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 disclosures, 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 accounts for over 10 percent of the world’s contraband cigarette trade. There are estimates that up to 90 percent of cigarettes produced in Paraguay, approximately $1 billion worth, is smuggled annually across borders, largely to Brazil, Argentina, and Uruguay. Cigarette smuggling is used for money laundering purposes and the cigarette supply chain enriches criminal organizations and corrupt officials. In the past, terrorist organizations have received some proceeds from these illicit activities.
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: 2,238: January – November 2015
Number of CTRs received and time frame: 166: January – November 2015
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: 7 in 2015
Convictions: 3 in 2015
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 of 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:
Although the Government of Paraguay is making progress in improving its AML/CFT regime, concerns remain regarding the country’s ability to identify, investigate, and prosecute money laundering and related crimes effectively. Concerns remain about the willingness of the banking sector to engage in combatting AML/CFT. The lack of data on prosecutions and convictions makes tracking government effectiveness difficult. Available information is inconsistent. Paraguayan authorities recognize the lack of data centralization as a persistent weakness. The Government of Paraguay, through long-term engagement of subject matter experts from international donors, is working to improve its AML/CFT regime. Understanding that illicit narcotics trade proceeds often finance further illicit trafficking, corruption, and terrorism, the National Anti-Narcotics Secretariat (SENAD) has sought assistance from the international law enforcement community to train and coordinate with SENAD AML investigators.
Pursuant to new legislation passed on September 7, 2015 (Resolution 345/15), Paraguayan banks, financial institutions, and insurance companies must abide by AML/CFT regulations to identify financial beneficiaries. The law requires clients of financial institutions to convert bearer shares into registered shares or, alternatively, to immobilize their bearer shares in a Paraguayan financial institution. Beginning in 2016, the Central Bank of Paraguay will keep a registry of immobilized bearer shares.
In 2015, the Inter–American Development Bank published the National Risk Assessment of Paraguay, which identifies the most relevant AML/CFT threats and vulnerabilities. Paraguayan officials report they are updating their AML Strategic Plan and allocating resources more efficiently as a result.
The Secretariat for the Prevention of Laundering of Money or Assets (SEPRELAD) - the financial intelligence unit (FIU) - is Paraguay’s AML authority. SEPRELAD has Minister-level leadership that reports directly to the President. In 2015, the Attorney General’s Office (AGO) also established a money laundering unit and appointed a specialized AML prosecutor, based in Asuncion, to handle all cases and centralize country-wide efforts. Plans are underway to increase staff and provide additional resources.
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 continues to improve but remains an impediment to effective enforcement, prosecution, and reporting efforts. Although the AGO’s Economic Crimes Office is responsible for prosecuting money laundering cases, other offices often prosecute money laundering charges in cases involving other charges, such as narco-trafficking. Paraguay does not have a formal system for tracking money laundering cases, which makes collecting data on cases prosecuted by other offices or by local prosecutors outside of Asuncion difficult. Higher numbers of prosecutions and convictions in 2014 and 2015 indicate increased willingness and capability to address money laundering.
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.
Customs operations at 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.
Some Paraguayan businesses in perceived high-risk sectors (including gun dealers, jewelers, and casinos) encountered difficulties in sending money to and receiving money from banks in other countries. SEPRELAD reports it has not prohibited such transactions and has committed to working with individual banks as well as banking consortiums to clear up any misunderstanding or overly strict interpretation of AML regulations.
The Government of Paraguay should address the pervasive corruption in the country. Authorities should take additional steps to provide the training, resources, and will to effectively combat the laundering of illicit funds and value transfer.