April 15, 2019
U.S. Secretary of State Mike Pompeo is headed to Paraguay this week to garner support for the Trump Administration’s policy of maximum pressure against Venezuela’s dictator, Nicolas Maduro. This is the first visit to Paraguay by such a high-ranking U.S. official since 1965, and Asuncion is already spinning it as a diplomatic coup. Yet Paraguay has a Hezbollah problem. Many of its top officials are in denial about Hezbollah’s influence — or worse, they have been bribed and co-opted. Major investigations have exposed the extent of the problem, but the resulting cases fail to move through the judicial system. Secretary Pompeo should disabuse Paraguay’s leaders of the notion that their support on Venezuela relieves Asuncion of the need to help Washington’s campaign against Iran and its proxy Hezbollah.
Paraguay is a major hub of illicit finance. The epicenter of Hezbollah activity in South America is the Tri-Border Area of Paraguay, Argentina, and Brazil, which the just-released annual State Department International Narcotics Control Strategy Report describes as “the center of a multi-billion-dollar illicit goods trade, including marijuana cultivation, the trafficking of Andean cocaine, and arms smuggling that facilitates significant money laundering in Paraguay.” Hezbollah is running amok in Paraguay’s own backyard, yet its government refuses to acknowledge the group’s presence, let alone take action.
U.S. authorities allege that a key figure in this giant scheme is Nader Mohamad Farhat, a Lebanese-Brazilian arrested in May 2018 by Paraguayan police at Washington’s behest. Since then, the U.S. Department of Justice has patiently waited for his extradition. Court records show that Farhat faces two separate indictments — in Miami for drug trafficking, and in New York’s Eastern District for money laundering. Farhat’s alleged co-conspirator Mahmoud Ali Barakat was arrested in June and extradited in November 2018. Farhat is still in Paraguay, and the former Israeli ambassador to Asuncion has now accused its government of protecting Farhat.
Farhat may be too big a fish to let go, both for Hezbollah and its Paraguayan accomplices. Court records show that the discovery process in Farhat’s New York case will initially include almost two terabytes of electronic evidence, including data seized during raids in Paraguay. The records also claim that numerous local companies relied on Farhat’s money-exchange business — nominally owned by his wife, a Taiwanese-Brazilian dual national — to conduct trade-based money laundering through sales of electronics.
Previous law enforcement actions have shown how Hezbollah funds itself through overseas illicit activities, yet when it comes to the Tri-Border Area, there remains considerable uncertainty about which local financial institutions Hezbollah uses; who its local enablers and facilitators are; who moves their cash; and who takes their bribes.
The Farhat evidence dump might shed important light, which is why numerous actors — in Paraguay as well as Lebanon — may not wish to ever let him face U.S. justice. Every additional day that Farhat spends in a Paraguayan prison increases the risk of an escape or a fatal accident. This has happened before in Hezbollah-related drug-trafficking cases. Two suspected Hezbollah drug traffickers that Paraguayan authorities arrested in February 2017 managed to escape from jail in December of that year. Paraguayan authorities waited for days to issue international arrest warrants. An associate of the escaped prisoners, arrested in April 2017 on a tip from U.S. authorities, was soon released, only to be found dead in his apartment last January. Police reports obtained by the Foundation for Defense of Democracies through confidential sources cite a heart attack as the cause of death. The large pool of dried blood on his kitchen floor that is clearly visible in police photos suggests otherwise.
Farhat’s is not the only case Pompeo should raise with his Paraguayan interlocutors. “Megalavado,” or “mega-wash,” is a giant scheme alleged to have laundered $1.2 billion, including at least a quarter through the United States.
Local media, citing leaked files from the investigation, claim that part of the scheme funded Hezbollah through used-car businesses in the United States. These are the same businesses that Project Cassandra, a decade-long operation run by the DEA through the Special Operations Division, identified in one of its most successful investigations, the 2011 Lebanese Canadian Bank case. The project busted important Hezbollah networks involved in laundering drug money from Colombian and Mexican cartels. It also tracked and disrupted cocaine shipments to Europe, which involved a vast global network run by the Hezbollah facilitator Ayman Joumaa to launder money for Colombian and Mexican drug cartels.
Paraguay’s prosecutors began to investigate Megalavado in 2014 and eventually seized key evidence in raids launched in November 2016. Paraguayan authorities have manipulated the system to delay indictments and convictions, thanks to a provision in their legal system that allows the defense to ask for — and usually obtain — the recusal of prosecutors. Paraguay’s Supreme Court has the final say on recusals — and it has used this power repeatedly to shield influential players from justice. Megalavado prosecutors have been recused numerous times, and the case has limped and stalled indefinitely.
Pompeo needs to put all this at the top of his agenda and make clear there will be consequences if Asuncion refuses to get serious about Hezbollah, starting with Farhat’s extradition.
Specifically, the secretary should explain how the United States could leverage existing sanctions legislation, including the recently passed Hezbollah International Financing Prevention Act Amendments Act, not just to disrupt Hezbollah’s overseas networks, but also target those in Paraguay who facilitate Hezbollah’s networks through complicity, collusion, corruption, and protection.
The legislation authorizes the application of enhanced due diligence measures for U.S. banks with respect to entire jurisdictions other than Lebanon — at the federal, state, or municipal levels — that “expressly consent to, or with knowledge allow, the use of their territory by Hizballah to carry out terrorist activities, including training, financing, and recruitment.” This means that if local politicians and bureaucrats in the Tri-Border Area know about and disregard Hezbollah’s fundraising and recruitment in areas that they administer, the administration could subject the area itself to increased financial scrutiny.
Washington could also take a page from the Obama administration playbook in the aforementioned Lebanese-Canadian Bank case. Then, the Treasury Department designated the bank as an entity of primary money laundering concern under Section 311 of the Patriot Act. The combined blows of that designation and U.S. criminal prosecutions ultimately forced the bank out of business.
This, then, should be Pompeo’s message to Paraguay: Support on Venezuela deserves credit. It cannot come at the price of letting Hezbollah launder billions in the Tri-Border Area while shielding its financiers from U.S. justice.
Foundation for Defense of Democracies