MAJORS LIST SUBMISSION

UNCLAS ASUNCION 000384

SIPDIS

TO INL/LLP ASMITH, DGRAHAM, WHA/BSC KBEAMER

E.O. 12958: N/A
TAGS: SNAR PGOV PA
SUBJECT: MAJORS LIST SUBMISSION

REF: SECSTATE 29120



1. Below find Post's submission on the Government of Paraguay's
cooperation on counter-narcotics as requested in reftel A.

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Cultivation/eradication
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2. The USG asked the GOP to reduce the cultivation of marijuana in
Paraguay, and to focus eradication efforts in national parks and
surrounding areas.
--Paraguay has become the largest producer of cannabis in South
America, with a high content of tetrahydrocannabinol (THC). The
crop is primarily cultivated in the departments of Amambay, San
Pedro, Canindeyu and Concepcion and it is harvested year round.
Cannabis production has dramatically increased in recent years,
spreading to nontraditional rural areas of the country. There are
approximately 5,500 hectares (UN and SENAD estimates) of cannabis
scattered around the country.

--In 2007, SENAD destroyed 1,552 hectares of cannabis. SENAD has
made significant advances by increasing the amount of marijuana
cultivations destroyed and by reaching more remote areas than in
previous years.

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Consumption / Demand Reduction
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3. The USG asked the GOP to extend SENAD's Demand Reduction Program
to Pedro Juan Caballero (PJC) in addition to the Central Department.


-- SENAD has the principal coordinating role under the "National
Program against Drug Abuse" and works with the Ministries of
Education and Health and several NGOs on demand reduction.
Unfortunately, SENAD's budget for the Demand Reduction Program is
very limited, which prevents SENAD from reaching out to more areas
of the country on its own. SENAD's Prevention Unit does significant
outreach work primarily in schools in the Central Department. This
year, SENAD conducted demand reduction activities in PJC with
positive results.

-- The Prevention Unit held 1,476 workshops in 247 schools reaching
45,000 people including students, parents and teachers with its drug
awareness program during 2007. These figures represent an increase
in comparison to the prior year's statistics, reflecting a
meaningful GOP effort to increase drug awareness in its population.


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Trafficking and interdiction
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4. The United States Government (USG) asked the GOP to continue to
keep pressure on major international drug organizations through
investigations, arrests, and prosecutions of their key members and
seizures of their assets.

--Paraguay is a major transit country for Andean cocaine destined
for Brazil, other Southern Cone markets and Europe. According to
SENAD and DEA Country office, 30-40 MT of cocaine annually transits
Paraguay's porous borders en route to Brazil and other Southern Cone
markets as well as to Europe, Africa and the Middle East, where the
commercialization and/or resale value is much higher. Paraguayan
marijuana is also trafficked to Brazil, the Southern Cone, and
Europe.

--SENAD has taken serious measures to control drugs and their
negative effects on the general population by going after major drug
trafficking organizations and their assets. In 2007, SENAD's drug
seizures broke all existing records since its creation in 1991.
SENAD seized 820 kilograms (kg) of cocaine, 100 metric tons (MT) of
cannabis and 18 vehicles.

--SENAD arrested several well-known drug traffickers, including
Edmar Dois Rei Almeida, Jesus Hernando Gutierrez and six members of
his cartel, Jarvis Pavao's stepfather Paulo Larson Dias, and Ronie
Alves de Campos. SENAD detained 170 persons and extradited two last
year.

--SENAD agents arrested Brazilian national Sandro Jose Olivera (AKA
Gordao) on March 13, 2008, an important member of Commando Vermelho.
Gordao is wanted by the Brazilian Federal Police for drug
trafficking and other crimes. He is also the brother-in-law of
Brazil's most wanted drug trafficker, Fernadinho Beira Mar. Gordao
ran a trafficking network that supplied the Brazilian interior with
marijuana.

--Leoncio Mareco, an associate of Ivan Mendez de Mezquita, was
sentenced to 20 years in prison in August 2007 for drug trafficking
and money laundering. His wife, Zulma Rios de Mareco, was sentenced
to 10 years in prison for money laundering. (NOTE: Both sentences
have been appealed, which is the most common tool used by drug
traffickers and corrupt official to avoid the weak judicial system.
END NOTE).

--Despite SENAD's efforts, the Government of Paraguay's (GOP)
ability to prosecute and fight transnational and organized crime is
hampered by resource constraints, competing government priorities,
weak laws and pervasive public sector corruption. SENAD's total
budget is $1.5 million, of which only $150,000 is allocated to
counter-narcotics operations, while the rest covers salaries and
administrative expenses. The Fernando Lugo administration, which
will take office August 15, should allocate additional resources to
law enforcement agencies and implement legal tools to facilitate
investigations, the seizure and forfeiture of assets and prosecution
of major offenders.


5. The USG asked the GOP to expand SENAD's operations in Ciudad del
Este (CDE) in the tri-border area, to emulate its success in Pedro
Juan Caballero (PJC) and to increase efforts to shut down
clandestine airstrips in the Chaco region that are used by drug
traffickers.

-- INL funding permitted SENAD to open a Canine Unit at the airport
in Ciudad del Este in 2007. It houses three officers and one dog;
they screen airport passengers and cargo for illegal drugs.

-- SENAD opened a new base in PJC in August 2006 on Paraguay's
border with Brazil, an area notorious for drug trafficking and other
illegal activities. The base allows SENAD to assign upwards of 25
agents to a region which was previously "off limits" to law
enforcement personnel because of corruption and lack of state
presence. The U.S. provided USD 500,000 to complete this facility to
include the construction of a helicopter pad and support facilities.
This new facility greatly enhanced SENAD's capability to launch
effective operations targeting major traffickers and their
activities in the region.

-- SENAD has identified a number of airstrips in the Chaco region
used by narcotraffickers. These airstrips are currently under
surveillance by SENAD, and several important arrests and seizures
have been made in the region.


6. The USG asked the GOP to provide adequate funding for SENAD, so
that it can continue to execute its responsibilities and conduct
operations against major narcotics traffickers.

-- The Paraguayan Congress' decision in 2007 to provide expanded
funding for SENAD to hire 50 new SENAD agents represented an
important milestone. The newly hired Special Agents are working in
different sections of SENAD and completed DEA training in January

2008. SENAD continues to operate on limited funding for helicopter
fuel and is unable to expand its operations throughout the country
due to budget constraints. SENAD continues to request that the
Paraguayan Congress provide it with additional funding.

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Precursor chemicals
--------------


7. The USG asked the GOP to regulate the importation of pseudo
ephedrine, and to improve the law enforcement efforts for other
cocaine precursor chemicals.

-- Paraguay has a chemical control law. However, enforcement is
weak. SENAD and the Health Department have limited resources to
enforce the law throughout the country, but strictly regulate
individuals or companies obtaining precursor chemical permits.

-- The GOP through SENAD and the Department of Health also regulates
the importation of pseudo ephedrine. Violators can be charged with
illegal importation of controlled substances and other related
crimes, such as tax evasion, and can face sentences of five or up to
ten years in jail.

-- DEA is noting an emerging trend in ephedrine/psuedoephedrine
production and trafficking in Paraguay. SENAD made two important
seizures of ephedrine destined for Mexico in May-June in Asuncion.
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Money Laundering
--------------


8. The USG asked the GOP to allocate additional financial and human
resources to SEPRELAD's FIU, SENAD's UIDF, and the Attorney
General's Office (Fiscalia),to enable them to effectively
investigate and prosecute money laundering, terrorist financing and
other financial crimes.

-- The Fiscalia incorporated their Economic Crimes Unit and their
Public Corruption Unit into one unit, and then in 2007 added three
financial crimes prosecutors. This allowed for additional
prosecutors to engage in cases involving money laundering. These
prosecutors will need to be trained in the prosecution of economic
crimes, particularly under the new penal code which will enter into
force in 2009.


9. The USG asked the GOP to apply other initiatives that would
improve the effectiveness of the GOP's anti-money laundering regime
including: conducting outreach activities to sensitize financial
institutions about reporting requirements and improving coordination
and information sharing protocols between the SEPRELAD FIU, the
SENAD UIDF and the Public Ministry that prevent compromise of
law-enforcement-sensitive information.

--Bank secrecy laws in Paraguay do not prevent banks and financial
institutions from disclosing information to bank supervisors and law
enforcement entities. Bankers and others are protected under the
anti-money laundering law with respect to their cooperation with law
enforcement agencies. The Superintendence of Banks enforces these
reporting obligations for banks, but they are not enforced for other
financial institutions. In November 2007, the Ministry of Industry
and Commerce issued new regulations that define reporting
requirements and sanctions for noncompliance for the insurance
industry and credit unions.

--In recent years, the GOP has made significant efforts to
strengthen it anti-money laundering secretariat (SEPRELAD),but weak
leadership and suspicious activity caused SEPRELAD to falter in the
first half of 2007. Since August 2007, when Gabriel Gonzalez became
its new director, SEPRELAD made significant progress. SEPRELAD has
sought to improve information sharing with other financial
intelligence units and has signed agreements for information
exchange with regional FIUs. In addition, Gonzalez is working on
creating information sharing mechanisms for Paraguayan law
enforcement agencies.

--SEPRELAD entered a backlog of 3,000 Suspicious Activity Reports
(SARS) since August 2007. It also hired several new analysts, who
have been vetted and trained. SEPRELAD incorporated information
from the Trade Transparency Unit (TTU) into its analyses of
discrepancies in trade data that could be indicative of customs or
tax fraud, trade-based money laundering, or terrorist financing.



10. The USG asked the GOP to control the movement of bulk cash
across its borders as it is another key issue that calls for greater
active involvement by the GOP.

--Although the airlines give out forms upon entry into Paraguay to
declare cash, the government does not utilize the forms. Customs
does not enforce the administrative law that requires the reporting
of cash brought into or taken out of Paraguay.



11. We asked the GOP to refocus SEPRELAD into a more effective and
efficient organization, providing it with greater independence and a
new bureaucratic structure.

--The Government of Paraguay took a number of positive steps in 2007
to combat money laundering, particularly with the passage of the new
penal code and the GOP's money laundering convictions. However, it
should continue to pursue other initiatives to increase its
effectiveness in combating money laundering and terrorist financing.
Most important is passage of terrorist finance legislation that
brings Paraguay into compliance with its international obligations.


12. We asked the GOP to ensure SEPRELAD received adequate financial
and human resources to operate as an effective and fully functioning
FIU.

--SEPRELAD continues to lack adequate financial and human resources
to operate as an effective and fully functioning FIU. Paraguay will
be suspended from the Egmont Group in June 2008 without terrorist
finance legislation, and narrowly escaped expulsion from the
Financial Action Task Force for South America (GAFISUD) due to a
failure to pay USD 76,000 in membership dues. In December 2007,
SEPRELAD made a partial payment of its membership dues. In
February, the GOP paid its dues in full and incorporated its dues
into SEPRELAD's annual budget. The GAFISUD payment was a positive
sign that the GOP is concerned about meeting its international
obligations.

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Legislative Measures
--------------


13. The USG asked the GOP to adopt an anti-money laundering and
anti-terrorist financing legislation in order to meet its
international obligations.

--Congress passed a new penal code amending 70 criminal statutes in
December 2007, which includes a new money laundering statute which
makes money laundering an autonomous crime punishable by up to five
years in prison. President Duarte vetoed three statutes of the
penal code, which is now again pending in Congress for final
approval. The new laws, including the money laundering statute,
will go into effect one year from the date of Congress' final
approval. Prosecutors will need training on the effective use of
the new money laundering statute.

--Paraguayan authorities have also drafted a new criminal procedures
code. These revisions will help move their judicial system toward a
true oral system instead of the current hybrid
accusatory-inquisitive mix which has been shown to be ineffective.

-- The three new investigative units within the Ministry of Finance
are using the tools they have at hand to investigate violations of
Paraguayan law. Tax, customs, unjust enrichment, and public
corruption cases are being referred to the Public Ministry for
prosecution.

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Official Corruption
--------------


14. The USG asked the GOP to take active measures to rid the ranks
of law enforcement of prosecutors and judges suspected of having
links to drug traffickers, money launderers and others who commit
drug related crimes.

-- There is no evidence that the government or any senior official
facilitates the distribution or production of narcotics or other
controlled substances. Nevertheless, corruption and inefficiency
within the Paraguayan National Police (PNP) and the judicial system
negatively affects SENAD operations. Combating official corruption
remains a considerable challenge for the GOP.

-- The Lugo administration should take serious measures to enable
effective investigations leading to the arrest and prosecution of
major drug traffickers and corrupt officials. Many arrests are
made, but many cases are dismissed on technical grounds (e.g.,
expiration of a statute of limitations) or on appeal. For example,
Christian Villalta was sentenced on drug charges in June 2006 for
cocaine trafficking, but he was released on technical grounds; he
served less than three years of his sentence. (NOTE: Villalta was
the son of Faustino Villalta, the Colorado party leader in PJC and a
defense attorney for drug traffickers, who was shot and killed by
gunman in front of his house in October 2006. END NOTE). In another
case, Roberto Carlos Benitez Salinas, Mendes Mesquita's accountant,
was recaptured by the Argentinean authorities and extradited to
Paraguay after he escaped Paraguayan law enforcement a few years
ago. Benitez is now being charged with money laundering USD 15
million. Notwithstanding Benitez' previous flight from authorities,
the court set a low bail for him. (NOTE: The prosecutor appealed
the low bail, and while the case risked dismissal due to an expiring
statute of limitations, trial is now scheduled to begin August 4.
END NOTE). These cases demonstrate judicial corruption that plagues
Paraguay's counternarcotics efforts. Additionally, several
anti-corruption prosecutors opened cases against government
officials last year which were impeded by corruption and
inefficiency which frequently resulted in dismissals on technical
grounds.



15. We have asked the GOP to address illegal activities in the
customs service and Finance Ministry (tax authority).

-- In 2006 and in 2007, under the MCC Threshold Program, Paraguayan
authorities in the Finance Ministry and customs agency conducted
internal investigations of improper conduct. Over 80 cases were
referred to the Public Ministry for prosecution. Members of
USG-supported units voluntarily took polygraph tests which
demonstrated their political will and cooperation to root out
corruption.

CASON