PARAGUAYAN SMUGGLING CROSSROADS SCRUTINIZED

Tri-Border Region Seen As Hub for Aid to Radical Groups

CIUDAD DEL ESTE, Paraguay -- For years, this region -- where the
boundaries of Paraguay, Brazil and Argentina converge -- has been
considered a teeming stew of globalization's more unseemly
byproducts. Much of the trade that crosses the borders, officials
say, is illegitimate. The region is full of smuggled goods and laundered money.

Now U.S. officials are launching a broad series of new measures aimed
at uncovering money-laundering rings that they believe are funding
Hezbollah and other radical groups.

"I am highly confident that's the case," said Daniel Glaser, deputy
assistant treasury secretary for terrorist financing and financial
crimes. "We believe there is evidence."

The U.S. government's efforts to uncover money laundering by groups
linked to terrorism depends largely on the work of local officials.
But a scene stumbled upon in the darkness last week hinted at some of
the challenges that U.S. and local officials face.

On a bridge connecting Paraguay and Brazil, Paraguayan border
officials were sitting at tables in the dark, using flashlights to
check the passports of a tiny fraction of those who crossed, perhaps
one in 20 drivers, according to an informal count.

At the same time, a short distance upstream, two small boats slipped
across the water. The boats carried nearly 1,400 pounds of marijuana,
bound tightly in bricks of packing tape and stuffed into cardboard
boxes. The only reason Paraguayan federal agent Maria Adelaida
Vasquez found out about the marijuana was that two officers from the
federal prosecutors' office coincidentally were in the neighborhood
where the boats landed.

"We're not in a position to wage a battle against this kind of
enterprise," said Vasquez, who said money laundering and other
illegal financial transactions are increasingly intertwined with the
narcotics trade. "The criminals are on the vanguard of technology,
and we don't even have access to the Internet in our offices. If we
have cellphones, it's because we buy them with our own money."

The 20 Paraguayan prosecutors in the region have two trucks available
to use. Vasquez just happened to have access to one the other day,
and she was able to arrest eight people involved in the transit of
the marijuana. Catching them was pure luck, she suggested.

U.S. Treasury officials have held workshops in the region to
encourage more banking sector involvement in regional efforts against
money laundering. The Department of Homeland Security's immigration
office last week sent a team to Argentina to implement a
"trade-transparency unit" -- a team that will collect and analyze
trade data and search for irregularities that could suggest money
laundering -- and will equip a similar unit in Paraguay in September.

Meanwhile, the State Department this year helped draft stricter
anti-money-laundering legislation that was passed by Argentina's
congress. The U.S. Embassy's legal adviser in Asuncion, Paraguay has
held training courses during the past year for investigators and
prosecutors in charge of combating possible terrorism links,
according to the Justice Department.

Glaser said it is the links to Hezbollah and other radical groups
that "concern us most."

U.S. officials cite a smuggling case in March in which 19 people were
charged in Detroit for allegedly operating an international ring that
illegally moved cigarettes through Paraguay and Brazil. The
indictment alleged that profits were funneled to Hezbollah.

Additionally, in 2004 U.S. officials designated a businessman
operating in Ciudad del Este a terrorist, saying he was a Hezbollah
treasurer. The man, Assad Ahmad Barakat, operated a successful
import-export business as a front for Hezbollah cells, the Treasury
Department alleged.

Despite those charges, local prosecutors said that compiling evidence
for such cases continues to be exceedingly difficult because they
can't get close to the large Arab immigrant community that resides in
the tri-border area, a group that numbers about 30,000 and that U.S.
officials believe includes a minority of merchants who are financing
groups involved with terrorism.

Neither local police nor prosecutors have a single Arabic speaker or
translator, officials here said, fueling a climate rich in suspicion
but lacking in evidence.

"They speak only their own language and they don't let others into
that world," said Vasquez. "We suspect they are getting more involved
in narco-trafficking, but it's difficult to really know because they
are so closed off from us."

Samir Jebai, a Lebanese immigrant who is one of this city's most
prominent businessmen, said that description doesn't fit him.

He is thoroughly connected as head of a prominent business
association and has contacts in the highest levels of Paraguay's
government. In addition, according to a Congressional Research
Service report, his brother-in-law was among those arrested as part
of Barakat's ring.

Jebai said that some years ago, when he decided it was time to help
his adopted country, he called then-Education Minister Nicanor Duarte
- -- now Paraguay's president -- and told him he was going to build
schools for the poor.

Jebai, who deals in watches, said he has been falsely labeled a
terrorist in the local media, which he considers a libelous charge
circulated by his commercial competitors. The suspicions of money
laundering, he said, are exaggerated, and he offered an alternative
explanation for the undocumented transfer of large amounts of cash:
tax evasion.

In ordering a shipment of $200,000 worth of goods, he said, an
importer might create a counterfeit invoice valuing the shipment at
$50,000 to pay fewer duties. Then when the supplier was paid,
investigators would find that $150,000 remained unaccounted for. It
was a widespread practice until about six months ago, he said, before
officials began more extensive checks of importers' invoices.

"Before, there was a lot more bribery with officials to avoid paying
taxes," said Jebai, who also said he has seen a massive drop-off in
counterfeit goods in recent years. "And the counterfeit products have
disappeared 90 percent. Maybe 95 percent."

A trip to one of two warehouses where agents collect three to four
tons of confiscated goods from the markets each week offers an
instant corrective to that notion. The cardboard boxes are bursting
open with pirated CDs and DVDs, PlayStation games, shoes, Hello Kitty
dolls and watches. The air smells like tobacco, from thousands of
cartons of phony Marlboros.

To get to his waiting truck from the warehouse last week, federal
prosecutor Jorge Moura had to climb over disorderly boxes of CDs
cluttering a doorway. On the road outside, he spotted a
Mercedes-Benz, which he said reminded him of one of the biggest
obstacles standing in the way of the current crackdown on
trade-related crimes here.

"I can't afford a Mercedes on my income, because it's only about $700
a month," he said, nodding toward the car. "But there are a lot of
people around here who can. In every sector. They are getting a lot
of extra income."