Countries/Jurisdictions of Primary Concern - Paraguay
Paraguay is a major drug transit country and money laundering center. A multi-billion dollar contraband trade, fed in part by endemic institutional corruption, occurs in the tri-border region shared with Argentina and Brazil and facilitates much of the money laundering in Paraguay. While the Government of Paraguay believes proceeds from narcotics trafficking are often laundered in the country, it is difficult to determine what percentage of the total amount of laundered funds is generated from narcotics sales or is controlled by domestic and/or international drug trafficking organizations, organized crime, or terrorist groups. Weak controls in the financial sector, porous borders, bearer bonds, casinos, unregulated exchange houses, lax or no enforcement of cross-border transportation of currency and negotiable instruments disclosure, ineffective and/or corrupt customs inspectors and police, trade-based value transfer, underground remittance systems, and minimal enforcement activity for financial crimes allow money launderers, transnational criminal syndicates, and possibly terrorism financiers to take advantage of Paraguay’s financial system.
Ciudad del Este, on Paraguay’s border with Brazil and Argentina, and nearby Salto del Guairá and Pedro Juan Caballero represent the heart of Paraguay’s “informal” economy, and trade-based money laundering occurs in the region. The area is well known for arms and narcotics trafficking, document forging, smuggling, counterfeiting, and violations of intellectual property rights, with the illicit proceeds from these crimes a source of laundered funds. Paraguay is at the heart of the Latin American contraband cigarette trade. Some proceeds of these illicit activities were supplied to terrorist organizations.
Paraguay does not have an offshore sector. Paraguay’s port authority manages free trade ports and warehouses in Argentina (Buenos Aires and Rosario); Brazil (Paranagua, Santos, and Rio Grande do Sul); Chile (Antofagasta and Mejillones); and Uruguay (Montevideo and Nueva Palmira).
Money laundering occurs in both the formal financial sector and the non-bank financial sector, particularly in exchange houses. Both sectors move illicit proceeds into the U.S. banking system. Large sums of dollars generated from normal commercial activity and suspected illicit commercial activity are also transported physically from Paraguay to Uruguay and Brazil, with onward transfers likely to destinations that include banking centers in the United States.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: //2009-2017.state.gov/j/ct/rls/crt/
Do FINANCIAL INSTITUTIONs engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or illegal drug sales that otherwise significantly affect the U.S.: YES
criminalizATION OF money laundering:
“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes
Are legal persons covered: criminally: YES civilly: YES
Know-your-customer (KYC) rules:
Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES
KYC covered entities: Banks, credit and consumer cooperatives, and finance companies; insurance companies; exchange houses, stock exchanges, securities dealers, investment and trust companies; mutual and pension fund administrators; gaming entities; real estate brokers; non-governmental organizations (NGOs); pawn shops; and dealers in precious stones, metals, art, and antiques
Number of STRs received and time frame: 2,392: January – September 2014
Number of CTRs received and time frame: Not available
STR covered entities: Banks, credit and consumer cooperatives, and finance companies; insurance companies; exchange houses, stock exchanges, securities dealers, investment and trust companies; mutual and pension fund administrators; gaming entities; real estate brokers; NGOs; pawn shops; and dealers in precious stones, metals, art, and antiques
money laundering criminal Prosecutions/convictions:
Prosecutions: 1 in 2014
Convictions: 0 in 2014
Records exchange mechanism:
With U.S.: MLAT: NO Other mechanism: YES
With other governments/jurisdictions: YES
Paraguay is a member of the Financial Action Task Force in Latin America (GAFILAT), a FATF-style regional body. Its most recent mutual evaluation can be found at: http://www.gafilat.org/UserFiles/documentos/es/evaluaciones_mutuas/Paraguay_3era_Ronda_2008.pdf
Enforcement and implementation issues and comments:
In 2014, Paraguayan authorities arrested the alleged mastermind of a scheme that laundered close to $500 million. While working at an accounting firm in Ciudad del Este, the subject allegedly helped clients launder money using both the Forex S.A. exchange house and several major Paraguayan banks. These banks received letters of reprimand and disapproval in 2013 for failing to follow AML and KYC reporting requirements. U.S. authorities opened criminal investigations against several of these banks’ correspondent institutions in the United States.
In November 2013, Paraguay approved a new law to prevent money-laundering and combat terrorist financing. The law took effect in February 2014 and strengthens the rules for reporting on financial transactions. Individuals and financial institutions must now provide significantly more information about their financial transactions and identities.
Prosecutors handling financial crimes have limited resources to investigate and prosecute. In addition, the selection of judges, prosecutors, and public defenders is largely based on politics, nepotism, and influence peddling. Interagency cooperation is improving, but continues to be an impediment to effective enforcement, prosecution, and reporting efforts. Money laundering enforcement data only represents cases prosecuted by the Attorney General’s Economic Crimes Office. Paraguay does not have a centralized system for tracking money laundering cases prosecuted by other offices or by local prosecutors outside of Asuncion.
The non-bank financial sector operates in a weak regulatory environment with limited supervision. The autonomous government institution responsible for regulating and supervising credit unions, the National Institute of Cooperatives, lacks the capacity to enforce compliance. Credit unions respond to central bank ad hoc requests for money laundering indicators, even though they do not fall under the central bank’s formal oversight. Currency exchange houses are another critical non-bank sector where enforcement of compliance requirements remains limited.
Paraguay’s constitution requires all public employees to declare their financial assets both upon assuming and departing a government position. Following the inauguration of the new government in August 2013, the president, vice president, the 10 ministers of the executive branch, and 22 other minister-rank and high-ranking employees of the administration filed financial disclosure forms in compliance with the constitution, a first in Paraguay. New laws issued in 2013 mandated stricter guidelines on the information that must be disclosed by public officials and the penalties for non-compliance. As of January 2014, public employees must also disclose the assets and income of spouses and dependent children. Compliance with financial disclosure laws increased in 2014.
Customs operations at the airports and overland entry points provide little control of cross-border cash movements. Customs officials are often absent from major border crossings, and required customs declaration reports are seldom checked. Paraguay has yet to put in place an effective framework for disposing of bulk cash seized in connection with undeclared or suspicious movements.
Although the Government of Paraguay is making progress in improving its AML/CFT regime, concerns remain regarding the country’s ability and commitment to identify, investigate, and prosecute money laundering and related crimes effectively. Pervasive corruption is the facilitator. The lack of prosecutions and convictions is telling. Authorities should take additional steps to foster coordination among concerned agencies and departments and provide the training and resources necessary to effectively combat the laundering of illicit funds and value transfer.