valley
National Bank case, USD 3.7 billion was moved from the TBA
through the United States in five years via sixteen foreign
exchange houses and 50 defendants. In the end, prosecutors
seized USD 20 million (NOTE: Brazil got one-third of the
proceeds, which provided incentive for its cooperation. END
NOTE). Another high profile TBA case involved Beacon Hill, a
New York financial service provider, which moved USD 13
billion in six years through 40 different JP Morgan/Chase
bank accounts. Prosecutors successfully charged Beacon Hill
as an unlicensed money transmitter; JP Morgan/Chase paid a
hefty fine.

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WHO ARE THE ACTORS?
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8. (C) Five extended families (Barakat, Zeiter,
Jamil-Georges, Baalbaki and Hijazi) in the TBA appear to be
the major actors in drugs and other large-scale crimes, but
the Embassy believes that the clear majority of the adult
working population of the Lebanese community (of 40,000
persons total) in the TBA may be involved in some type of
illicit activity (e.g., counterfeit goods). Most of the
persons engaged in illegal activity live on the Brazilian
side of the border and cross into Paraguay to work on a daily
basis. Because false identification documents are easy to
obtain, many foreigners have false Paraguayan citizenship.
Others marry Paraguayan wives (even if only on paper) in
order to gain legal status. Illegal trade and illicit
activity is facilitated by the high (approximately 50
percent) tariffs for commodities on the Brazilian side of the
TBA.


9. (C) While Hizbollah may have a small non-operational
presence on the ground, most Lebanese in the TBA are
Hizbollah sympathizers or financial supporters. Shi'a
mosques predominate, but a few Sunni mosques are scattered in
the region. Although many Shi'a may not be aware of the
activities they are supporting, hats are frequently passed
around at mosques along with the suggestion that the
community has a duty to support Hizbollah. The USG designated
Assad Ahmad Barakat as a Specially Designated Global
Terrorist (SDGT) in 2004 (sentenced in Paraguayan courts in
May 2004 to six years in prison for tax evasion),as well as
fugitive Fahd Jamil Georges as a Specially Designated
Narcotics Trafficker (SDNT) kingpin in 2006. In December
2006, the USG designated nine relatives and associates of
Barakat (including Muhummad Yusif Abdallah, Hamzi Ahmad
Barakat, Hatim Ahmad Barakat, Muhammad Fayez Baraket, and
Saleh Mahmoud Fayad),and two entities -- Casa Hamze and the
Galeria Page shopping center. Participants also noted that
Venezuelan and Iranian influence in the region is expanding.
Iran recently opened an embassy in Chile; Paraguay has
rejected Iran's overtures to date. There is abundant recent,
but not contemporaneous evidence of FARC connections to the
TBA. To date, there is no known information currently
linking Al Qaeda to the Tri-Border Area.

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WHAT DON'T WE KNOW?
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10. (C) While we know massive sums of money are leaving
Paraguay, the USG does not have any reliable information
regarding the total amount of money moved or the extent of
profits involved. We also lack hard data on the ultimate
destination of the money. Most officials believe it passes
through New York banking institutions, but it is unclear just
how much of it ends up in the Middle East, or some other
destination, such as Africa. While some are known, a number
of persons facilitating the money in the TBA are unknown.
Clearly, however, significant flows are headed directly to
Lebanon. Better information from Lebanon is needed before
determining how much ends up in the hands of Hamas or
Hizbollah. Sophisticated criminal networks (which often
commingle commercial and criminal proceeds) and layers upon
layers of banking institutions used to launder illicit
business proceeds make it difficult to find the hard
evidence. But one thing is clear: we do not need to know the
totality of all that transpires in the TBA before we can act
against many of the main targets that currently operate with
near-impunity.

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CONFERENCE LESSONS LEARNED
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11. (C) Via two days of intensive inter-agency cooperation,
participants identified several "lessons learned," or
initiatives the USG should undertake to improve our efforts
in the TBA.

--Form a virtual working group on TBA issues that
periodically reconvenes in person.

--Improve inter-agency communication and information sharing.
USG representatives can tap ICE's Data Analysis and Research
for Trade Transparency System (DARTS),which checks and
compares trade data between countries by searching for data
on specific business sectors, businesses or trade
discrepancies of certain amounts. Another resource is DEA's
telephone intercept capabilities in Paraguay as part of
Operation Cerberus, which could be utilized to further a
specific prosecution.

--Expand 3 1 dialogue to encourage Brazil, Argentina and
Paraguay to share customs data. The GOP collects customs
forms from travelers entering the country yet discards the
forms instead of inputting the information into a database.
Conference participants discussed the possibility of inviting
U.S. customs to do a presentation on DARTS at December's 3 1
conference to be held in Asuncion.

--Focus efforts on money laundering, customs violations, tax
fraud, and/or drug smuggling as a means to prosecute the
criminals in the tri-border countries. Most participants
agreed the "Al Capone" approach to prosecutions is best. A
solid criminal procedural code is critical to this approach,
such as the one soon to be presented to the Paraguayan
congress. Pursuing alleged terrorist financiers has had
little success and has limited the cooperation and buy-in of
the other countries. But all will readily prosecute the same
felons for narcotics or tax violations.

--Continue programs to work to tighten borders and to make it
more difficult for criminals to get illegal identity and
other documents. One Embassy Asuncion representative noted
that 20 percent of cars in Paraguay do not have license
plates; another 20 percent have fake plates, which makes
tracing cars difficult.

--Monitor Venezuelan and Iranian activities in the tri-border
area.

--Ensure law enforcement officials at post determine early on
in the investigation what evidence prosecutors will need to
make a criminal case. For money laundering cases,
prosecutors will need a witness to testify that the money is
the product of criminal conduct. Conference speakers
suggested that the inter-agency shift its focus from
intelligence (which is often not admissible in court) to
direct evidence from witnesses able to testify.

--Be familiar with all U.S. statutes which can be used for
prosecutions, many of which permit prosecutions for
extra-territorial violations of U.S. law. Stand ready to use
asset forfeiture laws, for which the standard is probable
cause to seize and a preponderance of the evidence to
forfeit, to place pressure on criminal organizations.

--Also recognize when disruption of criminal activities, as
opposed to full criminal prosecution, is a useful tool, both
for crime prevention and for lead development for future
prosecutions.

---Work with companies operating in the TBA such as
Microsoft, Sony, and British American Tobacco, to share trade
and financial information. Embassy Asuncion is considering
undertaking a street-by-street study in Ciudad del Este in an
attempt to isolate legitimate from illegitimate commerce
crossing the border.

--Improve inter-agency communication on designating terrorist
organizations under OFAC. While conference participants
recognized that designations -- "naming and shaming"-- can be
a useful tool, most viewed it as a remedy of last resort.
Many worried about the impact of designations on existing
investigations or operations.
--Rely on multilateral organizations to exert pressure on
countries that need to improve their legal framework. One
participant noted that the Financial Action Task Force (FATF)
is currently being used to pressure Argentina to pass
terrorist finance legislation.

--Pursue unlicensed exchange houses and attempt to close
them. Paraguay has two dozen exchange houses which are
licensed; the vast majority operate here illegally. Nor is
it clear just how many of them have registered (as required
by law) with U.S. federal or state authorities, even as they
conduct international USD-based financial transactions.

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COMMENT
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12. (C) Many conference participants commented that this
conference was their first opportunity to discuss TBA issues
and cooperation with other USG agencies in the region. Given
the scale and complexity of illegal activity in the TBA, the
USG should continue to fund and encourage inter-agency
cooperation in order to achieve concrete results. END
COMMENT.


CASON