US embassy cable - 05ASUNCION1261

S E C R E T SECTION 01 OF 02 ASUNCION 001261 
 
SIPDIS 
 
STATE FOR S/CT 
NSC FOR SUE CRONIN 
TREASURY FOR OSIA MAUREEN WAFER 
TREASURY FOR OTA WARFIELD, VAN KOCH, MILLAR 
SOUTHCOM FOR POLAD DAN JOHNSON 
 
E.O. 12958: DNG: CO OADR 
TAGS: PTER, PGOV, KCRM, KTFN, ETTC, PA 
SUBJECT: PARAGUAY: TRIAL SET FOR SUSPECTED TERRORIST 
FINANCIER HIJAZI 
 
 
Classified By: Susan S. Sutter for reasons 1.4 (b) and (d). 
 
1.  (C)  SUMMARY:  Paraguayan courts will summon indicted 
Lebanese businessman, Kassem Hijazi, who is charged with tax 
evasion, criminal association, and violating accounting 
regulations, to a preliminary oral hearing on October 25. 
Because back taxes, interest, and fines could surpass USD 7 
million, Hijazi could face a 10-year jail term if convicted 
on the tax evasion charges.  Hijazi, while not formally 
charged with money laundering, is also suspected to have 
laundered millions of dollars of profits stemming from 
illicit activities in Ciudad del Este through money exchange 
houses.  A portion of these funds also is suspected to 
support Lebanese Hizbollah activities.  While Paraguayan 
prosecutors originally sought money laundering charges 
against Hijazi, to date no one has even been convicted of 
money laundering in Paraguay, due to a deficient legal 
framework.  END SUMMARY. 
 
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How Hijazi Operated 
------------------- 
 
2.  (S/NF)  Kassem Mohammad Hijazi is a Brazilian citizen of 
Lebanese descent who owned a pawn shop, which he illegally 
operated as a money exchange house known as "Telefax 
Prestamos Prendarios" in Ciudad del Este (CDE), Paraguay 
(located on the tri-border area of Brazil, Paraguay and 
Argentina). Prosecutors on the case believe Hijazi illicitly 
transported money via wire transfers to the United States, 
the West Bank and Gaza, Lebanon, China, Chile, Taiwan and 
Panama through a number of money exchange houses. According 
to press reporting and conversations with the prosecutors on 
the case, Hijazi laundered money for individuals involved in 
illegal activities in the tri-border area such as smuggling, 
piracy, tax evasion, and fees paid to mafia groups. 
Sensitive reporting and press also indicate that Hijazi took 
a portion of the laundered funds to support Lebanese 
Hizbollah activities.  Local media reported that millions of 
dollars were sent through Hijazi to several banks in Beirut 
controlled by Hizbollah.  USG organizations know Hijazi to be 
a principle Hizbollah fundraiser and activist and to support 
Hizbollah terrorist-related activities. Aldolfo Marin, one of 
the Paraguayan prosecutors of the case, noted to POLOFFS that 
documents confirm Hijazi,s authentic signature authorizing 
the transfer of USD 10.2 million from the total USD 65 
million authorized by Hijazi (sometimes with false 
signatures) that was transferred from exchange houses in 
Ciudad del Este between October 2001 and December 2003.  In 
June 2005, Brazilian Federal Police also opened an 
investigation into Hijazi,s money laundering operations in 
the tri-border area. 
 
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The Case Against Hijazi 
----------------------- 
 
3.  (C)  Under pressure by Brazilian authorities, Paraguayan 
officials arrested Hijazi in March 2004 in his clandestine 
exchange house in Ciudad del Este and accused him of money 
laundering.  On February 8, 2005, prosecutors formally 
charged Hijazi with the lesser crimes of tax evasion and 
false documentation of commercial records.  Although money 
laundering in the case was evident, prosecutors lacked 
sufficient evidence to make a legal case for his involvement, 
largely due to the lack of evidence linking Hijazi to 
predicate crimes, and therefore dropped the money laundering 
charges.  According to Paraguayan law, because back taxes, 
interest, and fines could surpass USD 7 million, Hijazi could 
face a 10-year jail term if convicted on the tax evasion 
charges.  At present, Hijazi remains free on bail, but he 
must check in weekly with authorities and cannot leave 
Paraguay.  His case will appear before court for a 
preliminary oral hearing on October 25, 2005.  Currently, 
there is no prosecutor assigned to the case, as Aldolfo Marin 
recently resigned from the Public Ministry and Juan Carlos 
Duarte relocated to another district.  Agosto Mengual, expert 
witness for the case, expressed his concern to POLOFF that if 
no prosecutor is assigned to the case, the preliminary 
hearing may be pushed back to February 2006. 
 
4.  (C)  Local press has widely covered the investigation of 
the case against Hijazi and the prosecutors involved.  In an 
attempt to protect Hijazi and discredit the prosecutors, some 
press articles criticized the work of prosecutors Marin and 
Duarte, accusing them of corruption and bribery.  According 
to the media, the prosecutors relied on the opinion of expert 
witness Mengual, who found that Hijazi had evaded USD 3.8 
million in taxes and ignored the reports of two other 
experts, who found that Hijazi made daily suspicious deposits 
of USD 10,000 and may have laundered up to USD 32 million. 
Both prosecutors told POLOFF they never received a report 
from the other experts, and therefore had to rely only on the 
report filed by Mengual.  (COMMENT:  In the past, USG 
officials have relied on Mengual for information relating to 
this case with some level of confidence. END COMMENT.) (NOTE: 
 The role of the expert or "perito" in the Paraguayan 
judicial system is to not only testify during the trial, but 
also to investigate volumes of evidence and determine any 
involvement of the defendant in the case. Oftentimes, the 
perito is a banking expert or businessman; however, these 
experts may have little understanding of the Paraguayan 
criminal law or judicial system.  END NOTE.) 
 
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A Second Pending Case 
--------------------- 
 
5.  (C)  In a separate case, prosecutors announced in 
February 2005 that they would investigate 113 Ciudad del Este 
businesses linked to the transfers made by Hijazi through the 
money exchange house, Tupe Cambios, including 46 individuals, 
of which 36 are of Arab descent and 10 are Paraguayan.  These 
individuals claimed to prosecutors that they loaned Hijazi 
money, but were actually lending their signatures on 
documents helping Hijazi evade taxes.  Prosecutors charged 
the 46 "name lenders" with criminal association and 
obstruction of an investigation.  This case is currently 
before the Supreme Court,s Constitutional Chamber, where 
prosecutors have until February 2009 to bring the case to an 
oral trial, according to Paraguayan law. 
 
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An Uphill Battle Against Money Laundering Prosecutions 
--------------------------------------------- ---------- 
 
6.  (C)  Paraguay is a principal money laundering center. 
Although no figures are known, Paraguayan Government 
officials suspect criminals, drug traffickers, and terrorist 
financiers use a range of illicit and licit activities to 
launder funds.  Paraguay still lacks sufficient capacity for 
the enforcement, investigation and prosecution of criminal 
offenses for money laundering cases.  In fact, to date no 
individuals have been convicted of money laundering, and many 
only receive convictions for lesser crimes like tax evasion. 
Adoption and implementation of a new money laundering law 
that is currently before Congress will provide GOP 
authorities with the necessary resources and mechanisms 
essential for proper investigation and law enforcement. 
Washington may wish to use the information contained in this 
cable when considering designating Hijazi a terrorist 
financier and/or money launder. 
KEANE