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THE ENEMY IN OUR BACKYARD: 

EXAMINING TERROR FUNDING STREAMS 

FROM SOUTH AMERICA 

HEARING 

BEFORE THE

TASK FORCE TO INVESTIGATE 

TERRORISM FINANCING 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

JUNE 8, 2016 

Printed for the use of the Committee on Financial Services 

Serial No. 114–92 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

TASK FORCE TO INVESTIGATE TERRORISM FINANCING

MICHAEL G. FITZPATRICK, Pennsylvania, Chairman 

ROBERT PITTENGER, North Carolina, Vice 

Chairman 

PETER T. KING, New York 

STEVE STIVERS, Ohio 

DENNIS A. ROSS, Florida 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

DAVID SCHWEIKERT, Arizona 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

FRENCH HILL, Arkansas 

STEPHEN F. LYNCH, Massachusetts, 

Ranking Member 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

AL GREEN, Texas 

KEITH ELLISON, Minnesota 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

KYRSTEN SINEMA, Arizona 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

June 8, 2016 ...................................................................................................... 1 

Appendix: 

June 8, 2016 ...................................................................................................... 29 

WITNESSES 

WEDNESDAY, JUNE 8, 2016 

Braun, Michael A., Co-Founder and Managing Partner, SGI Global, LLC ........ 7 

Federici, Mariano, President, Financial Intelligence Unit of Argentina ............. 5 

Ottolenghi, Emanuele, Senior Fellow, Center on Sanctions and Illicit Finance, 

Foundation for Defense of Democracies ............................................................. 8 

APPENDIX 

Prepared statements: 

Braun, Michael A. ............................................................................................ 30 

Federici, Mariano ............................................................................................. 40 

Ottolenghi, Emanuele ...................................................................................... 46 

(1) 

THE ENEMY IN OUR BACKYARD: 

EXAMINING TERROR FUNDING STREAMS 

FROM SOUTH AMERICA 

Wednesday, June 8, 2016 

U.S. HOUSE OF REPRESENTATIVES, 

TASK FORCE TO INVESTIGATE

TERRORISM FINANCING, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The task force met, pursuant to notice, at 9:03 a.m., in room 

2128, Rayburn House Office Building, Hon. Michael Fitzpatrick 

[chairman of the task force] presiding. 

Members present: Representatives Fitzpatrick, Pittenger, Ross, 

Rothfus, Schweikert, Williams, Poliquin; Lynch, Ellison, Himes, 

Foster, and Sinema. 

Chairman FITZPATRICK. The Task Force to Investigate Terrorism 

Financing will come to order. The title of today’s task force hearing 

is, ‘‘The Enemy in Our Backyard: Examining Terror Funding 

Streams from South America.’’ 

Without objection, the Chair is authorized to declare a recess of 

the task force at any time. 

Also, without objection, members of the full Financial Services 

Committee who are not members of the task force may participate 

in today’s hearing for the purpose of making an opening statement 

or questioning the witnesses. 

The Chair now recognizes himself for 2 minutes for an opening 

statement. 

First, thank you, everyone, for joining us for the eighth hearing 

of the House Financial Services Committee’s Task Force to Investigate Terrorism Financing. I would like to again thank Chairman 

Hensarling and Ranking Member Waters, as well as my colleagues 

here, for their unwavering support as we continue to investigate 

the threat of terror finance. 

In previous task force hearings, Latin America, specifically the 

tri-border region, has repeatedly been cited as an area of concern 

regarding anti-money laundering and terror finance. As chairman 

of this task force, we have met with our regional partners, as well 

as U.S. personnel on the ground in South and Central America who 

are working to identify and choke off funding to terrorist and organized criminal groups. While in country, including in Argentina 

and Paraguay, we investigated and engaged the efforts put forth by 

our allies, the means being employed, the efforts being made by the 

United States in the region, and whether the United States lawVerDate Nov 24 2008 16:41 Aug 18, 2017 Jkt 025847 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\25847.TXT TERI
2 

makers need to provide new tools or engage the Administration to 

more effectively use the authority and resources that they already 

have. 

Today, with this expert panel of witnesses before us, we aim to 

continue our investigation. This hearing will examine how South 

American criminal enterprises, including those designated by the 

State Department as foreign terrorist organizations, fund their operations, including through the illicit uses of the financial system. 

At this time, I would like to recognize the task force’s ranking 

member, my colleague Mr. Lynch from Massachusetts, for an opening statement. 

Mr. LYNCH. Thank you, Mr. Chairman. 

I want to thank our witnesses for your willingness to help this 

task force with its work. 

I also want to thank Vice Chairman Pittenger, whom I understand was renominated in the Republican primary yesterday. So 

congratulations on that. 

I am pleased we are holding today’s hearing so we can further 

examine terrorist financing streams from South America. Today, I 

would like to put particular focus on the revelations contained in 

the leaked financial documents known as the Panama Papers. This 

past April, millions of leaked documents from the Panama-based 

law firm Mossack Fonseca exposed how some of the world’s most 

powerful people used a web of complex financial transactions, including offshore bank accounts and shell companies, to hide their 

wealth. 

According to the International Consortium of Investigative Journalists, ICIJ, more than 214,000 offshore entities appear in the 

leak connected to people in more than 200 countries and territories, 

including alleged drug traffickers from South America. In addition, 

the files include at least 33 people and companies blacklisted by 

the U.S. Government because of evidence that they have been involved in wrongdoing, such as doing business with Mexican drug 

lords or terrorist organizations like Hezbollah, and these revelations highlight the need to combat secrecy and corruption in the 

global financial system. 

In response, we on this committee have been working, along with 

some of our colleagues on the larger committee and on this task 

force, on legislation to combat corruption by foreign governments. 

Our legislation would authorize the Department of the Treasury to 

pay rewards that help identify and recover stolen assets linked to 

foreign government corruption. This is necessary because no existing reward program provides monetary incentives for identifying 

and recovering stolen assets linked solely to foreign government 

corruption. Individuals who come forward to expose this type of 

corruption do so at great risk to themselves and their families, and 

monetary rewards can provide a necessary incentive to expose corruption and provide financial means to provide for their well-being 

after the fact. 

Another common theme throughout this task force that is reinforced through the release of the Panama Papers is the need to collect information on the true ownership of these entities. Earlier 

this week, The New York Times did a terrific article written by 

Eric Lipton and Julie Creswell. I want to compliment them. It is 

3 

a thoroughly researched and well-written article that demonstrates 

how U.S. citizens used the Mossack Fonseca Law Firm to create 

shell companies to hide their wealth overseas. According to that article, Mossack Fonseca had at least 2,400 U.S.-based clients over 

the past decade and set up at least 2,800 companies on their behalf 

in jurisdictions that specialize in helping clients hide their assets. 

Shell companies are particularly susceptible to exploitation by 

terrorists as they are often used to mask the identities of their beneficial owners. It is critical that the United States collect information on beneficial ownership in order to prevent criminals and terrorists from exploiting anonymity to conceal their illicit activity. 

Now, these constructs are principally used to avoid paying U.S. 

taxes. However, they also facilitate terrorist financing. I am proud 

to be an original cosponsor of the bipartisan Incorporation Transparency and Law Enforcement Assistance Act of 2016 sponsored by 

my colleague, Mrs. Maloney of New York. Anonymous corporations 

significantly hinder investigations into terrorist financing. By 

strengthening beneficial ownership disclosure requirements, this 

legislation will tighten a weak link in our current efforts to follow 

the money that is funding terrorist organizations around the world. 

This is an urgent national security issue, and I look forward to 

working with my colleagues on this task force and the House Financial Services Committee to close this loophole. I am pleased to 

hear from our witnesses today so we can better understand terrorist funding streams in South America, including the revelations 

from the release of the Panama Papers. 

I yield back the balance of my time. Thank you, Mr. Chairman. 

Chairman FITZPATRICK. Thank you. 

And I now recognize the vice chairman of the task force, Mr. 

Pittenger of North Carolina. 

Mr. PITTENGER. Thank you, Chairman Fitzpatrick and Ranking 

Member Lynch, and the distinguished panel before us today. 

Mr. Chairman, I am particularly grateful for today’s hearing, 

which will focus on the illicit finance operations in South America. 

As you know, a delegation from this task force recently visited Colombia, Panama, Paraguay, and Argentina to meet with government officials and view firsthand the problems that they face in 

South America. 

When I was in Argentina, I had the pleasure of meeting with one 

of the distinguished panelists, Mr. Mariano Federici. Mr. Federici 

is an outstanding public servant, a representative of the Argentinian people. Mr. Federici’s role with Argentina’s government 

gives me great hope and certainty of Argentina’s serious commitment about combating illicit finance operations. Furthermore, I 

would like to highlight that Mr. Federici will be participating with 

us in a parliamentary security conference that I will be hosting in 

Vienna in 2 weeks where he will be able to share his work before 

parliamentarians from over 25 countries. 

Thank you for your continued partnership with us on these 

issues and your willingness to participate in the forum. 

Back in October, I cohosted a similar security forum here in 

Washington with another panelist, Mr. Braun, who also participated. 

4 

Mr. Braun, it is great to see you back here again in Washington. 

Thank you for your continued work and dedication to these issues. 

Mr. Chairman, thank you, and I yield back. 

Chairman FITZPATRICK. We now welcome our witnesses. 

Mr. Mariano Federici has been the president of the Financial Intelligence Unit of Argentina since January 2016. In this capacity, 

Mr. Federici directs the country’s anti-money laundering and 

counterterrorist financing efforts. Previously, Mr. Federici was a 

country lawyer, regional adviser, and senior counsel to the International Monetary Fund in Latin America. He also worked as an 

associate for an Argentina law firm, advising financial institutions 

and companies in a wide spectrum of transactions and matters involving regulatory and statutory interpretation. 

At the start of his career, Mr. Federici worked as a clerk for the 

national criminal courts of the City of Buenos Aires. He was born 

in Buenos Aires, holds a juris doctor from the Catholic University 

of Argentina, and a master of laws in law and finance from the 

University of Virginia School of Law. 

Mr. Michael Braun is a cofounder and one of two managing partners at SGI Global. Mr. Braun has 33 years of extensive experience 

in Federal, State, and local law enforcement. He spent 24 of these 

years at the U.S. Drug Enforcement Administration where he developed the DEA’s successful counternarcoterrorism programs, including the formative development of the agency’s Foreign-Deployed Advisory and Support Teams, the FAST teams, and other 

programs addressing narcoterrorism. He is also responsible for the 

agency’s extensive expansion in Afghanistan from 2004 to 2008. 

Mr. Braun retired from the DEA as Assistant Administrator and 

Chief of Operations in 2008. And when we were down in Central 

America, we ran into some former colleagues who called Mr. Braun 

an icon in law enforcement. They talked about how his influence 

and his leadership and vision continue to define the DEA even a 

decade after his retirement. 

So, sir, we thank you for your service. 

Dr. Emanuele Ottolenghi is a senior fellow at the Center on 

Sanctions and Illicit Finance at the Foundation For Defense of Democracies (FDD). Dr. Ottolenghi’s research focuses primarily on 

Iran’s Islamic Revolutionary Guard Corps, the European Union’s 

Middle East policymaking, transatlantic relations, and the ArabIsraeli conflict, as well as Israel’s domestic politics. 

Prior to joining the FDD, Dr. Ottolenghi headed the Transatlantic Institute in Brussels and taught Israel studies at Saint Anthony’s College at Oxford University. He obtained his Ph.D. in political theory at the Hebrew University of Jerusalem and an undergraduate degree in political science at the University of Bologna. 

The witnesses will now be recognized for 5 minutes to give an 

oral presentation of their testimony. And without objection, the witnesses’ written statements will be made a part of the record. 

Once the witnesses have finished presenting their testimony, 

each member of the task force will have 5 minutes within which 

to ask questions. 

For the witnesses, on your table there are three lights: green; 

yellow; and red. Yellow means you have 1 minute remaining. Red 

means your time is up. 

5 

With that, Mr. Federici, you are now recognized for 5 minutes. 

STATEMENT OF MARIANO FEDERICI, PRESIDENT, FINANCIAL 

INTELLIGENCE UNIT OF ARGENTINA 

Mr. FEDERICI. Thank you very much, Mr. Chairman, and members of the Task Force to Investigate Terrorism Financing. 

I would like to start by sharing with you that in September 2001, 

I was a young lawyer working for Sullivan & Cromwell in New 

York. I was at the firm’s Wall Street office when the attacks took 

place and saw the collapse of the second tower with my own eyes. 

I still vividly remember that moment, the frustration and the anger 

at the terrorists, but also the respect and admiration towards the 

people of this great Nation and how fast they came together to 

bring it back on its feet. 

It is therefore a true and special honor for me to be sitting at 

this hearing today with Representatives of the people, only a few 

months away from the 15th anniversary of that tragic day, to discuss how we can suppress terrorism and prevent such attacks from 

happening again. I would like to talk about what we found in Argentina upon taking office 4 months ago and our vision on how to 

improve things. 

We encountered a challenging situation in the area of financial 

integrity left by the people who preceded us in the Argentine Government. It is clear to us by now that there was a complete lack 

of political will to fight money laundering and terrorist financing 

in Argentina during the last 12 years. There was a lack of strategic 

planning which prevented the government from prioritizing its efforts and making an efficient use of public resources. This in turn 

led to a serious lack of effectiveness with a related impact on risk 

levels. 

Throughout the last 10 years, the threats to financial integrity 

increased significantly as criminals exploited the advantages of a 

sophisticated financial system with the vulnerabilities of an uncommitted government. 

One of the main structural vulnerabilities exploited by criminals 

in recent years was corruption. Corruption under the previous administration was the rule, not the exception, and corrupt officials 

were rewarded rather than punished. 

At our Financial Intelligence Unit in particular, the situation 

was also critical. The strategy was to have no strategy, which allowed for discretionary use of anti-money laundering and counterterrorist financing tools. 

We are now working at full speed in repairing the damages. 

There is a clear and strong political will to fight organized crime 

and terrorism. Our objective is to protect the financial system and 

the broader economy from the threats of money laundering and terrorist financing, thereby strengthening financial sector integrity 

and contributing to safety and security. 

Our main focus will be placed on effectiveness, as we believe Argentina has the necessary legal and institutional instruments in 

place to begin producing results. To achieve this, it is important to 

strengthen the role of operational agencies such as ours, and the 

government of President Macri has committed to a stronger Financial Intelligence Unit. 

6 

In particular, we will be very focused on assessing terrorist financing risks, which we believe have been irresponsibly underestimated by the previous administration. Our plan is to begin using 

our CFT regime to pursue international terrorism cases representing a present threat to our system and to global peace and 

security. 

We are also embarking on a wide regulatory reform process that 

will allow reporting entities to adopt a risk-based approach to 

AML/CFT compliance. The reform will also contribute to removing 

existing barriers to financial inclusion and generate incentives to 

reduce the circulation of cash and the use of informal mechanisms. 

Over the last 5 years, the FIU issued more than 70 regulations 

which imposed significant obstacles to operating in the Argentine 

financial system and economy and contributed little to mitigating 

the real risks of money laundering and terrorist financing. We are 

actually of the view that many of these regulations prevented people at the lowest segments of our society from accessing financial 

markets and expelled others to the informal economy. 

We are also planning to adopt a risk-based approach to AML/ 

CFT supervision, and this is something we hope to be able to do 

with the support of the U.S. Government. This will rationalize the 

use of our limited resources and allow us to place focus on what 

is really relevant to protect the integrity of our financial system 

and broader economy. 

On the intelligence side, we are working to regain confidence in 

our domestic and foreign partners. We are updating our MOUs 

with financial intelligence units of strategic importance to us. We 

are in the process of updating our MOU with FinCEN following an 

unauthorized leak of information during the previous administration. We are also strengthening our strategic analysis capabilities. 

As we move forward in building a stronger AML/CFT framework 

in Argentina, the support from our international community, and 

particularly our main partners, such as the United States, becomes 

critical. I would like to take this opportunity to express my deepest 

appreciation to FinCEN’s leadership for the trust deposited in us 

at the earliest of stages and the opportunity to work fast towards 

a reestablishment of our MOU. We embrace this partnership and 

will live up to our commitments to protect the information and use 

it only for authorized purposes and to our mutual benefit as nations. 

Finally, I would like to close by saying that we are not just interested in adhering to international standards. We are interested in 

becoming leaders in financial integrity matters in our region. This 

is because we truly believe in the value of financial integrity to the 

soundness of our financial systems and its significance to economic 

stability, safety, and security, which are necessary preconditions to 

economic growth and development. 

Thank you very much. 

[The prepared statement of Mr. Federici can be found on page 40 

of the appendix.] 

Chairman FITZPATRICK. Thank you. 

Mr. Braun, you are now recognized for 5 minutes. 

7 

STATEMENT OF MICHAEL A. BRAUN, CO-FOUNDER AND 

MANAGING PARTNER, SGI GLOBAL, LLC 

Mr. BRAUN. Thank you. Good morning, Chairman Fitzpatrick, 

Ranking Member Lynch, Vice Chair Pittenger, and other distinguished members of the committee and the task force. I deeply appreciate the opportunity to appear before you today and to make 

a few comments and to help you in any way that I can as you move 

forward. 

So our success in prosecuting the global war on terror has successfully degraded two very important funding streams to terrorist 

organizations—those from very powerful private donors, as well as 

state sponsors. Consequently, terror organizations, many of them, 

have had to resort to other means, alternate means, to keep their 

movements alive and keep their operations flowing. And that is 

what we are really here to talk about today. That is why we are 

here today. 

I will use Hezbollah as the best example of what we are up 

against today and make three important points in that process. 

First, Hezbollah is not the same organization that they were 15 

years ago, just 15 short years ago. In the early 2000s, they began 

moving small quantities of cocaine from the tri-border area of Latin 

America into fledgling markets at that time in Europe and the 

Middle East. 

Flash forward to 15 years later, they are now moving multitons 

of cocaine into Europe in an attempt to satisfy the ever-increasing 

demand for cocaine in Europe, in the Middle East, and other 

emerging markets. They possess a demonstrated ability to move, 

again, hundreds of tons of cocaine over that 15-year period and 

move massive amounts of currency, hundreds of millions, perhaps 

billions of dollars in currency around the world in the most sophisticated money laundering scheme or schemes that we have ever 

witnessed. They have metastasized into a hydra with international 

connections that the likes of ISIL and groups like Al Qaeda could 

only hope to have. Those connections are with transnational organized crime groups, with terror and insurgent groups throughout 

the world. 

We need to build organized crime and investigative judicial capacity to deal with the threats that we are up against. We are here 

to talk about illicit finance today. We need to develop very close 

partnerships and even closer partnerships with our partner nations 

around the world to help them build judicial capacity and organized crime and terror investigative capacity in their countries. 

But we also need to do some work at home, because I can assure 

you that the vast majority of Federal agents in our country, I don’t 

care what agency that they work for, are not experts in dealing 

with or investigating necessarily with what we are up against 

today. 

So we talk about illicit finance and the importance of going after 

the money, following the money, but in our obsession with following the money over the past many years, for some unknown 

reason, we seem to have missed out on one opportunity after another. We seem to have forgotten about the importance of disrupting the supply chain, about interdicting drugs and other contraband. 

8 

It is important for this committee and task force to understand— 

and the American people to understand, quite honestly—that 

groups like Hezbollah, the FARC, transnational criminal organizations, use drugs and other contraband as an alternative form of 

currency. It is the oldest form of alternative currency that they utilize and it is very precious to each and every one of them. They 

trade drugs for vehicles of all sorts, aircraft, boats, limousines. 

They trade currency for smuggling operations, to pay for smuggling 

operations for counterfeit documents. The list goes on and on. And 

if we don’t start focusing as much energy at disrupting the supply 

chain as we do at attacking illicit finance, we will never get to 

where we need to be. 

In closing, I am a career law enforcement professional, Mr. 

Chairman, as you said. I am not here to tell this committee or to 

proclaim to this committee, or anyone else for that matter, that a 

judicial approach to attacking terrorism is a panacea. It is certainly 

not. But I will tell you what it can deliver that no other tool in our 

counterterrorism toolbox can deliver. 

When real justice is meted out in a Federal courthouse somewhere in the United States or some other competent jurisdiction 

around the world, where we have brought a terror leader to justice, 

that message that we can deliver by identifying that terrorist for 

who he or she really is: an organized crime thug of international 

proportions that preys on the very weakest in our global society 

and someone who is not a freedom fighter, as so many have been 

indoctrinated or charmed into believing they are. 

Thank you for allowing me to make my comments, for being here 

today. I look forward to meeting and working with all of you and 

your staffs to help in any way I can. 

[The prepared statement of Mr. Braun can be found on page 30 

of the appendix.] 

Chairman FITZPATRICK. Thank you. 

Dr. Ottolenghi, you are now recognized for 5 minutes. 

STATEMENT OF EMANUELE OTTOLENGHI, SENIOR FELLOW, 

CENTER ON SANCTIONS AND ILLICIT FINANCE, FOUNDATION FOR DEFENSE OF DEMOCRACIES 

Mr. OTTOLENGHI. Chairman Fitzpatrick, Vice Chairman 

Pittenger, Ranking Member Lynch, and members of the task force, 

on behalf of the Foundation for Defense of Democracies, I thank 

you for the opportunity to testify. 

In Latin America, the combination of weak governments, porous 

borders, widespread corruption in public institutions, and the lack 

of adequate legislative tools to combat terror finance creates an 

ideal environment for transnational organized crime. 

Drug trafficking, trade-based money laundering, and terror financing can no longer be treated as distinct phenomena. Terror organizations help drug traffickers move merchandise to their markets. They then launder revenues through sales of consumer goods, 

profits that fund terrorist activities. 

In Latin America, Hezbollah plays a central role in this new 

landscape thanks to a vast network of support. Hezbollah generates loyalty among local Shia communities by managing their religious and educational structures. It then leverages loyalty to soVerDate Nov 24 2008 16:41 Aug 18, 2017 Jkt 025847 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\25847.TXT TERI
9 

licit funds and use business connections to its own advantage, including, critically, to facilitate its interactions with organized 

crime. My written testimony explains how the group’s religious, 

charitable, educational institutions, its clerics, its supporters’ licit 

commercial activities, and its illicit finance network all overlap. 

The tri-border area of Argentina, Brazil, and Paraguay, or TBA, 

illustrates this overlap. It also shows how the absence of proper 

local legislative tools to combat terror finance has limited the impact of U.S. measures to counter it. The Galeria Page in Paraguay’s 

Ciudad Del Este, which Treasury designated in 2006, merely 

changed its name to Galeria Uniamerica. Its owner, Hamzi Ahmad 

Barakat, continued his activities until his arrest in Brazil in 2013, 

not for terror finance, but for fraud. And Mohsen Bilal Wehbe, a 

Hezbollah cleric that Treasury designated in 2010, continues to operate openly in Brazil. 

Porous borders compound these problems. Trade-based money 

laundering in the TBA, a key component of the narcotraffic-terrorism nexus, relies on commercial goods not produced in Paraguay. Imported goods are re-exported through the TBA, a porous 

border at the southern end of a long, lawless frontier infamous for 

drugs and weapons trafficking. 

A recently leaked investigation into tax fraud in Ciudad Del 

Este, which local authorities have dubbed a mega-evasion due to its 

size, brings all this together. Local accountants issued false invoices on behalf of 285 companies registered in the TBA for an estimated $270 million in tax evasion. 

Authorities are focusing on a cluster of companies with alleged 

links to Hezbollah through two shareholders, Ja’afar Balhas and 

Walid Amine Sweid. Paraguay’s media have documented their close 

connections to politicians and custom officials, suggesting these 

links ensure lax custom inspections. Import-export data for their 

companies show merchandise deliveries from China arrived by air 

with cargo flights operated by Emirates via Dakar, Senegal, and 

the Miami-based Centurion Air Cargo. Both airlines fly regularly 

to Ciudad Del Este. 

For example, a bill of lading that appears in my written testimony details delivery by air to the TBA business Ponto Com 

Megastore from Spaltec Electronics in Hong Kong. Sweid owns 

both companies, as well as Global Logistic Solutions, the Hong 

Kong-registered shipping company. In short, Sweid controlled every 

company involved in the transaction. Given the false invoicing, it 

is highly plausible that this is a trade-based money laundering 

scheme involving false shipments. This pattern is common to other 

companies under investigation, some of which use LLCs incorporated in Miami, rather than Hong Kong, as their transit point 

for merchandise and paperwork. 

Successive U.S. Administrations have over the years repeatedly 

designated Hezbollah financiers and financial networks. The TBA 

and other border areas in Latin America offer a target-rich environment for new designations. 

Additional measures should be adopted to diminish Hezbollah’s 

ability to exploit structural weaknesses prevalent in the region that 

have made it possible for it to interact with local criminal syndicates. There should be more stringent controls and better moniVerDate Nov 24 2008 16:41 Aug 18, 2017 Jkt 025847 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\25847.TXT TERI
10 

toring of merchandise travelling to the TBA. Problematic shipments by air reach the TBA from two points of departure, Miami 

International Airport and Dubai via Dakar. The United States 

should institute stricter controls over shipments from Miami and 

perform more stringent and timely due diligence on companies 

shipping to the Paraguayan city. 

The same can be said over cargo arriving to the TBA from Dubai 

via Dakar. Washington should ask and work with authorities in 

both countries to exercise greater scrutiny over merchandise and 

its recipients before planes leave. Stricter controls could reduce illicit shipments and raise the costs for Hezbollah middlemen in the 

TBA. 

These are just some of my recommendations. I thank you for the 

opportunity to testify, and I look forward to your questions. 

[The prepared statement of Dr. Ottolenghi can be found on page 

46 of the appendix.] 

Chairman FITZPATRICK. We thank the witnesses for their opening 

statements, and the Chair now recognizes himself for 5 minutes for 

questions. 

Mr. Federici, 4 months is a relatively short period of time, but 

so much has happened, and we want to congratulate you on getting 

Argentina’s FIU back online. I want to thank you for the information sharing which is now occurring between your country, your intelligence unit, and our Department of the Treasury and FinCEN. 

It is so important to Argentina and to the United States and to the 

region and the security. 

We are aware that a number of countries in Latin America don’t 

necessarily perceive the risk of terrorism financing as a relevant 

risk in the context of their domestic relations. In your opinion, are 

these perceptions duly justified? What can you tell us about the 

perceptions of terror finance in the domestic context of individual 

nations? 

Mr. FEDERICI. Thank you very much for your question, Mr. 

Chairman. Indeed, having worked as a regional adviser for Latin 

America and the Caribbean at the IMF for the past 10 years, I 

have had the chance to listen to discussions related to perceptions 

of risk of terrorist financing in the context of the GAFILAT, which 

is the FATF group for Latin America, and the CFATF, which is the 

same type of regional body for the Caribbean. And many countries 

in the region, unfortunately, express publicly their perception that 

the terrorist financing risk is not a risk pertinent to the region. It 

is a problem of the United States, it is a problem of Europe, and 

other parts of the world. 

I have always emphasized from the IMF, and I am doing it so 

now with much more strength from my public position in Argentina, that these type of opinions lightly thrown in international 

bodies like the ones I referred to are, to say the least, irresponsible 

if they are done without having previously conducted a thorough 

and professional terrorist financing risk assessment in the jurisdiction. 

There are very few countries that have completed the conduct of 

money laundering and terrorist financing risk assessment in their 

jurisdictions as the FATF Recommendation 1 currently requires. 

11 

However, many of these countries publicly express the opinion that 

terrorist financing is not a problem in their country. 

So I think this is related also with a confusion on what the risk 

of terrorist financing is. The fact that there may not be terrorist 

elements operating in the jurisdiction does not mean that you are 

not exposed to the risk of terrorist financing. The mere fact that 

you have a financial system interconnected with the rest of the 

world, with the global financial system, in and of itself exposes you 

to the risk of terrorist financing and this is a subtleness that many 

public officials in our region do not yet fully understand. 

That is why it is very important to continue to raise awareness 

on the risk of terrorist financing, and that is why it is very important to continue to have the United States support in raising 

awareness on these risks in the region. 

Chairman FITZPATRICK. Thank you. 

Mr. Braun, in your written statement, you mention that 

Hezbollah is hiding behind criminality in Latin America and other 

locations. Can you further elaborate or explain what you mean by 

that? 

Mr. BRAUN. Thank you for the question, Mr. Chairman. 

Listen, here is the way I look at the situation. Organizations like 

Hezbollah—ISIL is no different, Hamas, you name them—their 

operatives, especially working in clandestine ways abroad, they 

don’t carry ID cards, they don’t wear uniforms, they pound their 

chest and proclaim to be terrorists for some important reasons. 

They don’t want to draw attention by the United States, and they 

don’t want to draw the attention of many of our partner nations 

around the world that we work very, very closely with. 

So they have been dispatched. How do they operate really with 

impunity at the same time accomplishing so many of Hezbollah’s 

kind of strategic global goals? And I think what it really comes 

down to in a large way more and more these days is their involvement in the global drug trade. They are involved in criminality, but 

at the same time they can reconnoiter at will. They can photograph 

and look at what may be very strategically important targets for 

some future events. I believe firmly that Hezbollah feels that prolonged asymmetric conflict in the Western Hemisphere and other 

places in the world, it is going to be playing out some days. 

So they have all the time in the world to engage in international 

drug trafficking and at the same time establish the rat lines that 

they need to establish to support that asymmetric conflict down the 

road. As I said, they can reconnoiter at will. They can make all of 

the nefarious contacts that they need to make with other terrorist 

organizations’ insurgent groups, as well as transnational criminal 

organizations around the world. And in the process, they can generate enormous amounts of contraband revenue that ultimately go 

back to the cause and help the team. 

Chairman FITZPATRICK. Thank you. 

I now recognize the ranking member of the task force, Mr. 

Lynch, for 5 minutes. 

Mr. LYNCH. Thank you, Mr. Chairman. 

Mr. Braun, let me stay right on that issue. We had a significant 

success operating against the Lebanese Canadian Bank. I think 

they were, at their peak, funding Hezbollah at about $200 million 

12 

a month through the same procedures: drug trafficking; consumer 

products. They were selling—they had a used car deal there in 

Senegal and West Africa. They are now defunct. We were able to 

take them out through a 311 action as a primary money laundering 

concern. 

Are we missing something, though, in terms of that process? It 

seems as though as we adapt, some of these terrorist groups are 

readapting and reengineering their organizations to sort of escape 

our measures of accountability. Are there new and different approaches that we should be taking that address what this new 

iteration of terrorist financing is undertaking? 

Mr. BRAUN. Thank you for that question. 

Listen, terror organizations like Hezbollah, that is really now a 

hybrid terror organization, they are one part designated terrorist 

organization by our country and many other countries around the 

world, but they are also an enormously powerful transnational organized crime group that is distributing, as I said, hundreds of tons 

of cocaine and generating hundreds of millions of dollars in contraband revenue behind that effort every single year. 

It is important to understand, though too—let’s go back in time. 

You can talk about the cartel. You can talk about the Medellin Cartel. You can talk about the Cali Cartel. Look at what has been 

playing out in Mexico for many, many decades. 

What most folks in America don’t realize is what has been going 

on in Mexico with respect to drug trafficking has really been playing out for more than 70 years, right? And with every action that 

we take, I don’t care if it is law enforcement or our military or our 

intelligence services, with every aggressive action that you take 

against these what have evolved into ultimately into very powerful 

threats, they are going to evolve, they are going to change their 

tactics, techniques, and procedures. 

It is going to take law enforcement a little time to figure out 

what they are doing before they can hit them again. 

Mr. LYNCH. Let me sharpen my question then. 

Mr. BRAUN. Okay. 

Mr. LYNCH. We don’t have that much time. Our current protocol 

is to work through FATF and the FIUs, the financial intelligence 

units, and that has been somewhat effective in terms of stopping 

the financing, the wire transfer of resources from one institution to 

another to fund terrorist financing. That system is fairly effective, 

I think. The problem now is that they are going off the grid. 

Mr. BRAUN. Sure. 

Mr. LYNCH. They are going off the grid. So those measures, that 

world that we are operating in, is not as effective as it once was 

because of these new networks that, as I say, are off the grid and 

are not subject to the formal regulatory process that we are adapting. They are doing consumer products now as separate entities. 

They are deep into the drug trade. There is a lot of cross-border 

smuggling of assets and bulk cash transfers across the border. 

Now maybe speak to the situation at the Mexican border. You 

talked about Mexico quite a bit. Is the vulnerability at the Mexican 

border a factor, is it a large factor in our ability to combat some 

of what is going on in South and Central America and in Mexico? 

13 

Mr. BRAUN. It is part of the problem. But we have done, thanks 

to you and many of your colleagues here in the House, a phenomenal job at shoring up many of the gaps along the southwest 

border. We have over 20,000 Border Patrol agents now, most of 

which are down in that area interdicting drugs, interdicting money, 

et cetera. So we have done a good job there. 

Where we are really lacking is defense in depth, if you will. The 

Department of Defense’s detection and monitoring assets that they 

had before 9/11, after 9/11 over 60 percent of those assets went 

away. They went to other parts of the world, rightfully where they 

needed to be, but for the most part they have never come back into 

theater. 

And every four-star admiral and general who has commanded 

SOUTHCOM since 9/11 has talked about this very, very troubling 

situation that they find themselves in where they are tracking load 

after load after load of suspected cocaine and probably loads of cash 

and they cannot do anything about it. They literally sit by and 

watch these targets pass on the screen. 

The one thing, though, that I believe that this committee can do 

that I believe very much needs to be done is we really need to 

tighten the noose on the beneficial ownership issue and lower the 

curtain once and for all and expose these people for who they are, 

because that is the linchpin, that is the choke point for all of the 

money laundering that has been discussed, and probably will continue to be discussed, that Hezbollah is engaged in. And you are 

right, the LCB was moving over $200 million a month in Hezbollah 

cocaine money through that institution and many of its affiliated 

institutions and banks. 

Mr. LYNCH. Thank you. I yield back. 

Chairman FITZPATRICK. The vice chairman of the task force, Mr. 

Pittenger, is recognized for 5 minutes. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Mr. Federici, our objective is to assist you in any way possible 

as you emerge as a major regional leader in our efforts to counter 

illicit finance. What else can be done that you would like to see 

from the United States specifically related to an OTA presence that 

would be important? Just kindly give us your insights into what 

would help you be successful. 

Mr. FEDERICI. Thank you very much for your question. 

I think to begin with, I have to express my appreciation for the 

support that the United States is already providing to our new government in Argentina. The presence of President Obama, I think 

less than 2 months ago, with the early arrival of President Macri 

was a very strong political sign of support, and the presence of Jennifer Shasky, FinCEN’s former now director in Argentina a couple 

of days before the arrival of President Obama, was a very strong 

support to my job. 

I think that type of international and political support is very important, not only to motivate us to continue to work in the right 

track, but also to show a sign to the rest of the region and the 

world that we can work as partners and allies. 

I also think your support is fundamental in helping us raise 

awareness, particularly on the importance of addressing terrorist 

financing risks in our country and in our region. I would like to see 

14 

the presence of U.S. officials more often coming to Argentina, helping us convey the right message in Buenos Aires, in the tri-border 

area, and I hope to be able to team up in partnership with our Brazilian and Paraguayan counterparts in those efforts as well. 

Now, we also need technical assistance, and I think that is where 

OTA’s support, the Department of Treasury’s OTA support, can be 

of great help. We had a first mission to conduct a diagnostic of the 

situation at the FIU and the broader AML/CFT system, and we are 

looking forward to receiving their support, particularly to strengthen our AML/CFT supervisory capabilities, because apart from being 

an intelligence agency, we are also a regulator for the entire financial system, and our main role is to protect financial integrity, and 

that is where I think OTA can really add value to our work. 

We also need technology. And, unfortunately, over the past 10 

years there has been little investment in technological resources, 

and this really affects our capacity to conduct sophisticated analysis. And I think that is where the United States can also help us 

come closer to providers and companies that can offer solutions to 

our current challenges. 

Thank you very much. 

Mr. PITTENGER. Thank you. I would like you to weigh in some 

more on the tri-border area. As we went to the tri-border area, of 

course it is very open, and we did not see any presence of any law 

enforcement there, just free flow of individuals and traffic. 

What do you see, Mr. Braun—and all the panel can weigh in on 

this, we have about a minute-and-a-half left in my time—that can 

be done specifically to address the tri-border area? 

Mr. BRAUN. What it really comes down to is, if not ungoverned 

space, undergoverned space, places like the tri-border area. And it 

is important to understand, Congressman, that both transnational 

organized crime as well as terror organizations are attracted to 

those areas because they can thrive in those areas, they can operate with impunity, because of a lack of law enforcement resources 

and other security forces and really a lack of any type of meaningful judicial process whatsoever or, the more raw side of power, almost a total lack of any kind of a military or other security presence. So they are attracted to those areas because, again, they can 

operate with impunity in those areas. 

What I tried to touch on in my opening remarks is one thing that 

we can do is we can help our foreign counterparts, I believe, develop their capacity, both criminal investigative, organized—think 

of it this way, anti-organized crime capacity and judicial capacity 

to attack these threats. And I believe that things like task forces, 

international task forces, can be brought to bear in places like the 

tri-border area to help to, if nothing else, monitor and collect intelligence that is enormously important to efforts outside of that area. 

Mr. PITTENGER. Thank you. My time has expired. 

Chairman FITZPATRICK. Mr. Ellison of Minnesota is recognized 

for 5 minutes. 

Mr. ELLISON. Let me thank the chairman and the ranking member and thank our witnesses today. 

It is great to see you again, Mr. Federici, and thank you for the 

great work that you do, and all the panelists. But I just want to 

remark that I thought your comments at our recent trip were parVerDate Nov 24 2008 16:41 Aug 18, 2017 Jkt 025847 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\25847.TXT TERI
15 

ticularly illuminating, and I was grateful for you sharing your insights. So thank you. 

I won’t go over what some of my colleagues already asked, but 

one of the things in front of the world and our hemisphere right 

now is that two out of three foreign terrorist organizations operating in Latin America, the FARC and the ELN, are now in a process of negotiating peace with the government. I think this is a good 

thing. 

But what is your opinion on how we are going to deal with some 

of these money laundering issues in the aftermath? I think that 

this is an important question that needs to be asked: Are these organizations going to be demobilized? And their support for terrorism and their role in international money laundering, how is 

that going to be addressed in the course of this peace? Could you 

all offer any insights you have? 

Mr. BRAUN. Congressman, I would say one thing, front and center, that, listen, I applaud Colombia’s efforts to bring the FARC, 

ELN to the peace table and to bring peace to the country for the 

first time since the FARC stood up in 1964. They have been around 

for over 50 years now. 

But the most important point is, and the Colombian government 

realizes this, they know it, is if anyone thinks for a moment that 

these combatants are going to blend back into society, are going to 

take jobs at the local factory or other places, the vast majority of 

them simply won’t. They have gotten a taste for the excitement. 

They have gotten a taste for the money, enormous amounts of 

money, especially the leaderships of those organizations, where ideology went out the window a long time ago after they got a taste 

for the money, and that is what absolutely motivates them to this 

day. So personally, I don’t see a great deal of change. 

Mr. ELLISON. Any other ideas? 

Mr. Federici? 

Mr. FEDERICI. Sorry, Congressman, I would just like to add one 

point and try to bring the conversation back to a sort of broader 

level looking at the region, because I think that what is happening 

in Colombia with the peace process and the challenges that it poses 

are a reflection of a broader regional problem, namely that all of 

these illicit activities do occur, to some extent, because of the corruption, complacency, and complicity of sectors of public institutions and politicians in the region. There is a vested interest among 

these categories of public servants not to prosecute and go after 

these networks. 

Now, this is a challenge across the continent, across the region. 

And one of the things that I think can be done to improve the response of the international community, and particularly of the 

United States, is that if you cannot persuade the political classes— 

and the FARC will join the political class of Colombia if the peace 

process comes to fruition—if you cannot persuade the political 

classes to abide by the law, international standards, financial integrity, and prosecute criminals, what you need to do is to institute 

mechanisms of enforcement outside of their jurisdictions. 

One example that I would make here is when I was recently myself in the tri-border region, 2 months ago, Paraguayan officials 

showed me data about cash flows out of the country. More than 90 

16 

percent of funds that are wired out of Paraguay end up or transit 

through the United States financial system. So here you have a 

perfect tool to go after some of these money flows without the need 

for the cooperation of those who do not wish to help. 

Mr. ELLISON. Thank you. 

Dr. Federici? 

Mr. FEDERICI. Yes. I would like to go back to your question because I think it is a very interesting question. As part of the international community as well, we have begun to think about this because Colombia is coming up for an assessment against the international standard pretty soon. It is going to be conducted by the 

International Monetary Fund. And this question is going to be 

raised: How is the money that the FARC has been harboring in Colombia and out of Colombia going to be treated? Because there may 

be differences in treatment on what the Colombians decide to do 

with that money and what other countries decide to do with that 

money. And how compliant is an amnesty of the type that Colombia is contemplating with the international standard? 

I don’t have the real, the final answer to the question yet. I think 

it deserves some thought from the international community as a 

whole. But I do have my reflection on this topic, which is that the 

money that has been flowing from the FARC and other terrorist organizations is money that has contaminated the integrity of financial systems outside of Colombia as well. 

And so I think we have an interest in protecting the integrity of 

our financial system, and these flows have been a real threat to 

that objective. I have in my country had to deal with flows related 

with these organizations, and to the moment our policy has been 

to treat them as terrorist funds and apply the necessary measures 

to suppress them. 

So we need to be very thoughtful of how we are going to treat 

this after the final amnesty agreements are signed, and it very 

much will depend on the letter of those agreements on one side and 

on the consensus that we manage to reach internationally as to 

how to treat these money flows. 

I do want to say that, regardless of that, I also share and applaud Colombia’s efforts to come to peace within their country. 

Mr. ELLISON. Mr. Chairman, may I just say—I know I am way 

over time—but I would just like to say I absolutely look at this as 

a positive thing, the peace effort, but if these terrorist groups turn 

their attention away from fighting the government and turn it onto 

just criminal behavior around the world, that is not necessarily a 

good thing. 

So I am glad all of you are thinking about it, and I appreciate 

your comments. 

Chairman FITZPATRICK. The gentleman from Texas, Mr. Williams, is recognized for 5 minutes. 

Mr. WILLIAMS. Thank you, Chairman Fitzpatrick. 

And thanks to all the witnesses for being here today, and for 

your testimony. 

Mr. Federici, here in the United States much of our immigration 

debate—and I am particularly sensitive to that issue because I represent Texas—is on border security. We often argue on how much 

to spend on Border Patrol agents, equipment, new technologies. Yet 

17 

in your testimony you talk about Argentina’s border and how it 

was completely unprotected. You go on to say that those working 

at the Financial Intelligence Unit were not qualified and had no 

understanding of money laundering, terrorist financing risk, and 

strategy. I think that probably makes some of us in this room, like 

myself, a little worried, especially since we know that our enemies 

would exploit our southern border if given the opportunity. 

One of the major things that these task force hearings have uncovered has been the importance of working with a willing and 

equal partner when it comes to combating terrorist financing. So, 

Mr. Federici, I know you talked about some of this in your testimony, but can you expand on what steps Argentina is taking within its borders to fight money laundering and how well they work 

with the United States to achieve their goals? 

Mr. FEDERICI. Yes. Thank you very much. This is an excellent 

question, and, in fact, it is part of the tragic situation that we 

found the country in after so many years of disinterest for the public thing in Argentina. 

As I said, I think corruption had a lot to do with this. Corruption 

affected particularly the law enforcement agencies, including the 

border protection agencies. Law enforcement agencies were seriously dismantled. When we stepped in, we found them really badly 

equipped, with very poor salaries, untrained, and even mistreated, 

and with a very lack of trust in themselves. Of course, this led to 

very little capacity to conduct the job that the law mandates them 

to do. 

With regards to the border in particular, we found that only 17 

percent of the borders were controlled by radars and a very limited 

air defense system. We found that the airplanes that were supposed to protect our borders were not flying, the ships that were 

supposed to protect our seas and our rivers were not working, and 

the military forces, the armed forces, were very badly equipped to 

conduct their preventative job. 

Steps are being taken. There was an increase in salaries for all 

the armed forces very recently. I don’t have the exact figures because this is an area that is not under my competence, but I can 

provide you with the figures upon my return to Buenos Aires. 

This decision was made by the Ministry of Defense and the Ministry of Security last week. 

So a recognition, first of all, of the importance that our armed 

forces have and that our border protection forces also have in protecting our national security and protecting our country, and a recognition and a commitment expressed in tangible actions, like an 

increase in the salary, was the first step to do. Now we need to 

train them again. We need to equip them with the necessary resources. We need to provide the technology that they need to conduct the job. And we need to do this at the same time while thinking strategically how to use these resources in the most efficient 

way. 

I think with regards to border protection in particular, we need 

to bring to our table our neighboring countries, in particular Bolivia, Paraguay, and Brazil, which is where most of our threats related with drug trafficking and terrorist financing are coming from. 

We need to sit together and start working as a team again. And 

18 

I think in particular related with the tri-border area problem and 

terrorist financing, as I said, that is an opportunity to reengage 

also with the support of the United States. 

Mr. WILLIAMS. Okay. The State Department released a report 

last year that found there was a significant amount of money in 

Argentina which was outside of government supervision, an estimated 25 to 40 percent of an informal economy. 

Mr. FEDERICI. Right. 

Mr. WILLIAMS. In other words, this money isn’t being taxed and 

Argentina isn’t sure where the money is from. So what steps in Argentina are you taking to change or rein this in? 

Mr. FEDERICI. This is also an excellent question. I think that is 

correct. Our estimates are even greater than that. We think an 

amount close to the same amount of our GDP is held outside of Argentina or basically outside of the radar of our tax authorities. And 

this is related to many reasons. Economic instability, inflation, devaluation, and political and institutional instability have led many 

Argentines, in many cases Argentines who have legitimately 

earned their income, to protect their wealth in safer currencies and 

in safer jurisdictions. 

The most important measure that we are taking these days to 

overcome the situation is to launch a voluntary tax compliance program. We have drafted a bill that is currently in the house of representatives in Argentina for discussion to basically create an incentive for Argentines holding assets abroad undeclared to come 

clean, and we think this will reduce the amount of undeclared cash 

in the economy and will also reduce the amount of informality. 

But I would also like to say that part of this problem has been 

the excess regulatory framework, the excess of regulatory pressure. 

To give you an example, in the area of AML/CFT, in the last 5 

years Argentina issued more than 5 laws, more than 4 decrees, and 

our FIU issued more than 70 regulations which in a way obstructed the functioning of the financial system and the economy, 

in many cases prevented financial inclusion, and in some cases 

even led some people to be expelled from the formal financial system. 

Mr. BRAUN. There was a proliferation of informal and underground channels to move that money in and out of Argentina. And 

while most of these funds were really related with Argentines that 

have legitimately earned their income and were seeking protection, 

these are also channels that I have no doubt could have been used, 

and most likely were used, by criminals and particularly by drug 

trafficking and terrorist financiers. 

So I think this is a problem that needs to be addressed. Our voluntarily tax compliance measure will tackle part of this problem, 

but we also need to have more efficient regulations with a riskbased approach that don’t obstruct the functioning of the financial 

system and the economy and really focus on what is important. 

Mr. WILLIAMS. Thank you for your testimony. 

I yield back. 

Chairman FITZPATRICK. The gentleman from Illinois, Mr. Foster, 

is recognized for 5 minutes. 

Mr. FOSTER. Thank you, Mr. Chairman. 

19 

And thank you to our witnesses for your participation in this important hearing. 

As you are probably aware, there have from time to time been 

legislative proposals in Congress to eliminate anonymous shell corporations in the United States. And as I understand it, they have 

been eliminated in many advanced economies. 

And so I was wondering if, Mr. Braun, or any of you, could comment on the importance of anonymous shell corporations in the 

United States, and drug money laundering, terrorist financing, 

international corruption, and other activities, and what the essential features of some legislative reforms in this area would be to 

really help us fight these. 

Mr. BRAUN. Thank you for the question, Congressman. 

As I said earlier, the single most important piece of Hezbollah’s 

money laundering operation, or their apparatus, extremely sophisticated, and this holds true, certainly, for most of the transnational 

drug trafficking organizations that are spanning the globe today as 

well as many other terrorist organizations, is the importance of 

shell—the anonymity related to those shell corporations in those 

accounts. 

And anything that this committee and task force can do, again, 

to raise the veil, drop the curtain, whatever, to expose the beneficial owners of those corporations I believe would have a significant impact on the way today’s very nefarious, very sophisticated 

money launderers are doing business. 

One thing for sure, it would cause them to change their tactics, 

techniques, and procedures. What law enforcement needs, in our 

country, I believe, needs to get better at is some real coordination 

with folks like you, because when those changes take place, those 

changes result in opportunities for law enforcement to take action, 

to really knock these folks off their heels. And then the important 

thing is to be on top of them after that. 

Mr. FOSTER. And are there countries that you think really do 

this right in terms of transparency of ownership? 

Mr. OTTOLENGHI. If I may step in, Mr. Congressman. And thank 

you for your questions. 

I think there are two things that countries can do better. One is, 

of course, disclosure, namely, the obligation to make the identity of 

beneficial owners publicly available. And the second is transparency, to make it easy for those interested in finding out to be 

able to disclose that information. 

The problem is that beyond these formal conditions and requirements, you do have to confront very informal, well-established systems of concealing that information. And, again, I go back to the 

investigation I mentioned that is ongoing in Paraguay of the—the 

false invoices that are at the center of this investigation involved 

people who had issued invoices for up to $1 million who were, in 

one case, a street vendor of ice cream in Ciudad del Este. They 

were unskilled workers. One of them was actually constrained to 

his bed for an endless—for months and hadn’t been earning—they 

didn’t even know that they themselves were declared as the official 

owners of the companies that were issuing the invoices. 

So, here, you had a situation from a formal point of view, you 

knew who the owners of the businesses were, but you cannot go beVerDate Nov 24 2008 16:41 Aug 18, 2017 Jkt 025847 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\25847.TXT TERI
20 

yond that formality if there is an informal system of criminal complicity where officials, accountants, attorneys, customs, and law enforcement are allowing this mechanism to go on. 

So, again, I think that what is important to complement this gap, 

to fill this gap, is that we have to identify those areas where we 

can intervene operating in a system that is more structured and 

more law abiding. Again, these networks rely on the structural 

weaknesses of these countries and border regions. But they are 

global networks. 

In the examples that I brought, you have false invoicing and 

shipments going from Hong Kong through Miami, Dubai, West Africa, into the border regions and back out into the international financial system. If we cannot improve standards of transparency in 

those countries, we can at least intervene in those points further 

away in the supply chain where there is the rule of law, there are 

governments that are allies and friendly and willing to cooperate 

in order to mitigate the consequences of the system. 

Mr. FOSTER. Now in the example that you just gave, where it 

went through Miami, would there typically be an anonymous U.S. 

shell corporation involved in that kind of operation? 

Mr. OTTOLENGHI. Thank you for the follow-up question. Actually, 

that is precisely the point. In the cases that I have seen, actually, 

you can find out who the officers are in the companies. You can 

identify enough names. For example, in the case of Miami, there 

is one individual who is a certified public accountant and who is 

incorporating companies, all of these companies that are involved 

somehow in this investigation. 

And he has been involved in the past at least twice in cases 

where there were convictions for fraud and terror finance against 

Hezbollah operatives here in the United States. So clearly, this is 

an individual to whom Hezbollah operatives go in order to incorporate companies. The information is there. The difficulty is to connect the dots. 

Mr. FOSTER. Yes. Thank you. 

Chairman FITZPATRICK. The gentleman from Maine, Mr. 

Poliquin, is recognized. 

Mr. POLIQUIN. Thank you, Mr. Chairman. I appreciate it very 

much. 

And thank you, gentlemen, for being here. 

Mr. Braun, if I may, Hezbollah is an entrenched international 

terrorist organization predominantly operating in the Middle East, 

or at least that’s been the understanding of many of us who are 

wrestling with this whole international security issue. 

And now we learn from you folks, and others, that their tentacles 

now are reaching into our hemisphere and operating now in South 

America and the drug trafficking trade. And I am sure you folks 

are well aware of the fact that we have a heroin epidemic in this 

country, and it doesn’t spare any location. I represent the great 

State of Maine, in particular, northern Maine and in other parts 

of our State, and we have a real problem up there. 

Now, we learn, Mr. Braun, that about 95 percent of the heroin 

entering this country enters our southwest border. It goes to our 

southwestern border. 

21 

Do you have any evidence that Hezbollah, in their drug trafficking operations in South America, has any kind of impact or influence on the heroin entering this country that is now reaching all 

the way to northern Maine, is coming through our southwest border? 

Mr. BRAUN. Thank you, Congressman. 

Listen, I have been out of government now for about 71⁄2 years, 

so I don’t have access to the information like I used to have in my 

old job. But what I can tell you is this, Hezbollah has become so 

proficient at not only engineering the wiring diagram, if you will, 

for what is needed to conduct their very effective money laundering 

operations, but they are now providing those same services to both 

Colombian and Mexican drug trafficking cartels. 

So by doing so, if nothing else, they are certainly facilitating 

what is sadly happening in Maine and all across our country. And 

I thank you for bringing that up. Because one thing we have to remember, folks, is we experienced over 47,000 drug-related overdose 

deaths last year. 

That is 129 Americans dying every day of the week. And folks 

aren’t talking about drugs these days. They have just absolutely 

turned their heads. They don’t want to hear about it. But if we 

don’t get this problem in check, if we don’t get back to what we 

used to do, we are going to have an even worse situation in the decades ahead. 

Mr. POLIQUIN. Thank you, Mr. Braun. 

Dr. Ottolenghi, we have a terrific neighbor to our north, of 

course, the Canadians, and they are a major trading partner with 

our country. We have a 3,000-mile border. In the State of Maine 

alone the land border with Canada is about 311 miles. You can be 

in a snowmobile in the middle of the field, Doctor, and step off your 

machine, and one foot is in Canada and the other foot is in Maine. 

Do you worry at all, and do we have any evidence whatsoever 

that as we put more and more pressure on our southwest border 

that we may be at risk for additional activities that are unlawful 

and beyond, on our northern border? 

Mr. OTTOLENGHI. Thank you for your question. Again, like my 

colleague on the panel, I do not have access to intelligence and to 

classified information. I only rely on open sources. So my ability to 

answer is somewhat constrained and limited by what I know and 

by what I know I don’t know. 

Having said that, I can tell you that the building blocks of 

Hezbollah’s money laundering terror finance operations in Latin 

America, so the social infrastructure, the networks of support and 

their interconnectivity, which enables them to leverage the businesses and the so-called illicit commerce for their nefarious purposes, do exist also across the northern U.S. border with Canada. 

They do exist in the United States to be fair as well, though perhaps not to the same extent. 

And so while not being able to conclusively tell you that this is 

happening, I do see the signs of this language there. The difference 

is, I think, the strength of the financial system, the transparency 

of our corporate laws, the fact that you do have the rule of law 

functioning, that you have strong institutions, which are all eleVerDate Nov 24 2008 16:41 Aug 18, 2017 Jkt 025847 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\25847.TXT TERI
22 

ments lacking in the regions of South America where Hezbollah is 

more successful. 

Mr. POLIQUIN. Thank you, Doctor, very much. 

Mr. Federici, could you shed any light on your experience in your 

part of the world where there has been pressure put on one border, 

one international border, and it causes problems on another border? Can you share any light on that to help us in this committee? 

Mr. FEDERICI. Yes. Thank you very much, Congressman. And absolutely, we are actually experiencing this as we speak today. 

In recent years, Argentina has become a very important transit 

country for the export of illegal drugs out from our borders towards—mainly towards Europe and West Africa. And I am talking 

mostly about cocaine flowing south from Bolivia and also from Peru 

and leaving our ports towards the ocean. 

And what we are seeing is that in the last 6 months that the new 

government has been in office, due to all the pressure that we have 

been putting in controlling our borders and controlling the drug 

routes that we have identified, there have already been changes, 

slight changes for the moment but changes in the routes that drug 

traffickers take. And we have been receiving signals from our 

neighboring countries, as well, that some of these changes are 

starting to affect them, particularly south Brazil and Uruguay are 

seeing an increase in movements, suspicious and unusual movements, that they haven’t seen before due to the pressure that we 

are placing. 

This is something that is very subtle for the moment, because we 

have only been in office for less than 6 months, but that we believe 

will increase significantly as we continue to put pressure against 

these organizations. The routes and their flows. 

Mr. POLIQUIN. Thank you very much. 

Thank you, Mr. Chairman. I appreciate it. 

Chairman FITZPATRICK. The gentleman from Pennsylvania, Mr. 

Rothfus, is recognized for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Dr. Ottolenghi, there seems to be some dispute about the influence of Iran in South America. Some, including the Obama Administration, claim that Iran’s influence in the region is waning; however, there are other news reports that cite military and intelligence officials who directly contradict this narrative and claim 

that Iran’s influence is still present and potentially growing, particularly through both Hezbollah and the so-called cultural centers 

that are being ruled by the Islamic Revolutionary Guard Corps. 

Where do you fall on this issue? 

Mr. OTTOLENGHI. Thank you very much, sir, for your question. 

That is a very important point, and I would like to answer by addressing two themes: the first is Iran and its Latin America policy; 

and the second is the connection between Iran and Hezbollah. 

Let me turn to Iran first. I think that the assessment or the influence or the emphasis of Iran in Latin America is waning is 

based on the differences in approach between the previous president of Iran and his enthusiasm for Latin America and the current 

president who hasn’t visited the region yet and no other officials, 

senior officials, of his government have put the same emphasis. 

23 

However, the point about Iran’s Latin America policies is that 

this is not a file that is mainly handled by the elected government 

and its ministries. It is a file that has always been held by the Supreme Leader’s office through his own personal representatives to 

Latin America, Mr. Mohsen Rabbani, infamous for his role in the 

AMIA bombing in Buenos Aires, in 1994, when 85 people were 

murdered and many more grievously injured. 

So that policy continues. It is expanded. It is ongoing. It is wellfinanced, sustained, and I see no signs that there is any change in 

approach. It is a policy that has been ongoing for over 30 years 

that relies on the social network— 

Mr. ROTHFUS. And you are saying that it is expanding? 

Mr. OTTOLENGHI. It is expanding, yes, sir. It is expanding because it is making a conscious, sustained, well-funded effort to actually reach out not just through the local Shia communities, which 

are mainly Syrian and Lebanese, but it is actually reaching out to 

convert non-Muslims to Shia Islam. 

Mr. ROTHFUS. So you have the Supreme Leader surrogates there, 

on the one hand, and then in tandem with that, you have 

Hezbollah? 

Mr. OTTOLENGHI. Correct. And what I see is that the Hezbollah 

clerics are mainly focusing on the Shia communities of Arab immigrants of Lebanese and Syrian descent. The Iranians are focusing 

on the outreach missionary effort, but they are combined. Most of 

the time they are overlapping in the same mosques, in the same 

centers. They are interacting. There is a stream of very senior clerics coming from both Iran and Lebanon to visit on a constant basis, 

and the Hezbollah representatives together with Iranian ones are 

constantly cooperating on this effort. 

And this effort, to a large extent, is geared towards building support, galvanizing, so to speak, the troops, indoctrinating and 

radicalizing and it is also designed as a facade for the financial activities, which are managed in coordination. 

I just want to give you one example that, to me, is very revealing. We have spoken a lot about the tri-border, but the tri-border 

is just one reality of many. And just along the Brazilian-Paraguay 

frontier, which is mostly lawless and severely underguarded and 

underpatrolled, you have several other cities that have the same 

characteristics of the tri-border area, mainly cities that are on both 

sides of the frontier with significant Shia and Lebanese communities involved in trade. One of the cities is called the Punta Corral 

on the Brazilian border and Pedro Juan Caballero on the Paraguay 

border. There is a very big Shia community run by— 

Mr. ROTHFUS. What is the population of that community? How 

many people would you say? 

Mr. OTTOLENGHI. The two cities combined have a little over 

200,000— 

Mr. ROTHFUS. How many in the Shia community? 

Mr. OTTOLENGHI. A few thousand, sir. A few thousand. But in 

that city, Mohsen Rabbani has a personal representative. Social 

media information from his own personal Facebook page shows 

that this individual was about 6, 8 weeks ago in Qom celebrating 

his marriage with Mohsen Rabbani in person officiating. Now, this 

is akin to having a very senior member of the clergy of Iran, a perVerDate Nov 24 2008 16:41 Aug 18, 2017 Jkt 025847 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\25847.TXT TERI
24 

sonal representative of the Supreme Leader, celebrating the marriage of a Muslim convert to Islam in a very remote region of South 

America. It tells us how important that connection is, and it shows 

the link in this religious social infrastructure in a critical point, 

place that is considered to be one of the highest in crime in Latin 

America currently, even worse than some of the Colombian cities 

during the height of the drug crisis, of Pedro Juan, the importance 

that the city has come to have in the design of Iranian policy and 

their interaction between Hezbollah and Iran in Latin America. 

Mr. ROTHFUS. Thank you. 

Mr. Chairman, I wish I could take more time. I didn’t even get 

to any of the other issues. The Iranian connection here, though, I 

would just recommend that we might want to take another look at 

this and continue to shine that light. This is fascinating testimony 

that we are hearing today, so thank you. 

Chairman FITZPATRICK. Yes, agreed. And we may have a second 

round of questioning if we have time before the Joint Session of 

Congress. 

With that, we will recognize the gentleman from Arizona, Mr. 

Schweikert, for 5 minutes. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

Mr. Fererici, having been in Argentina just a couple of months 

ago, I know Members of Congress and I think much of the world 

is enthusiastic to see a country that could be such a powerful player on the world stage, sort of back as a player on the world stage. 

And we truly wish you and the new government the very best. We 

truly want to know how we can share information and actually be 

a good partner, because I think there is a level of trust of the new 

administration that has not existed in, what, 17-some years, and 

that is really important. 

I have a whole bunch of things here. But first off, do we fixate 

too much on the tri-border region? 

Mr. FEDERICI. First of all, thank you very much for your comments and for having visited our country, and we really do need 

the support of our partners with the United States in particular. 

I think we share values; we share a common vision of the world, 

and I think we need to team up together to face the threats that 

affect us both as nations. So I really do thank you for those words, 

and we are counting on your support. 

I have so say that from the perspective of our countries, I think 

we fixate too little on the tri-border area. And as I said in my testimony, I think we need to quickly and professionally assess the 

risks to money laundering and terrorist financing coming out of 

that area and start developing a joint strategy among the countries 

that are affected by this problem in that part of the world and 

ideally with the support of those that have information about—better information about what is going on in that part of the world. 

I think personally that my country has irresponsibly unattended 

the risks extending out from that area. That is why we need to get 

back into the game. We need to re-engage our neighbors in that assessment and start developing a joint strategy together. 

Mr. SCHWEIKERT. That is not actually where I wanted to go. But 

to that point, is your counterpart in Brazil, are they reaching out 

and also working with you? 

25 

Mr. FEDERICI. Okay. I don’t want to say something inappropriate 

speaking about another country given that I am a public official— 

Mr. SCHWEIKERT. You can just say you are working on it. 

Mr. FEDERICI. But I do want to say that Brazil’s role in helping 

us assess the risks in this part of the world and in developing a 

strategy is fundamental. This cannot be done without their engagement. That is why we need Brazil at that table, and we need to 

start working together with them. 

They are currently attending, I think, priorities that may be 

somewhat different, but in my view are also related to this problem, because, as we have heard, much of this problem is related 

with the lack of institutional quality, corruption that has allowed 

for these threats to grow and to develop in that part of the world. 

So we need to work together. We are hopeful that with the new 

focus that Argentina will put into assessing risks in that area and 

with the support that we may receive from international partners 

like the United States, we will be able to bring all of our neighbors 

to the table and start tackling this problem seriously. 

Mr. SCHWEIKERT. Okay. Can I pitch a sort of theory, and I would 

love your comments from all three of you on this, and that is 

whether it be from the Shia communities, whether it be from 

money laundering for drug trades, or human smuggling, or political 

corruption that there is an almost—a very complex, sort of, semiformal backbone actually around the world but particularly coming 

out of Central and South America to move assets, move money 

around, and today, that network’s client could be drug money, tomorrow it could be the cash from weapons sales, tomorrow, the day 

after, that it could be from something else, and that may be a constant misunderstanding we have as we think of we think of it as 

terrorism financing or drug money financing, that money laundering network is often the same. 

Am I being fair? 

Mr. BRAUN. I believe you are being fair, and again you are very 

accurate. As I said earlier, transnational organized crime groups as 

well as terror and insurgent groups around the world rely on the 

same shadow facilitators to move their agendas forward. In a private sector that I have been in now for 71⁄2 years, we call that outsourcing. All right? They use many of the same money laundering 

organizations; they use many of the same arms traffickers; they 

rely heavily on many of the same human smuggling groups, those 

who provide fictitious or counterfeit travel documents that is much 

needed. They also do things that are very unique like corrupting 

the private sector, strategically corrupting aspects of the private 

sector, as the transportation industry, communication industry, 

and the like. 

Mr. SCHWEIKERT. To that point, and Mr. Chairman, this is something I beg of you, even for your staff, to consider. We, our committee, is structured to look at terrorism financing and money 

laundering, but as we have heard testimony after testimony over, 

a year or so you have been doing this, which is incredibly appreciated, if you connect the dots, the very networks that are washing 

money for terrorism are the very networks that are, for political 

corruption, are washing and moving money for drug trafficking, 

who are washing money for human trafficking. How do we bring 

26 

these different law enforcement mechanisms that our international 

partners—because my fear is we have too many silos out there. 

How do you bring them together and combine the intelligence that 

is there and focus? Because if the backbone that is being used to 

launder, move money is for lots of pretty evil causes, maybe we can 

get some focus here. 

And with that, Mr. Chairman, I will yield back. 

Chairman FITZPATRICK. The gentleman yields back. 

The gentleman from Florida, Mr. Ross, is recognized for 5 minutes. 

Mr. ROSS. Thank you, Mr. Chairman. 

Ever since this committee has continued its investigation in discovery, we have learned about a great deal of tools that have been 

utilized for intelligence purposes, data sharing, and otherwise identifying money laundering and terrorism finance networks. 

What has concerned me and continues to concern me has been 

the lack of enforcement. So what do we do with this information? 

What have we done with this information? 

And, Mr. Braun, I am particularly impressed with your comments and your testimony when you state that to successfully disrupt or defeat the threat, the information collected, analyzed, and 

imported must be actioned. 

Could you go into a little bit of detail about that? Because I think 

that is the fulcrum to where we need to go. All for show is great, 

but if we don’t have some element of success in actually preventing 

what we are setting out to do, then what good is all this intelligence and surveillance that we are doing? 

Mr. BRAUN. Thank you, Congressman. 

I don’t want to diminish in any way the important work that— 

Mr. ROSS. And you won’t. And my only concern would be, because I am interpreting that, as to mean there are things we could 

do better. This task force needs your recommendations as to what 

we can do to increase enforcement. We have seen an administration that exercises prosecutorial discretion in this country on Federal laws that are being broken and, yet, that are being just turned 

a blind eye to. And no matter how many laws and even if Brazil 

does what we want them to do, if there is no enforcement, then 

what good is it that we do, and how can we—how can we accomplish that enforcement? 

Mr. BRAUN. There has to be a greater deal of sharing. Our intel 

community, and to a lesser degree, our military, now that they 

have become heavily interested in counter threat finance, are collecting enormous amounts of data. But the problem is that if you 

are outside of a declared area of war, that is pretty tough to action 

other than with the use of a judicial model. And that is why I keep 

going back to, this is the responsibility of Federal law enforcement 

to action this work, but they— 

Mr. ROSS. And jurisdiction? 

Mr. BRAUN. —flowing. 

Mr. ROSS. Right. But would there not be an opportunity? Because 

you talk about having financial incentives in providing incentives, 

or providing assistance, whether it be financial or technical governments. Is there not a way that we can impose incentives to our 

partners that would require that in order to have this assistance, 

27 

in order to have this technical or financial support, there has to be 

enforcement? Because jurisdictionally, there is only so far that the 

long arm of the United States can go. We have to rely on our partners. And while our partners are, of course, welcome to accept our 

assistance, if they are not using it for enforcement purposes, then 

what recourse do we have? 

Mr. BRAUN. With our counterparts abroad, one thing that could 

be done legislatively is if they are not willing to share the information that we are working with them to build capacity to collect— 

Mr. ROSS. Right. 

Mr. BRAUN. —then we turn off the tap. That is what it comes 

down to. 

Mr. ROSS. I appreciate that. And I think that is what it comes 

down to. I don’t want to see it come down to that, because I think 

the source could be in their country. And yet, even if they share 

the intelligence with us to where it gets to our country, we can exercise our enforcement jurisdiction, I would like to see it stopped 

at the source. 

Mr. Federici, I am very grateful to you for being here. I am very 

impressed with what Argentina is doing. How have we been as a 

partner? Do you see us in an opportunity to provide these incentives? There has to be a good quid pro quo there for nation-building, if you will, to defeat anti—money laundering and antiterrorism 

financing. Your comments about enforcement? 

Mr. FEDERICI. I think we are just starting to rebuild our trust, 

I think, as nations with this new government. 

Mr. ROSS. Yes. 

Mr. FEDERICI. There’s been a paralysis in the relationship over 

the last few years, and I assume, and I am very sure this is mostly 

the responsibility of our previous administration that has been unwilling to cooperate. 

Now, I think we need to start building this new trust fast, because the threats are there. They are— 

Mr. ROSS. They are growing exponentially, almost. 

Mr. FERERICI. Exactly. What we mostly need at the moment, to 

be able to operate, and to be able to enforce these actions, is intelligence right now. We need high-quality intelligence on our hands 

to be able to use the tools that the law grants us to seize the assets 

of criminals, to interrupt the flows of potential terrorists— 

Mr. ROSS. You would do that if you had the intelligence? 

Mr. FEDERICI. I have the absolute determination to do that. You 

can count on that for sure. 

We have information that there have been flows of terrorist 

money coming out from Argentina to the hands of foreign terrorist 

fighters that have enlisted with ISIL, and we need more of that 

type of information in order to be able to put our hands on those 

flows to be able to share it internationally as well and to take the 

enforcement action that is necessary. 

Mr. ROSS. I am hopeful that if that happens, we will exercise our 

rules of engagement and stop it. 

And I see that my time is up, and I will yield back. Thank you, 

Mr. Chairman. 

Chairman FITZPATRICK. The gentleman yields back. 

28 

And we would like to thank our witnesses for their testimony 

today. We have additional questions, but there is a Joint Session 

of Congress for which we need to get in our seats. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

This hearing is adjourned. 

[Whereupon, at 10:38 a.m., the hearing was adjourned.] 

(29) 

A P P E N D I X 

June 8, 2016 

30 


25847.001

STATEMENT FOR THE RECORD 

US House of Representatives 

House Financial Services Committee 

June 8, 2016 

Joint Hearing Before 

The Task Force to Investigate Terrorism Financing 

Terrorist Financing and Related Tllicit Finance in Latin America 

And 

The Increased Activities ofHezbollah in the Area and the Response of Local Officials to These Challenges 

By 

Michael A. Braun 

Co-Founder and Managing Partner 

SGI Global, LLC 

Former Assistant Administrator and Chief of Operations (Retired) 

United States Drug Enforcement Administration 
31 


25847.002

Introduction 

Chairmen Fitzpatrick and Ranking Member Lynch, and Honorable Members of the Task Force to Investigate 

Terrorism Financing, I deeply appreciate the invitation to participate in this very important hearing on terrorism 

financing and !he increased Hczbollah activities in Latin America. Let me start by thanking you for your service 

and for your unwavering support of federal law enforcement, our military and our intelligence services. 

However, just as important is your valuable support to security institutions in many of our neighboring 

countries in Latin America and the Caribbean. I have testified before many of you over the years and worked 

with outstanding members of your staff. I have the utmost respect for each of you and the tremendous 

contributions that you have made, and continue to make, in keeping America safe. 

I spent 33 years in law enforcement serving in some of the toughest and most austere locations around the 

globe and retired from the US Drug Enforcement Administration (DEA) approximately seven and one-half 

years ago. I was very fortunate to have ascended through the ranks of the DEA where 1 ultimately served as the 

Acting Chief of Intelligence for approximately one year and as the Assistant Administrator and Chief of 

Operations for almost four years. In that assignment I had operational oversight responsibility for DEA's 227 

domestic and 86 foreign offices and several Headquarters divisions, including the Special Operations Division. 

With the support of a phenomenal team, I was responsible for leading the efforts to design and implement 

the DEA's significant expansion in Afghanistan, as well as for the Foreign-deployed Advisory and Support 

Teams (FAST) program and the agency's Drug Flow and Financial Attack Strategies. I was also responsible for 

leading the formative development of the Department of Justice multi-agency Organized Crime Drug 

Enforcement Task Force Fusion Center after being appointed by the Deputy Attorney General to serve as the 

Center's first Director. The Center supports bolh terrorism and drug trafficking investigative efforts by seven 

federal law enforcement agencies. 

I served in DEA field assignments at various ranks on both the East and West Coasts, on our Southern and 

Northern borders, in the Midwest, in Washington, DC during three separated Headquarters tours, and also led 

joint tactical operations for several years with host-nation counterparts in the Andean Region and the northerntiered countries of Central America. I also volunteered for an assignment with the Department of Defense 

Coalition Provisional Authority during the summer of 2003 to serve as the SES Chief of Staff for the Iraq 

Interim Ministry oflnterior. I served in local and state law enforcement for almost twelve years prior to joining 

the DEA and enlisted in the US Marine Corps in 1971 where I served fourteen months deployed overseas, 

including limited duty in the Republic of Vietnam. Two days after retiring from the DEA in late 2008 I cofounded SGI Global, LLC and started work as a Managing Partner, a role that I continue to serve in to this day. 

SGI is currently supporting critically important security projects for our military and government agencies in 

Afghanistan, Central Asia, !he Middle East, Africa, Mexico and Panama, as well as in various locations here at 

home. 

From that, I believe you can conclude 1 am not a politician, a diplomat or an academic. I am a career law 

enforcement practitioner and it is in that context that I appear before you today to address, from purely my 

perspective, the threat posed by terrorism financing and increased Hczbollah activities in Latin America. 

2 
32 


25847.003

Perspective on Attacking Terrorist Finance in Latin America and the Caribbean: 

(Or Anywhere Else for that Matter) 

I applaud our military for developing and implementing Counter Threat Finance (CTF) policy over the past 

few years and engaging in this very specialized area of intelligence. However, to successfully disrupt or defeat 

the threat, the information collected, analyzed and reported on must be "actioncd." Unless things change, the 

lead responsibility for this whole of government initiative falls to our Departments of Justice, Treasury and 

Homeland Security, but our military and Intelligence Community play an important role in contributing to this 

effort. 

It is important to understand CTF investigations do not play out in high-tech intelligence centers where 

extremely talented analysts construct cases with the touch of buttons on a keyboard as they drill deep into 

supercomputers in search of incriminating data. To experience genuine success, CTF entails lots of old 

fashioned "gum shoe" detective work; frequent globe trotting to the most security challenged countries on the 

face of the earth; demanding and sometimes painful interagency collaboration, coordination and de-confliction; 

difiicult investigative methods that include dangerous undercover operations, Title III wire/wireless taps, 

exhaustive surveillance, informant handling, and never ending witness interviews, to name just a few; finally, 

these investigations require a great deal of time- typically several years. For the sake of this hearing, I will 

focus on some things we can be doing to experience greater success. 

I believe it is essential for federal Jaw enforcement to prioritize the investigation of illicit finance in all 

transnational criminal organization and terrorism initiatives and to develop the unique intelligence and 

investigative methods required to disrupt and ultimately defeat threat finance. It is one thing to have agency 

policy requiring the financial aspect of every criminal investigation be addressed, hut it's something very 

different when agency heads demand it. This becomes even more important when considering that most 

transnational criminal and terrorist organizations do not possess organic money laundering capacity; they have 

to outsourcc that requirement. And these criminal and terror groups rely on many of the same shadow 

facilitators to move their agenda's forward, including the same international money-laundering grids. That 

alone is a vulnerability that should be exploited far more aggressively than is currently being done. In today's 

transnational drug trafficking and organized crime investigations, if you are merely following contraband, then 

you will most assuredly find contraband; if you are genuinely following the money, you will most often uncover 

facets of your investigation (e.g. terrorism) you never dreamed possible. 

The single most productive method for identifYing a terrorist or transnational criminal organization's ability 

to launder contraband revenue is to identity and exploit how they communicate their business. Just as kingpins 

command and control every aspect of the transportation and distribution of drugs on a global level, so do those 

responsible for laundering their billions of dollars of illicitly derived funds. Money laundering consortia are 

likely to be even more dependent on communication devices and systems then terror and organized crime 

groups. Consequently, we need to transition from a "white collar crime" to an "organized crime" mentality as 

we pursue many oftoday~s illicit finance investigations, because money laundering is of paramount importance 

to criminal, terrorist and insurgent organizations. 

In so doing, agents need to rely heavily on the long-standing investigative methods utilized hy the FBI and 

DEA to attack organized crime and to work scamlessly with the Department of Treasury FinCEN and OFAC to 

tactically and strategically attack the shadowy, global financial networks that enable criminal and terror 

organizations to carry out their dirty business. Conducting net-worth assessments and other traditional means of 

examination are significant to any financial investigation and I do not want to diminish their importance in 

anyway. However, we should not hesitate to utilize judicially approved electronic intercept and other organized 

3 
33 


25847.004

crime investigative tools whenever and wherever possible in pursuit of the money laundering networks 

supporting these threats to our national security. 

Let me address the importance of the wherever part of that last sentence. As DEA has increased its usc of 

electronic surveillance over the past few decades, the agency and DOJ have concurrently worked to help their 

foreign counterparts transition from 'intelligence only' electronic surveillance to judicially approved models 

like U.S. federal law enforcement's Title III (Omnibus Crime Control and Safe Streets Act of 1968) authority. 

Thanks to decisions in a number of Federal District Courts over the last two decades that allow U.S. law 

enforcement to utilize evidence derived from judicially authorized electronic intercepts by law enforcement in 

other countries, the DEA and its foreign counterparts are regularly sharing evidence to attack the most 

sophisticated drug trafficking organizations ever investigated. It is exactly this type of activity that has resulted 

in the arrests, convictions and lengthy incarcerations of notorious transnational drug and arms traffickers such 

as Haji Bashir Noorzi, Haji Jouma Khan, Victor Bout, Haji Bajko, Mansur al Kasar and Chapo Guzman, to 

name just a few. This is one very powerful method for fighting organized crime and terrorism and this is how 

we have to fight the illicit finance consortia supporting it. 

However, a substantial challenge faced by law enforcement and the courts in many Latin American and 

Caribbean countries, and many other places around the world, is that they do not possess organized crime 

legislation and authorities required to identify, investigate, bring to justice and ultimately incarcerate powerful 

organized crime and terror leaders. Law enforcement in these places lack the ability to conduct undercover 

operations because of agent provocateur prohibitions; lack the authority to conduct judicially approved 

electronic interception of any communications; lack the authority to cooperate with other countries in the 

international delivery of seized contraband; and lack powerful conspiracy laws, extraterritorial jurisdiction and 

stiff sentencing guidelines to effectively counter the threats posed by sophisticated terror and criminal 

organizations. Many also lack the authority to conduct meaningful financial investigations. Consequently, it is 

almost impossible for our counterparts to bring the leadership ranks of these organizations to justice, because 

they have to be caught red handed with contraband, or directly involve themselves in some other related 

criminal activity. And these bad actors obviously didn't ascend to leadership by being stupid. 

One of the most important things we can do to enhance our ability to conduct high-level illicit finance 

investigations is to assist willing nations with the development of counter-organized crime legislation and the 

investigative and prosccutorial capacity of their judiciary and law enforcement, as well as their financial 

investigative capacity that is usually the responsibility of finance ministries. To experience success, capacity 

building must include the entire judicial spectrum: law enforcement, prosecutors, judges and prison officials. If 

not, it will most certainly fall apart like a house of cards. A comprehensive, fully vetted and totally dedicated 

counter-organized crime judicial model may be the best option in countries plagued with corruption. This will 

require funding, legislation and diplomacy on the part of the U.S.- and a great deal of hard work. 

The Currency of Contraband and the Importance of Denying Revenue: 

While I applaud our military and our Intelligence Community for developing and implementing Counter 

Threat Finance policy over the past few years, we seem to have forgotten that drugs and other types of 

contraband are routinely traded by terror and transnational criminal organizations for virtually every necessity 

required to stay in business, and in the fight. As an example, drugs arc routinely traded for myriad weaponry; 

for communications systems; for the actual smuggling of contraband (payment in kind); for all types of vehicles, 

including large aircraft and maritime vessels; for safe houses and other Real Estate; for assassinations and other 

violent attacks; for counterfeit travel documents such as passports and visas; for services such as human 

trafficking- and yes, drugs arc even traded for money-laundering services. Some money-launderers realize 

they can make far more profit from the sale of drugs then they could ever hope to make on a standard money4 
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laundering commission. They take payment in drugs and then outsource their distribution to affiliated 

indigenous organized crime groups. Mexico based drug trafficking organizations (DTO), in a successful 

attempt to feed their insatiable appetite for more profit, stopped accepting cash from Colombian traffickers in 

the early 1990s for smuggling Colombian DTO cocaine into the U.S. The Mexican DTOs demanded "payment 

in kind" for their services (a percentage of drugs from each load to be smuggled). The Mexican DTOs' profits 

went through the roof and this transition allowed them to carve out new territories west of the Mississippi River 

for the first time in history. And it ultimately resulted in their dominance of drug trafficking in our Country 

today. We seem to have forgotten that drugs and other contraband are the oldest form of alternative 

currency. 

Shortly after 9-11 about 60 percent of our Department of Defense detection and monitoring (D&M) 

resources were moved from Southern Command's (SOUTH COM) area of responsibility to other parts of the 

world and most have never returned. Every four-star general and admiral who served as Combatant 

Commanders at SOUTCOM since 9-11 have testified about this concern, as well as the growing influence of 

Iran and Hezhollah in their theatre of responsibility. Joint Interagency Task Force-South in Key West, which is 

staffed by U.S. military and federal law enforcement personnel, tracks aircraft and maritime vessels suspected 

of transporting major drug shipments in the SOUTHCOM area of responsibility and the Task Force works hard 

to coordinate the interdiction of these smuggling operations. The aircraft "tracks", denoted by red lines on 

maps between the Andean Region of South America and Venezuela, looks like a mass of spaghetti on any 

typical month. Most of these suspicious aircraft go absolutely untouched, because the U.S. government and our 

Latin American counterparts no longer possess the resources necessary to interdict them. Sadly, most all of 

those tracked flights represent airplane loads of cash. We seem to have forgotten that successful contraband 

interdiction ultimately denies revenue to transnational drug trafficking, criminal and terror organizations. 

Each of those aircraft also represent lost opportunities to build ever-stronger, multifaceted conspiracy 

investigations targeting sophisticated drug trafficking and money laundering organizations, just like the Ayrnan 

Joumaa case that I will address in the next section. Every time one of those wasted targets of opportunity drop 

off the radar we loose another critically important overt act in a complex conspiracy investigation -powerful 

evidence that will never he presented to a federal jury. 

If we do not begin exerting as much brainpower and brawn toward interdicting drugs and other contraband, 

as we arc on illicit finance, we will never experience any meaningful level of success against the most 

sophisticated drug trafficking, criminal and terrorist organizations we have ever faced. If you do not subscribe 

to that theory. then please consider the fact we lost over forty-seven thousand (47,000) Americans to drug 

overdose deaths in 2015 and the numbers arc no better this year. That equates to 129 fellow Americans lost 

each day in our Country- the highest losses in our Nation's history. This situation is shameful. 

Perspective on Hezbollah's Involvement in Transnational Organized Crime: 

History has repeatedly shown that when a terrorist organization loses funding from its state sponsor(s) it will 

inevitably turn to organized crime activity to generate revenue to keep the movement alive. Hczbollah is no 

different and its meteoric rise in the global cocaine trade has generated far more contraband revenue over the 

past 15 years then the ever-diminishing funds provided by Iran during that same period. This rise was most 

likely precipitated by Iran's inability to match its previous funding levels due to the effect of stiff sanctions over 

the past several years. However, many experts believe the Iranian tap will again be turned to the Hezbollah 

"full-open" position as sanctions against that country are systematically lifted. 

I testified before the Homeland Security Committee about four years ago concerning a Department of State 

report on Iranian influence in Latin America and the Caribbean. The findings documented in the report 

reflected that Iran's influence was waning in the area because Iran was cash starved as a result of sanctions. 

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The report also stated there were no known Hezbollah cells operating in the Western Hemisphere. At the time, 

many experts believed Iran was providing no more than $200 million dollars a year to Hczbollah. 

I pointed out to the Committee the recent Patriot Act Section 311 findings against the Lebanese Canadian 

Bank as the result of a DEA investigation that clearly revealed Hezhollah was laundering as much as $200 

million dollars a month in cocaine revenue through the bank and some of its affiliate institutions. My 

hypothesis was that thanks to llczbollah's (and Quds Force) increased involvement in global cocaine trafficking, 

the organization was not predominantly reliant on Iran for funding. I also pointed out that all cocaine trafficked 

by Hezbollah destined for its world markets emanates from the Andean Region of South America and passes 

through Venezuela and parts of the Caribbean. This activity alone required Hezbollah to significantly increase 

the numbers of its operatives throughout the region. Rest assured that today Hezbollah and Iran, just as they 

were four years ago, are thriving throughout the region. 

Additionally, after 40 years in this business, I can assure you Hezbollah will not revert to ideology as fhcir 

principal motivator for doing what fhcy do iflran starts pumping funding into the terrorist organization as they 

once did. Hezbollah's hierarchy and its lieutenants honed their criminal skills to a finely sharpened edge over 

the past 15 years and in the process they have developed a voracious attraction for the massive revenue 

generated by their involvement in worldwide cocaine trafficking. Just like the FARC, the Taliban and so many 

other terrorist and insurgent groups, Hezbollah will principally continue to use ideology as a very effective 

recruiting and indoctrination tool aimed at the young, disenfranchised masses needed to do its dirty work. But 

make no mistake; the executive secretariat now has a taste for drug money and fhere is no turning back. 

Just 15 short years ago Hezbollah was involved in moving small, ten to twenty kilogram quantities of 

cocaine to Middle East markets from the Tri-Border region ofSoufh America, fhe remote criminal and terrorist 

"free-zone" where the borders of Paraguay, Argentina and Brazil come together. Today, the terrorist group is 

responsible for smuggling hundreds of tons of cocaine from the Andean Region of South America into 

Venezuela where they then ship the drugs to emerging European markets via West and North Africa. This 

phenomenon is not based on mere speculation by agencies that gamer intelligence from second or third party 

sources; rather, it is based on evidence fhat can, and already has met the judicial test in federal courts here at 

home. 

There is no better example of what started as DEA's Operation Titan, followed by successor initiatives, that 

precisely capture Hezbollah's involvement in the international drug trade, exposes the complexity of its 

transnational criminal and terrorist network and identifies many of the nefarious connections that make it all 

work. The evidence and intelligence gleaned during ongoing investigative efforts come from tested and trusted 

confidential sources, backed up by judicially approved electronic intercepts, extensive witness interviews, 

exhaustive surveillance, search warrants and other organized crime investigative methods. 

Much of this investigative success story rests with the DEA's outstanding partners, Treasury's FinCEN and 

OF AC, and fhe unique authorities they possess. Their tactical and strategic use of sanctions and Patriot Act 311 

actions during this investigation peeled back the complicated protective layers that exposed the financial 

vulnerabilities ofHezbollah and other terror and criminal networks so they could be fully exploited by DEA 

investigators. The raw power behind this effort was the outstanding collaboration between DEA, FinCEN and 

OFAC and DOJ prosecutors that involved a relentless and elaborate cycle of investigation, analysis, sanctions, 

indictments and arrests and seizures- all conducted with cunning coordination and dc-conlliction. Another 

team member that also deserves credit for the success of this operation were analysts from the Department of 

Defense. The "silent professionals" made important contributions. 

This international conspiracy investigation, initiated by DEA in 2007, began to gain significant momentum 

after an OFAC Kingpin Act designation in January 2011 that identified Ayman Joumaa, a Lebanese Colombian, 

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and several members of his global illicit network as Specially Designated Narcotics Traffickers. The following 

month FinCEN announced Patriot Act Section 311 findings against the Beirut-based Lebanese Canadian Bank 

(LCB), the Prime Bank of Gambia and other affiliate financial institutions of the LCB for facilitating a 

Hczbollah cocaine money laundering scheme involving as much as $200 million dollars per month. The LCB, 

which was sold just a few weeks after the 311 findings, was long known to be a Hezbollah inflnenced and 

preferred financial institution used for money laundering purposes. In December 2011 the US Attorney's 

Office for the Southern District ofNcw York (SDNY) filed a $450 million dollar civil complaint against the 

LCB. This action ultimately led the bank's new owners to reach a $102 million dollar settlement agreement 

with the SDNY in June 2013. 

By 2015 there were ten OFAC Kingpin Act designations against DTOs and money laundering organizations 

and over 180 designations against entities and individuals, as well as two Patriot Act Section 311 actions. Also 

worth mentioning were the endless stream of indictments, arrests and seizures o£1from a host of characters who 

were members of financial institutions, transnational drug trafficking and organized criminal organizations, 

money laundering operations, more then 30 used car dealerships in the U.S., and designated terrorist 

organizations including the Hezbollah and the FARC; all of which spanned more than twenty-five countries on 

four Continents. Other Hezbollah connections were made as a result of the investigation that generated another 

15 OFAC designation actions and one other 311 action against a Lebanese originated bank in Cyprus. 

One of the exposed money-laundering schemes started with cocaine shipped by Hezbollah operatives from 

the Andean Region of South America to Venezuela, where it was then shipped to Europe and the Middle East 

via West and North Africa. This sophisticated supply chain is only made possible through Hezbollah's strong 

alliances with indigenous organized crime groups and the centuries old, nomadic Tuareg smugglers in North 

Africa, not to mention corrupt senior politicians and security officials in Venezuela and many other countries. 

The cocaine was (and continues to be) sold in Europe and the Middle East by Hezbollah for as much as 

$200,000 dollars per kilogram. To put that in proper perspective, the US value for a kilogram of cocaine 

seldom exceeds $40,000 dollars. The bulk cash from the enterprise was collected and amassed in West Africa 

where it was cached at safe sites. 

The legitimate trade portion of the scheme was tied to over 30 US-based used automobile dealerships owned 

and operated hy Lebanese Americans on the East Coast. The US dealerships acquired used automobiles here at 

home, shipped them to automobile lots in West Africa where they were sold for profit. The sales prices of the 

vehicles were inflated in the financial records and the cash proceeds were co-mingled with the cached drug 

proceeds and then transported in bulk to Hezbollah operated and controlled financial exchange houses in 

Lebanon. Some of the proceeds were then wired to the US dealerships to continue the money laundering cycle. 

By all counts the total number of suspect used automobile dealerships identified in the investigation is 

incredible, none of which existed before 9-1 I. 

One lead in the investigation resulted in overhead imagery that showed an enormous vacant field in West 

Africa and corresponding imagery one year later showing the area filled with hundreds of used vehicles that had 

been shipped from the US. Evidence revealed that an average of$180 million dollars in bulk cash per quarter 

was being transported from Togo to Ghana, West Africa where it was placed on commercial aircraft and flown 

directly to Beirut. The illicit revenue generated by this enterprise exceeded the annual GDP for several small 

West African countries. 

One example of the bulk cash involved in this conspiracy involved approximately $20 million dollars in U.S. 

currency that was seized after a Lebanese Colombian and close Hezbollah associate delivered the cash to an 

undercover DEA agent in Central America. Reportedly another $16 million dollars in bulk cash was supposed 

to be delivered to the agent within 48 hours of the first delivery, but unfortunately that delivery was not 

completed. 
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Essential Points: 

There are some very important points to be made about the events described above: 

1. Those who believe Hezbollah is in some way primarily dependent upon Iran to supply them with 

funding are dangerously uninformed. 

2. No terrorist or international drug trafficking organization has the ability to execute complex drug 

trafficking and money laundering operations involving multi-ton quantities of cocaine and bulk cash 

with just a handful of rogue operatives, or rogue cells for that matter. It takes scores of loyal Hezbollah 

soldiers to make it all work in this case and they are now operating throughout the Western Hemisphere, 

including right here at home. Congressman Peter King, then Chairman of the Homeland Security 

Committee during a hearing approximately four years ago, stated that government officials had briefed 

him that as many as 250 Hezbollah operatives were active in the US. 

3. Iran's inability to match its past levels of funding over the last several years to its most important proxy 

has crystalizcd in the eyes of Hczbollah the strategic importance of Latin America, Mexico, our 

Southwest Border and the Caribbean, as well as Africa and Europe. It is I-Iezbollah's meteoric rise in 

the global drug trade that should be troubling us most. When it comes to generating contraband revenue, 

nothing comes close to the drug trade and it is undoubtedly contributing to the Hezbollah's global 

expansion. 

4. I-Iezbollah has the undeniable ability to move multi-ton quantities of cocaine throughout the world, not 

to mention bulk cash that weighs thousands of pounds. Many analysts and other experts regrettably 

continue to woefully underestimate Hezbollah's level of sophistication, both organizationally and 

operationally, and to ask a very important question: What else could they be moving? 

5. The principal leader of any terrorist, drug trafficking, or criminal organization must ensure absolute 

harmony and loyalty within their ranks. It is all about obedience, commitment and allegiance and it is 

stringently managed with the use of corruption, intimidation and brutal violence, the long-standing 

hallmarks of organized crime. To believe Hezbollah's highest level oflcadership is not directly 

complicit in, and sanctioning the organization's global criminal and terrorist operations indicates a total 

lack of understanding for how the real underworld operates and thrives. 

6. We can no longer allow Hezbollah to go unchecked. We need a whole of government approach to fight 

what former Dl!S Secretary Michael Chertoff and FBI Director Robert Mueller described as the most 

sophisticated and dangerous foreign terrorist organization in the world and we need to get serious about 

doing it as quickly as possible. 

Unconventional Consequences; 

I-Iezbollah profits in many ways by growing their transnational criminal footprint: 

l. It increases their presence in the Western Hemisphere, in Africa and in Europe and is helping the group 

establish an even greater repertoire of calculated alliances with other transnational criminal and terrorist 

organizations. 

2. As they increasingly engage themselves in this type of activity, the terrorist organization's operatives are, 

in essence, hiding behind criminality- all the while developing an ever-increasing capacity to strike 

terror when the time is right. 

3. Drug distribution to Western markets is an important part of their Jihad against the West- it kills 

infidels, tears at the moral fabric of the West, costs hundreds ofbillions of dollars a year in lost earnings 

and in medical treatment, education and law enforcement costs, and further destabilizes already weak 

governments throughout regions of Latin America, Mexico, the Caribbean and Africa, which facilitates 

Hezbollah 's ability to operate with impunity. A senior Hezbollah spiritual leader issued a religious edict, 

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or fatwa, in the early 1980s that justified selling drugs to Western infidels, which laid the foundation for 

the group's involvement and expansion in the global drug trade. 

4. The global drug trade generates hundreds of millions of dollars each year in contraband revenue for 

Hezbollah i!!J.t!..lLUJ:ovides a never-ending S!J!!!Ce o{{unding {or their war chest Hezbollah uses 

cocaine, other drugs and other contraband as an alternative form of currency. And they have used drugs 

as payment for information and to successfully corrupt Israeli Defense Force personnel, as well as 

soldiers in other militaries. 

5. Hczbollah becomes even more relevant to Iran and their long-standing partner, the IRGC Quds Force, as 

they grow their global footprint and their global reach. 

6. Finally, and most importantly, it allows Hezbollah and the Quds Force to reconnoiter (at will) potential 

future battlefields and to establish the rat-lines necessary to sustain imminent, prolonged asymmetric 

conflict in many parts of the world, including areas very close to home. 

What We Can Do To Help Counter The Threat: 

There arc three things the U.S. government can do to help counter the threat posed by sophisticated criminal 

and terrorist organizations that will not require a great deal of funding: 

I. We need interlocking counter-terrorism and counter-narcotics policies, strategies and initiatives, and 

singular funding streams. As the bad guys grow closer together- the good guys are drifting farther 

apart, and much of this is caused by the way we develop and fund competing national security interests. 

2. We need defense in depth strategies and we cannot continue with our obsession for developing strategies 

and plans to guard the one-yard line (our borders). Shortly after 9-1 I many of our Department of 

Defense detection and monitoring resources were moved from Southem Command's area of 

responsibility and most have never returned. We need more federal law enforcement personnel 

deployed to security challenged areas around the world to expand their human source networks and to 

work shoulder-to-shoulder with host nation counterparts in furtherance of bi-lateral criminal 

investigations. Further, as already mentioned, we need to help foreign counterparts build the capacity 

they need to help themselves and us counter 21" Century asymmetric threats. 

3. We must revitalize interest in pursuing the traditional threats: drugs, arms and human trafficking, and 

money laundering and counterfeiting. Most importantly, we need to implement aggressive countercorruption safeguards and initiatives, because our judicial system is under attack. A renewed focus on 

these threats will naturally lead agents and officers headlong into terrorist organizations and their 

operatives, which is exactly what is happening with the DEA on a regular basis. 

Summary: 

Many federal court documents have been unsealed over the past five years, including the 73-page civil 

complaint (amended) against the Lebanese Canadian Bank (et al.) (LCB) that was filed by the US Attomey's 

Office for the Southern District of New York, and they are a must-read. The documents should serve as an eyeopener, because they paint a very troubling picture of Hezbollah 's increasing global reach all facilitated by its 

involvement in drug trafficking, money-laundering and other transnational criminal operations in the Western 

Hemisphere, Africa, Europe and the Middle East. 

Sophisticated international terrorist organizations like Hezbollah do not issue identification cards, seldom 

wear uniforms and most often operate in the shadows while conducting highly sophisticated transnational 

criminal schemes to generate the revenue required to keep their movements alive. These activities also permit 

llczbollah to develop and nurture valuable associations with other terrorist, insurgent and transnational criminal 

organizations, as well as human and weapons trafficking groups, local indigenous organized crime groups and 

money laundering networks. If we do not move more aggressively to keep Hezbollah in check, the numbers of 

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their illicit associations and the complexity of their operations will continue to grow. They will continue to 

evolve and become ever more dangerous. 

It is extremely dangerous to perceive Hczbollah as anything other than a terrorist and criminal organization 

masquerading as a political party. Israeli security experts have long viewed Hezbollah as Iran's fleet of aircraft 

carriers -possessing the ability to hit Western interests virtually anywhere in the world, including right here at 

home. It would benefit us to adopt this viewpoint as quickly as possible. 

Finally, no two nations will ever agree on a common list of terrorist organizations or terror suspects, but 

regularly reach mutual consensus on drug trafficking and organized crime targets. One of the most important 

and cost effective things we can do to protect ourselves here at home is to help willing nations develop and 

mature their ability to conduct terror and organized crime investigations and prosecutions. Investigating illicit 

finance is an important part of that practice, as wc!l as the sharing of valuable evidence. Jn the end, exposing 

many terrorist leaders for who they really are- predatory international drug traffickers who target society's 

weak- sends a powerful message to those who were indoctrinated or charmed into believing they were freedom 

fighters. 

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Statement by Mariano Federici, President of Argentina's Financial Intelligence Unit 

Honorable Representatives, Members of the Task Force to Investigate Terrorism Financing. 

It is an honor for me to be with you at this hearing today sharing my preliminary assessment 

of the risks to financial integrity (including money laundering and terrorist financing) in 

Argentina, and our new vision on how to mitigate them, under the leadership of President 

Mauricio Macri. 

I would like to start by clarifying that our assessment is only preliminary at this stage, as we 

have only been in office for a little over 4 months, and there is still a full inter-agency money 

laundering/terrorist financing risk assessment pending completion at the national level. Such 

risk assessment will serve as a basis for the development of a national money 

laundering/terrorist financing strategy. 

A preliminary assessment of Argentina's system 

With this caveat, I can begin by sharing with you that we encountered a tragic situation in the 

area of financial integrity left by the people that preceded us in government. It is clear to us 

by now that there was a complete lack of political will to fight money laundering and terrorist 

financing in Argentina during the last 12 years. 

There was not only a lack of will to assess and understand the nature and magnitude of the 

money laundering, and particularly, the terrorist financing threats. There was also a clear 

intent to conceal them, evidenced by the interruption in the publication of official crime data 

and statistics that took place since 2008. 

These problems led to a notorious lack of strategic planning, which prevented the 

government from prioritizing its efforts and making an efficient use of public resources. The 

absence of a strategy meant the government's efforts where characterized by constant 

improvisation, which in tum resulted in a serious lack of effectiveness, and a related impact 

on risk levels. 

Throughout the last ten years, the threats to financial integrity increased significantly, as 

criminals exploited the advantages of a sophisticated financial system with the vulnerabilities 

of an uncommitted government. 

Evidence confirms that drug trafficking grew exponentially and currently remains one of the 

main threats, posing a serious risk to the integrity of our financial system and the security of 

our people. 
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2 

As a matter of fact, in December 2015, the polls showed that the main concerns of Argentine 

citizens where "drug trafficking and insecurity". According to international assessments, 

Argentina had become the third exporter of cocaine and the rate of robberies was one of the 

largest ones in the world. This is the reason why President Macri has made the fight against 

drug trafficking a central objective of his government. 

To give you some numbers, the consumption of cocaine and marihuana more than doubled 

between 2000 and 2015. Between 2005 and 2015 drug seizures increased by 800% and the 

number of drug related cases tripled at the judicial level. In the same period, Argentina 

changed from being a transit country to a country that receives, transforms, consumes and 

exports illegal drugs to the world at large scale. 

Of particular interest is the increase in the import of chemical precursors, and particularly 

ephedrine, a precursor used for the production of medicines but also used to produce 

synthetic drugs. In normal times, Argentina would import 200kgs of ephedrine per year for 

medical use. However, when Mexico prohibited its imports, this amount multiplied 100 

times, to 20tns per year, most of which was illegally exported. 

One of the main structural vulnerabilities exploited by criminals in recent years was 

corruption. Argentina ranks 107 of the 168 countries ranked by Transparency International's 

Corruption Perception Index. This is far below Uruguay and Chile, but also below Mexico, 

Brazil, Colombia and Bolivia. 

Corruption under the previous administration was part of a strategy, intentionally designed to 

illicitly enrich public officials proportionally at all levels. Corruption was therefore the rule, 

not the exception, and corrupt officials were rewarded rather than punished. 

At the operational level, corruption affected particularly the law enforcement agencies. 

Between 2012 and 2015, the Coordination of Transparency at the Ministry of Security 

received more than 700 complaints of possible incidents of corruption. 90% of such 

complaints were made by law enforcement officials. 76% of them involved the Argentine 

Federal Police. 

All of this occurred while Argentine law enforcement agencies were being dismantled. When 

we stepped in, we found our law enforcement agencies badly equipped, poorly paid, 

untrained and mistreated, with very little capacity to prevent or investigate crimes. 

We found our borders completely unprotected, with only 17% of them controlled by radars 

and a very limited air defense system. In fact, our entire defense system was weakened, with 

airplanes that do not fly, ships that do not work, and very limited equipment in our entire 

armed forces. 
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3 

At the Financial Intelligence Unit (FlU), the situation was not much different. Our agency 

was over populated with many people that did not fit the technical profile required for the job 

and, in some cases, not even the legal requirements to be a member of the FIU. There was no 

understanding of money laundering/terrorist financing risks and the strategy was to have no 

strategy, which allowed for a discretionary use anti-money laundering/counter terrorist 

financing (AMLICFT) tools. 

On the preventive side, the FlU's regulatory powers were used more for economic policy 

objectives than for mitigating risks to financial integrity. We found the system overregulated, 

with controls that obstructed financial inclusion and pushed people towards the use of cash 

and informal channels. Financial intelligence was mostly used for ideological and political 

purposes, rather than to detect and contribute to investigate serious criminal threats. 

Needless to say, this mismanagement had a direct impact on the lack of effectiveness to 

prevent, detect and suppress money laundering and terrorist financing. In the 15 years since 

the criminalization ofthe money laundering offence and 7 years of the terrorist financing 

offence, there have been only 13 convictions for money laundering and no convictions for 

terrorist financing in Argentina. 

A new vision to fighting illicit finances and terrorist financing 

This assessment, while negative as it is, should not depress us nor make us angry. It should 

however provide an idea of the challenges ahead and the urgent need for reform and change. 

We are now working at full speed in repairing the damages. There is a clear and strong 

political will to fight organized crime and contribute to the global efforts in the fight against 

terrorism. There is also a good understanding that the best way to achieve this is through the 

economic and financial angle. 

Our objective is to protect the financial system and the broader economy from the threats of 

money laundering and terrorist financing, thereby strengthening financial sector integrity and 

contributing to safety and security. 

Our main focus will be placed on effectiveness, as we believe Argentina has sufficient legal 

and institutional instruments in place to begin producing results. Efficiency is the key to 

effectiveness, particularly when resources are limited, as it is certainly our case. It is 

therefore a matter of being more efficient in the method now to be more effective in the end 

outcome. 

At the FlU, we are placing a strong emphasis on our preventive strategy. This involves 

assessing, from our own perspective, the risks of money laundering and terrorist financing, 
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4 

irrespective of the system wide national risk assessment that Argentina must conduct in 

accordance with international standards. 

In particular, we will be very focused on assessing terrorist financing risks, which we believe 

have been irresponsibly underestimated by the previous administration. In this regard, we are 

hoping to team up with our Brazilian and Paraguayan counterparts, to assess the threats and 

vulnerabilities to terrorist financing in the Tri-Border Area. We believe this could also be a 

good opportunity to work together with the United States. 

In the meantime, we have increased our awareness raising efforts on terrorist financing risks 

in Argentina and we have disseminated to our reporting entities the Bulletin on the risks 

posed by Foreign Terrorist Fighters, as we committed to do at the Egmont Group level. 

In 2014, the FlU issued a few administrative orders to freeze the assets of entities allegedly 

believed to be involved in terrorist financing. As a result of this intervention, a few so called 

"state terrorists" were captured using CFT instruments. However, the offenders have largely 

been former members of the military junta, and the majority has been charged with crimes 

committed during the military rule in Argentina ( 1976-1983). 

Our plan is to begin using our CFT regime, with due respect for the rule of law, to pursue 

international terrorism cases representing a present threat to our system and to global peace 

and security. 

We are also embarking in a wide regulatory reform process that will allow reporting entities 

to adopt a risk based approach to AMLICFT compliance. The reform will also contribute to 

remove existing barriers to financial inclusion and generate incentives to reduce the 

circulation of cash and the use of informal mechanisms. 

Over the last 5 years the FlU issued more than 70 regulations, which imposed significant 

obstacles to operating in the Argentine financial system and economy and contributed little to 

mitigating the real risks of money laundering and terrorist financing. We are actually of the 

view that many of these regulations prevented people at the lowest segments of our society 

from accessing financial markets, and expelled others to the informal economy. 

Economic mismanagement, an excessive tax pressure, the lack of respect for the rule of law, 

and a number of restrictive measures and controls, including excessive AMLICFT controls, 

among other factors, generated a significant demand for informal movements of funds. Such 

demand was met by a supply of sophisticated illegal underground mechanisms that helped to 

move money in and out of Argentina in a quick and undetectable way. 

While most of such funds may have been related with a legitimate need to protect wealth in 

safer currencies and jurisdictions, it is clear that such mechanisms and channels also 
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5 

contributed to illicit finances and very likely to abuse by terrorist financiers. Unlike money 

launderers, who at some point in the process need to enter in contact with the fonnal 

financial system to legitimate their assets, terrorist financiers only need a safe and reliable 

channel to move money into the hands of terrorists. For such purposes, remaining fully 

undetected through the usc of informal channels represents a major advantage. 

As regulators, we are also planning to adopt a risk based approach to AMLICFT supervision, 

and this is something we hope to be able to do with the US Government's (Treasury's OTA) 

support. This will rationalize the use of our limited resources and allow us to place focus on 

what is really relevant to protect the integrity of our financial system and broader economy. 

We are committed to tackling informal channels through a right balance between incentives 

to use the formal financial system and deterrents to discontinue using the informal one. 

In the coming weeks, Argentina will embark in a voluntary tax compliance program to allow 

Argentines holding assets abroad to nonnalize their tax situation ahead of an upcoming 

multilateral tax information exchange initiative. This will contribute to reduce the levels of 

informality in our economy and provide the government with resources to address several 

important obligations. The program does not allow nor create incentives to repatriate funds 

and it is fully in line with OECD and FATF standards and best practices. 

On the intelligence side, we arc working to regain confidence in our domestic and foreign 

partners. We are updating our MOUs with FIUs of strategic importance to us. We are in the 

process of updating our MOU with FTNCEN, following an unauthorized leak of information 

during the previous administration. 

Regaining confidence requires reassuring our partners of our commitment to protect the 

security of the information and to ensure that information provided will only be used for 

authorized purposes. This in tum demands investments in our real estate infrastructure and 

our information technology resources which we are willing to make as a sign of our 

commitment. 

We are also strengthening our strategic analysis capabilities, to be able to better identify 

money laundering and terrorist financing trends and patterns and to conduct a deeper analysis 

of our threats that may feed into our strategic planning efforts and a more efficient allocation 

of our resources. 

Our FlU also acts as a party to criminal cases involving money laundering or terrorist 

financing conducts. In this regard, we have re-defined our criteria for engagement, focusing 

our participation in strategic money laundering cases, involving drug trafficking and other 

serious offenses, cases with high volumes of funds or other assets, cases with transnational 

components, or cases with other economic or financial complexities that may offer a real 

opportunity for the FIU to add value. 
45 


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6 

I would also like to share with you that we recently opened our first regional office in Salta 

(close to the border with Bolivia), which covers 7 provinces in the North-western region of 

Argentina and will facilitate our interaction with law enforcement, prosecutors and judges 

dealing with drug trafficking and other expressions of transnational organized crime. We 

plan to open a second regional office in the North-eastern region to cover the Tri-border area 

soon. 

As we move forward in repairing the damages left by the previous administration and start 

building a stronger AMLICFT framework, the support from the international community, and 

particular! y our main partners, such as the United States, becomes critical. 

I would like to take this opportunity to express my deepest appreciation to FINCEN's 

leadership, for the trust deposited in us at the earliest of stages, and the opportunity to work 

fast towards a re-establishment of our MOU. 

Sharing information with the United States will be critical to our fight against organized 

crime and terrorism in the years ahead and to facilitate our contribution to the global efforts 

against these threats. We embrace this partnership and will live up to our commitments to 

protect the information and use it only for authorized purposes and to our mutual benefit as 

nations. 

Finally, l would like to close by saying that we are very committed with contributing to the 

global efforts in this area. We are not just interested in adhering to international standards. 

We arc interested in becoming leaders in financial integrity matters in our region. This is 

because we truly believe in the value of financial integrity to the soundness of our financial 

systems and its significance to economic stability, safety and security, which are necessary 

pre-conditions to economic growth and development. 
46 


25847.017

The Enemy in our Backyard: Examining 

Terror Funding Streams from South 

America 

Ottolenghi 

UVLUVL Fellow 

on Sanctions and Illicit Finance 

Foundation for 

Hearing before the House Committee on Financial Services 

Task Force to Financing 

Washington, 

June 8, 2016 
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Emanuele Ottolenghi June 8, 2016 

Introduction 

Chairman Fitzpatrick, Vice Chairman Pittenger, ranking member Lynch, members of the Task 

Force to Investigate Terrorism Financing, on behalf of the Foundation for Defense of 

Democracies and its Center on Sanctions and Illicit Finance, I thank you for the opportunity to 

testify. 

In Latin America, the combination of weak central governments, porous borders, and widespread 

corruption in public institutions creates an ideal environment for Transnational Organized Crime 

(TOC). According to the U.S. administration, "Not only are criminal networks expanding, but 

they also are diversifying their activities, resulting in the convergence of threats that were once 

distinct and today have explosive and destabilizing effects." 1 

Drug trafficking, trade-based money laundering, and terror financing in Latin America have 

merged as a single threat to the national security of the United States: drug cartels, smugglers, 

counterfeiters, insurgent groups, and terror organizations have coalesced, sometimes against 

local authorities and sometimes with their active complicity and support, for their mutual benefit. 

The result is a toxic mix in which drug traffickers rely on terror organizations to move their 

merchandise to their final destinations in North America and Europe. For their part, terror 

organizations offer the traffickers services that generate profits to fund their own terrorist 

activities. 

Hezbollah plays a central role in this new landscape, as in Latin America. The group's religious 

institutions and clerics, charitable and educational activities, its supporters' licit commercial 

activities, and its illicit finance network and organized crime are not distinct endeavors involving 

different people but overlap. 

In my testimony, I will illustrate how Hezbollah, thanks to its reliance on local Shi'a 

communities, is becoming a key player in the complex regional dynamics of Transnational 

Organized Crime. 

The challenge of Hezbollah 's terror finance in Latin America 

Last year, Congress passed the Hezbollah International Financing Prevention Act to "prevent 

Hezbollah's global logistics and financial network from operating in order to curtail funding of 

its domestic and international activities; and (2) utilize diplomatic, legislative, and executive 

avenues to combat Hezbollah's criminal activities in order to block that organization's ability to 

fund its global terrorist activities." 

This important legislation builds on the October 1997 Department of State designation of 

Hczbollah as a Foreign Terrorist Organization, and on numerous steps taken by successive U.S. 

administrations over the years to designate Hezbollah financiers and to target and disrupt its 

financial networks. 

' The White House, National Security Council, "Transnational Organized Crime: A Growing Threat to National and 

International Security," accessed June 6, 2016. (https:ilwww.whitehouse.gov/administrationl~/nsc/transnationalcrimelthreat) 

Foundation for Defense of Democracies www.defenddemocracy.org 
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Emanuele Ottolenghi June 8, 2016 

Congress and the Administration should continue to leverage these legislative and executive 

tools by aggressively focusing on the terror organization's activities in Latin America. As 

important as these tools arc, they need to be complemented by additional steps to diminish 

Hezbollah's ability to exploit structural weaknesses prevalent in the region that have made it 

possible for it to interact with local criminal syndicates. Ultimately, this can only be possible if 

regional governments recognize the threat posed by Hezbollah in their own jurisdictions and take 

concrete steps. U.S. efforts will be far more effective when local governments cooperate. 

The United States can help by advising regional partners to make the necessary legislative and 

law-enforcement adjustments to become more effective in their fight against terrorism. 

Washington can offer concrete assistance to help build capacity where there is a political will to 

cooperate in the fight against Hezbollah. 

It should be obvious this is in the vital interest of not only the United States but also of Latin 

American governments. How this is to be accomplished is more complicated, and requires 

understanding the main factors that facilitate Hezbollah's activities in Latin America: 

• Porous borders and a lack of strict custom and police controls at border crossings 

• Weak central governments and corrupt public officials 

• Lack, until recently, of adequate legislation to combat terrorism and terror finance 

The prevalence of a cash-based economy 

• A local network ofloyal supporters 

These factors do not benefit Hezbollah alone; they are key facilitators of organized crime and 

terror finance in general. This permissive environment encourages criminal cartels and terror 

organizations to cooperate for their mutual benefit. 

Porous borders 

It is beyond dispute that Hczbollah interfaces with organized crime and drug traffickers. In 

February 2016, the U.S. Drug Enforcement Administration (DEA) uncovered a massive 

Hezbollah drug- and money-laundering scheme showing Hezbollah was moving drugs into 

Europe from South America through West Africa. 2 The DEA described the scheme as: 

An intricate network of money couriers who collect and transport millions of 

euros in drug proceeds from Europe to the Middle East. The currency is then 

paid in Colombia to dmg traffickers using the Hawala disbursement system. A 

large portion of the drug proceeds was found to transit through Lebanon, and a 

significant percentage of these proceeds are benefitting terrorist organizations, 

namely Hczbollah3 

2 Drug Enforcement Administration, Department of Public Affairs, "DEA and European Authorities Uncover 

Massive Hizballah Drug and Money Laundering Scheme," February I, 2016. 

(https://v.'WW.dea.gov/divisions/hq/20 16/hq020 ll6.shtml) 3 Drug Enforcement Administration, Department of Public Affairs, "DEA and European Authorities Uncover 

Massive Hizballah Drug and Money Laundering Scheme," February I, 2016 

(https://www.dea.gov/divisions/hq/2016/hg020116.shtml) 

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Emanuele Ottolenghi June 8, 2016 

Hezbollah's links to other criminal organizations in Latin America have also been recently 

exposed. Brazilian federal police documents leaked in 2014 to the Brazilian daily 0 Globo 

revealed a connection between Hezbollah and the Primeiro Comando da Capital, or PCC.4 The 

Sao Paulo-based prison gang was established in 1992 and, along with the Rio de Janeiro-based 

Comando Vermelho (Red Command), is one oftbe primary exporters of cocaine through Brazil.5 

According to the daily, Hezbollah allegedly asked the PCC to protect detainees of Lebanese 

origin inside the Brazilian penitentiary system. Hezbollah, for its part, is said to have helped tbe 

PCC gain access to international weapons smuggling channels and especially assisted in the sale 

of C4 explosives the PCC had stolen in Paraguay. The presumed currency of transaction between 

the two was cocaine and money laundering. 

This association is plausible for a variety of reasons. 

Narcotics travel from their production fields in South America to their main export markets 

through the central areas of South America, eventually reaching Brazil before they move to 

North America or Europe through West Africa. Porous borders are a critical component of the 

movement of drugs from the Andean plateaus, where coca is grown, to the distribution points 

further east in Brazil and Paraguay, where coca paste is refined into cocaine before being shipped 

to its main markets of the West. The same is true for marijuana: mostly produced in Paraguay, 

cannabis and its derivatives are then transferred to local and international markets. 6 

Drug cartels need middlemen, as well as commodity and service providers for the supply line 

and delivery to cartels in Colombia, Venezuela, and Central America. They need assistance 

facilitating transit to West Africa before drugs cross the Sahara on their way to Western Europe 

and enabling the producers, refiners, and cartels to launder their revenues and acquire the 

accessories for the trade in the process. Terror organizations can provide these services. For their 

part, terror groups rely on drugs, which they buy as well as help move, as a source of revenues 

for their own activities. 

Paraguay plays a critical role in this scheme due to its porous borders. It is a country almost the 

size of California, but with 7 million citizens, is sparsely populated. It is also mostly an 

agricultural economy: four of its five top exports arc beef, soybeans, and associated derivativesthe fifth is energy7 Yet Paraguay is also an unofficial exporter of smuggled cigarettes, narcotics 

(both cocaine and marijuana), and weapons, alongside contraband electronics. Except for 

marijuana, which is grown along Paraguay's border with Brazil, and other drugs that are locally 

4 Francisco Reali, "Policia Federal aponta elo entre fac9iio brasileim e Hezbollah (Federal Police link Bmzilian 

faction and Hezbollah)," 0 G/obo (Brazil), November 9, 2014. (http://oglobo.globo.corn!brasiVpolicia-federal-

?POnta-elo-entre-faccao-brasileira-hezbollah- 1 4512269) 5 "First Capital Command - PCC: Profile," Insight Crime. accessed June 4, 2016. 

(ht1P.if.www.insightcrime.org/bmzil-organized-crime-newslfirst-capita1-comman.Q::ru&!ITQ.f~) 

6 In 2011, Paraguay accounted for over 50 percent of South America's and 15 percent of world production, 

according to statistics compiled by the United Nations Office of Drugs Control. See United Nations Office of Drug 

Control's Liaison and Partnership Office in Brazil, "Pamguay and UNODC present an Integrated National 

Programme to Fight Organized Crime," May 4, 201 J. 

(hLtpll,..,ww. unogc .orgllpo-brazil/en/frontpage/20 1 1JO~/Q.4-o-paraguai-e-n-unodc-apresentam-o-programa-naciona1-

integrado-de-luta-contra-o-crime-organizado.html) 

7 The World Bank, World Integrated Trade Solution, "Paraguay at a Glance: Most Recent Values," accessed June 4, 

20 16. (http:/ /wits. worldbank.org/CountrvSnapshot/en/PR Y /textview) 

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Emanuele Ottolenghi June 8, 2016 

refined,8 none of these goods is produced in Paraguay, making the country a transshipment point 

for goods, both licit and illicit, that elude custom controls and law enforcement. 

Thanks to its free tax commercial area in Ciudad Del Este, Paraguay's second city, the country is 

also a key hub for selling consumer commodities. Ciudad Del Este at one point generated 60 

percent of the country's GDP9 by selling electronics, alcohol, cosmetics, brand clothing, and 

other consumer products that Paraguay imports mainly from China its second-largest trading 

partner in exports (25.3 percent in 2014) after Brazi1. 10 Ciudad Del Este is well known as the 

Paraguayan side of the so-called Tri-Border Area, or TBA. The confluence of the Iguassu River 

into the Parana River forms a natural three-way boundary between Argentina, Brazil, and 

Paraguay. The Parana separates Ciudad Del Este from the Brazilian city of Foz do Iguassu but 

also constitutes, thanks to its geography, an ideal point for criminal activities. 

Border trade in Latin America is particularly lucrative due to differentials in taxes and currency 

exchange rates. When one adds smuggling and, frequently, the virtually non-existent custom 

controls, the potential for profits is clear. Transnational organized crime is particularly active in 

these border areas for the same reasons that attract smugglers - lax controls and corruption both 

favor any traffic, including that of illicit merchandise. The cooperation between criminal cartels 

trading in drugs and terror organizations using these areas for money laundering is made possible 

because licit trade is critical to illicit trafficking. Through trade-based money laundering, 

criminal organizations can dispose of profits from criminal activities - in Latin America, mainly 

drugs and weapons trafficking, but also tobacco smuggling and the contraband of licit products 

such as electronics. Porous borders enable terror groups and organized criminals to cooperate in 

pursuit of profit, which they then use to finance their own agendas. 

The exploitation of porous borders by organized crime and terror groups is neither unique to the 

TBA nor to Hczbollah. Given the structural weakness of central authorities across the region, 

border areas are problematic. The TBA is rightly infamous for the highly profitable businesses 

selling tax-free consumer goods on the cheaper side of the border - Paraguay - and the 

smuggling of these goods, mainly to Brazil. Its notoriety was reinforced over the years by the 

presence of Hezbollah financiers, which the U.S. Treasury designated in 2006. 11 The TBA still 

offers numerous examples of how trade-based money laundering, fiscal tf·aud, smuggling, and 

trafticking in illicit goods arc exploited by organized crime and terror organizations. But the 

TBA is just one of many places where the confluence of weak central government, porous 

borders, and corruption enable both organized crime and terror finance to thrive. 

Brazil, the largest country and biggest economy in the region, borders every country in South 

America but two (Ecuador and Chile) and has ten TBAs with its neighbors. Latin America also 

8 Mimi Yagoub, "Paraguay First Ecstasy Lab Shows Brazil Criminal Migration," Insight Crime, April25, 2014. 

(http://www.insigjili:rime.org/news-briefs/paraguay-first ecstasy-lab-brazil-criminal-migration) 9 Leslie Jermyn and Yong Jui Lin, Paraguay (Cultures of the World), (Cavendish Square Pub1ishing,2010), page 16. 10 The World Bank, World Integrated Trade Solution, "Paraguay Imports by Country and Region, 2014," accessed 

June 4, 2016. (http://wits.worldbank.org/CountryProfile/en/CountrviPR Y /Y ear/20 14/TradeFlow/lmPQI!) 11 U.S. Department of the Treasury, Press Release, "Treasury Targets Hizballah Fundraising Network in the Triple 

Frontier of Argentina, Brazil, and Paraguay," December 6, 2006. (https://W1;0Y,!.r~asJ.ill'gQYLQress-centerlpressre1eases/Pageslhp 190.as]2'<;) 

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Emanuele Ottolenghi June 8, 2016 

has five other tri-border areas that don't include Brazil such as the Bolivia-Chile-Peru TBA in 

Visviri, Tripartito, and Charana. 

Many of these areas have common features. They are far from large cities and capitals where 

power and wealth are concentrated. Local nature is impervious. In some cases, at least one side 

of the TBA is lawless and dominated by local criminal cartels. Law-enforcement presence is 

scarce and poorly paid. In such conditions, contraband thrives. 

One example is the Bolivia-Peru-Brazil TBA in Bolpebra, Assis Brazil, and Ifiapari. Bolpebra, 

the Bolivian frontier outpost on the Rio Acre across the water from Assis Brasil, is a key transit 

point for the smuggling of Peruvian cocaine and logging from Brazil. 12 Located in the middle of 

the Amazonian jungle, the town has only one policeman. Its mayor resides in Cobija, a Bolivian 

frontier city more than two hours away by ear. The Bolivian Army has only an advance force in 

the area to fight drug traffickers. 

These features are also not unique to tri-border areas. Thousands of miles of borders across the 

continent remain difficult to guard due to the impenetrable nature of the terrain. In such places, 

the sparse border crossings are insufficiently manned and poorly equipped to stop the flow of 

illicit goods. Poorly paid police forces arc also vulnerable to corruption from organized crime. 

The lax presence of authorities and sometimes the corruption of local officials make all this 

possible. The Parana River section of the Brazilian-Paraguay border (130 miles of waterway with 

no human settlement on either side) was seriously undermmmed, according to a senior Brazilian 

official who spoke to me on condition of anonymity. In some places, police presence is 

symbolic. Action taken against organized crime is not sustained over time, the senior official 

complained. 

Such scarcity occurs on both sides of the border. According to a 2014 report about drug 

trafficking in Paraguay, published in the Mexican Domingo Universa/, 13 SENAD, the 

Paraguayan DEA, had only 12 officers involved in crop eradication operations along the 155 

miles of dry border separating Brazil from Paraguay in the marijuana-producing area of 

Amambay. Paraguay has no aerial radars available to monitor the constant flights of small planes 

taking drugs in and out of the country. 

Given these circumstances, priority is given to catching weapons and drugs, according to a 

Brazilian otiicial speaking to me on condition of anonymity. Smugglers of cigarettes, 

electronics, and other consumer goods crisscrossing the river daily are left unmolested due to 

insufficient resources. Recent steps announced by the new interim government of Brazilian 

President Michel Temer, if followed by concrete action, are a welcome change. Brazil has 

armounced the deployment of a large pennancnt military presence to secure the Paraguay-Brazil 

12 Silvia Antelo Aguilar, "EI desafio de Bolpebra en las politicas de desarrollo fronterizo (The Challenges of 

Bolpebra en the border development policies)," Sol del Pando (Paraguay), August 30, 2014. 

(!lt!p;l.i\Yl'~"~oldepando.com/el-desafio-de:bolpebra-en-las-politicas-_de-desarrollo-fronterizo/) 

13 Pablo Ferri y Jose Luis Pardo, "EI aroma vierde de Ia tierra roja (The green aroma of the red land)," Domingo 

Universal (Mexio ), July 27, 2014. 

(http://www.domingoeluniversal.mx/historiasidetalle/El+aroma+verde+de+la+ Tierrat Roja-2682) 

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Emanuele Ottolcnghi June 8, 2016 

border and the formation of an executive committee to coordinate border controls. 14 But more is 

needed to secure the frontier. 

In particular, the TBA remains a critical transit point for illicit traffic, especially if one extends 

its area to cover the entire border running between Ciudad Del Este in the south to Pedro Juan 

Caballero in the north. Both Hezbollah and the PCC, as well as other criminal and terror 

organizations, have taken roots in Paraguay, especially in the borderlandsJ 5 

Hezbol!ah is able to play a role because of sympathetic Shi'a communities involved in crossborder trade. Some of them arc simply sympathizers who donate charity money to the group; 

some arc more actively involved and participate in complex trade schemes designed to support 

illicit finance. Local organized crime is often a partner because its interests in money laundering 

revenues converge with those ofHczbollah. 

Charity boxfhr the "resistance., 

across the border from the 16 The sign says: "In 

boxes collecting money 

and that money goes 'l"~"'~"''Y 

Facebook, 

Foundation for Defense of Democracies 

6 

the Ponta Porli mosque on the 

Pedro 

to FDO's David Daoud, llezbollah charity 

South Lebanon, are labeled '"da 'am"-

'4\l;JI (Ponta Pora Arab Community), 

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Emanuele Ottolenghi June 8, 2016 

Hotspots for this type of activity include Encarnacion at the Argentine-Paraguay border in the 

southeast; Saito de Guaira, on the northern side of the Parana River section of the ParaguayBrazil border; and, further west, Pedro Juan Caballero (Paraguay) and Ponta Porii (Brazil). These 

locations deserve as much attention from U.S. authorities as the TBA. 

Before discussing how trade-based money laundering functions in Paraguay for the benefit of 

Hezbollah and its organized crime partners, I wish to highlight the importance of ongoing 

Hezbollah networks in the TBA. 

Lebanese communities 

Terror organizations, much like organized crime, benefit from the acquiescence and complicity 

of local populations. Sympathy to the terrorists' political cause becomes a key enabler to their 

activities. Latin America is no exception, and Hezbollah relies on local supporters. They arc 

mainly members ofShi'a families from South Lebanon who moved to Latin America- mostly to 

Argentina, Brazil, and Paraguay, and to a lesser extent Venezuela and other countries during 

Lebanon's civil war in the early 1980s or soon thereafter. According to Brazilian-Lebanese 

political scientist Hussein Kalout, Muslim Lebanese have assimilated less into Brazilian society 

than their Christian counterparts, keeping a much stronger bond with their faith and language and 

transmitting them down to the next generations. 17 

The arrival of the Lebanese Shi'a in Latin America coincided with two additional key events: in 

Lebanon, the establishment of Hezbollah rapidly coopted the Shi'a population in the south to its 

ideology. In Latin America, a well-coordinated effort by the newly established Islamic Republic 

of Iran to export its revolution began recruiting support among Shi'a expatriate communities. 

These two distinct but interconnected phenomena reinforced one another. Local communities 

that were less willing to assimilate and integrate were more receptive to teachers and preachers 

from their motherland. Iran's outreach relied mainly on Shi'a clerics of Lebanese extraction who 

came from the ranks of the newly established Iranian proxy Hczbollah, and thus embraced the 

Iranian revolutionary principle of loyalty to Iran's supreme leader while not irking Arab 

sensitivities. To this day, Hezbollah plays a central role in the management of the religious and 

educational structures tasked with transmitting a strong Lcbanese-Shi'a identity to local 

communities, ensuring that their allegiance is tilted toward the organization. 

This patient work conducted over more than three decades by a growing rank of clerics has borne 

fruit. Today, Shi'a mosques across Latin America are fully integrated into Hezbollah's and Iran's 

clerical structure; so arc numerous schools and scouts groups, where the themes of resistance, 

anti-imperialism, and hatred for Israel are seamlessly weaved into the school curriculum and the 

religious calendar. Hczbollah media platforms, like Iran's, have developed Spanish and 

Portuguese language versions, including media outlets tl1at are entirely hosted, produced, and 

staffed locally. 

17 Quoted by Joe Dike, "How the Lebanese conquered Brazil," Executive Magazine, July 3, 2014. 

(http://v.ww.executive-maRazine.cornlbl,!siness-financeLsociety[lebanese-conquered-brazil) 

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Emanuele Ottolenghi June 8, 2016 

The results arc frightening. For example, numerous members of the Lebanese community in the 

TBA have posted memorial pictures of slain Hezbollah commander Mustafa Badreddine on their 

social media pages since his death in May 2016. 18 

Brazilian-Lebanese national and 0av Paulo 

2016, on Facebook; a 

Brazilian-Lebanese national and FOz do Jguassu resident Ali A1aaroufZahoui posls Badreddine ',\'photo a.'\ his 

F acebook profile. ' 0 

" A1me Barnard and Sewell Chan, "Mustafa Badreddine, Hezbollah "The 

New York Times, May 13, 20!6. 

Foundation for Defense of Democracies www.dcfcnddemocracy.org 

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Emanuele Ottolcnghi June 8, 2016 

Paraguayan memorializes Mustafa Badreddine on Facebook, 

Connections to Iran and Hczbollah arc constantly reinforced by the steady stream of Iranian and 

Lebanese senior clerics who visit the region. Recent visits include Iranian clerics Mahmoud 

Mohammadi Araghi (the director of Iran's seminar for the training of foreign converts in Qom, 

Al-Mustafa International University) in July 2015;22 Scyed Hassan Khomcini (grandson oflran's 

late supreme leader Ruhollah Ayatollah Khomeini) in June 2015;23 aud Mohscn Qomi (a 

member of Iran's Assembly of Experts) in December 2012.24 Lebanese cleric Seycd Ahmad 

2

0 Ahmad Ali Maarouf Ali Krayem, Zahoui~ Fixebook, Flxehook> accessed accessed June June 2, 2, 2016. 20 16.:~~;~~~~t~:[~~~~:~~~~~~: 22 Arresala Centro IsHl.mico no Brasil, Flickr~ 4

'Sua da 

Universidadc lntemadonal Al-Mustafa~ acompanhado de outros membros da instituiyilo, visitarmn a do Centro 

Isl§.mico no Brasil e acompanharam de perto os trabalhos e da entidacte (Your Eminence Sheikh Mahmoud 

Mohammadi director of the lntematinoal University Mustafa. members of the 

the fslarnlco in Brazil and projets of the 

no Flickr, Sheikh 

:tv1ohsen Ghomi realizou um encontro com a comunidade isl3.mica brasilcira, intelectuais sociais na sede do 

Centro Jslamico no Brasil, na cidade de Sao Paulo (On December L 2012, the Ayatolah Sheikh Mohsen 

Ghomi held a with the Islamic Brazilian and social leaders at the headquarters of 

"No sabado, de 2012, o Sheikh 

Mohsen Ghomi rcalizou urn encontro com a cornunidade isi:lmica brasileira, intelectuais e snciais na sede do 

Centro ls1iimico no Brasil, na cidade de Sao Paulo (On December l, 2012, the Ayato1ah Sheikh Mohsen 

Ghomi held a meeting with the Islamic Brazillan community, and social leaders at the headquarters of 

the Islamic Center of Brazil in the Paulo)," December I, 2015. 

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Emanuele Ottolenghi June 8, 20!6 

Fadhlullah, the son of the late Lebanese Grand Ayatollah Seyed Mohammad Hussein Fadlallah, 

also visited in November 2015 25 

Hassan Khomeini with Iran's Ambassador to Brazil and the U.S-sanctioned Bilal Mohsen Wehbe in 

Siio Paulo (June 20 15}. 

The dual role of Shi'a clerics as religious and political emissaries of the Islamic revolution was 

underscored in 2010 when the U.S. Treasury identified Bilal Mohsen Wehbe, a Shi'a religious 

minister, as Hezbo!lah's representative in Latin America. According to Treasury, Wehbe 

"relayed information and direction between Hezbollah leaders in Lebanon and Hezbollah 

elements in South America," and oversaw its counterintelligence activity in the tri-border area of 

Argentina, Brazil, and Paraguay. 26 Wchbe, who is currently associated with the Mesquita do 

Bras in Sao Paulo, continues his activities undisturbed. 

Another example is Sheikh Ghassan Youssef Ahdallah, a Lebanese cleric who lives in Foz do 

lguassu. Abdallah is the brother of U.S.-sanctioned Mohammed Youssef Abdallah, who also 

resides in Foz. Treasury designated Mohammad Abdallah in 2006 and identified him as the 

owner and manager of the Galeria Page in Ciudad Del Estc. At the time, Treasury viewed him as 

a senior Hezbollah leader in the TBA who hosted fundraisers for the terror group, personally 

carried money to Lebanon, met with llezbollah's security division to coordinate Hezbollah 

activities in the TBA, and also engaged in a variety of financial crimes, including "'the import of 

contraband electronics, passport falsification, credit card frand, and trafficking counterfeit U.S. 

dollars."27 

Ahmad Fadlallah visita o Centro lsliimico no Brasil 

"November 14,2015. 

~~~~~=~T:~~~~!~~a;~::::t:l~fe!~~~!.;~~; 

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Emanuele Ottolcnghi June 8, 2016 

Chilean government sources personally confirmed to me that, much like his brother, Ghassan 

Abdallah is linked to Hezbollah. He is active in Chile through the local Shi'a center in the capital 

Santiago,28 and once ran the Shi'a mosque in Ciudad Del Este,29 which his brother helped 

establish. Ghassan Abdallah was also one of a handful of Latin American-based Shi'a clerics to 

attend the Ahlul Bayt World Assembly international gathering in Qom in August 2007 - an 

indication of his senior rank and closeness to the office of the supreme leader, under whose 

auspices the Assembly operates. 30 

Through its clerics, Ilezbollah cultivates the loyalty of Shi'a communities in Latin America by 

providing educational services. One example is the Groupo Escoteiro Libanese Brasileiro 

(GELB), or the Lebanese Brazilian Scouts Group attached to Shi'a mosques and communities in 

numerous Brazilian cities. GELB has the outward appearances of youth movements, but is 

actually the mirror image of Hezbollah's Mahdi scouts,31 led by Lebanese instructors32 who do 

not hide33 their sympathy for Hezbollah, and, in Sao Paulo, supervised by Wehbe,34 the U.S.-

sanctioned Hezbollah cleric. 

Images available on GELB's Facebook pages show its members conducting military drills during 

last year's May 25 celebrations35 ("Liberation Day"), which marks the date of Israel's 2000 

withdrawal from South Lebanon. During the Ashura ceremonies in October 2015, scouts and 

their instructors at the Mesquita do Bras in Sao Paulo were wearing Hezbollah T-shirts36 

28 "Sheij Ghassan Abdallah," Centro Cultura is/arnica Chile: Corporacion de Cultura y Beneficencia Is/arnica 

(Chile), accessed June 6, 2016. (http://islam.£):l[le.c0nl/hQmele.hcij:&hl!seilllc:.abdallah/) 29 Associa.;ao Religiosa Beneficiente Is Iamica no Brasil, "Quarto Encontro Intemacional da Assembleia Mundial 

Ahlul Bait (A.S.) (Fourth Meeting ofthe International World Ahlul Bayt Assembly)," August 18, 2007. 

(http://www .mesguitadobras.org. br/not vis.php?op~9&cod~ I O&pagina-28) 30 Associa.;ao Religiosa Beneficiente Is Iamica no Brasil, "Quarto Encontro lntemacional da Assemb!Cia Mundial 

Ahlul Bait (A.S.) (Fourth Meeting of the International World Ahlul Bayt Assembly)," August 18, 2007. 

(http://www.mesguitadobras.org. br/not vis.php ?.QP~9&cod~ I O&pagina-28) 31 c;.,....ll ?L.'11l.it..:S ~/~I c,<"<-- <.<:&. (Mahdi Scout Forum /Imam al-Mahdi Scouts Association), Facebook, 

accessed June 6, 2016. (h!!J2';lL.www.facebook.com/MahdiScoutForum/1i.meli!l£1. The logos of the two scouts groups 

coincide: Gelb-sp-396, Facebook, accessed June 6, 2016. (httos://www.facebook.com/Gelb-sp-396-

825 8901Q±l2.50).]1) 

32 See for example W;)l -'=-<.)c ('Ali Mohammad al-7""in), Facebook, accessed June 6, 2016. 

(https://www.tacebook.com/protile.php?id~I0000879994691l) and Hassan Ataya, Facebook, accessed June 6, 

2016. (https://www.facebook.com/hassan.ataya.52) 33 Haissam Fahes, Facebook. accessed June 6, 2016. (btlps://www.facebook.com/haiss'!mJahes) 34 Ge1b-sp-396, Facebook, May 27, 2015. 

(!illps://www. faccbook.com/825890264125053/photos/a.832782546769158.1 073 741838.825890264125053/832786 

'a_li.llili.~.&Jheater) 

35 Gelb-sp-396, Facebook, May 27, 2015. 

(https://www. facebook.com/825890264125053/photos/a.832782546 769158.1073741838.825890264125053/832786 

256 7 68 787/?type~3&theater) 

36 Gelb-sp-396, Facebook, October 24, 2015. 

(https://www. facebook.com/82589Q;!6412505 3/photos/a.896940400~53 3 72.1 073 7 41880.82589026412505 3/896941 

590353253/?type~J&theater) 

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Emanuele Ottolcnghi 

showing its logo and the Ashura 2015 

department. 38 

June 8, 2016 

designed by Hezbollah's media relations 

C'hildrenfrorn the Grupo Escoteiro Libanese-Brasileiro at A:•;hura events in Sao Paulo's Afesquita do Bras on 

October 24, 2015, wearing fle=bo/lah f .. shirts with the official Hezbo/lah Ashura logo for 2015. 

Hezbollah is also presumed to have an active role in running Shi'a Lebanese schools in the TBA. 

Ahde Hade, senior educator with Hezhollah's AI Mahdi Schools in Lebanon, is connected 

through social media to key personnel among scouts leaders and educators such as Wehbc; 

Amara Abbas,39 the head of the scouts in Foz; Nisrine Berri,'0 a senior manager; Michelle 

Hussein, the human resources and Fadia Thrahim,42 a teacher at Sao Paulo's Co!cgio 

Islamico-Brasileiro. The confluence of symbols, social media connections, and expressions of 

support for Hezbollah43 all suggest that the schools catering to the Lebanese Shia in Brazil and 

the TBA might be an integral part of Hezbollah's AI-Mahdi network, and arc intent on molding 

young Brazilian Shi'a to be supporters ofHezbollah. 

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Emanuele Ottolenghi June 8, 2016 

"!love Jlezbol!ah" image posted by Nisrine Berri, a manager at Siio Paulo's Colegio Jslamico Brasifeiro, on 

Fehruwy II, the anniversary qflran 's Islamic Revolution of 1979. 

Hezbollah's cult of martyrdom is also prevalent ln June 2014, the Imam Ali mosque in Cnritiba 

the regional capital of the Brazilian state of Parana hosted a well-attended memorial service 

for Alaa Ataya, a young Hczbollah fighter killed in Syria44 in March 2014. Hassan Ataya, his 

Brazilian uncle, led the memorial clad in a Hczbollah scarf45 and exalted the young fallen as a 

role modeL Ataya himself is a scout leader. 

accessed June 6, 2016. (llJ!u;/Dvww.vcl£: 

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Emanuele Ottolenghi June 8, 20!6 

Scout leader flassan Alaya eulogizes his nephew, Alaa Ataya, at the Imam Ali Mosque in Curitiba (Apri/2014). 

More recently, the Shi'a community in Ponta Pora informed its members of the "martyrdom" of 

Abbas Nasccb Haraz, a relative of a community member from Paraguay likely from Pedro Juan 

just across the border and announced an event to commemorate the fallen Hezbollah tighter46 

Pont a Poril"s mo/::que 's Face book page postingfor A1arch 201 2015, if![Orming the community f?{the martyrdom of 

Abbas Naseeb I1araz, a relative of a memher of the communi(v. 

Community members routinely post photographs of the Brazilian flag juxtaposed with the 

Hezbollah logo47 and photos of young Hezbollah men in South Lebanon proudly holding the 

same flag.48 llczbollah T-shirts can even be purchased online for 30 Brazilian reals, or less than 

$10.49 

46 The 

we invite you to a 

03/20/2015 At 7:30 (Brazil 

the Arab of Ponta 47 Chris Heinz, 

Heinz, accessed June 5, 2016. 

tl1e news o fthe 

And on this occasion 

which falls on 

all of the members of 

https://www.facebook.com/photo.php?tbid~77119934299912l &set"•a.l34465046672557.25209.1D00032 71888084 

accessed June 6, 2016. 

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Emanuele Ottolenghi June 8, 2016 

Profile picture of Cris Heinz, a Brazilian convert to Shi 'a islam married to Mustapha Sabra, a Hezbollah 

sympathizer }rom Foz do lguassu (November 2015). 

Hezbollah and Iran also maintain a strong media 

sponsored media for Latin America include 

version, 5° Radio El Minarctc,51 Annur TV52 and 

in the Spanish language. Iranianthe Ahlul Bayt News Agency Spanish 

TV.s3 

Hezbollah too has devoted considerable attention and resources to Muslim audiences in Latin 

America. Both Al-Manar54 and Al-Mayadecn55 have a Spanish version. Al-Mayadcen also has a 

subsidiary in the TBA, based in Foz do Iguassu --A Fronteira56 and its Arabic version, Shabakat 

At-Hudud57 The Foz do Iguassu-bascd network is owned by Ahmad Yassinc Hejazi,58 a local 

so uHome Page," Agenda de 51 Diario Co Latino, ''Associacion Jslamica 

inaugurate Radio El Minarete)," December 30, 2015. (!J!!P.;!i.Y£\Y.l.,:,\!i~riilfl!!m.iDSC&.Ql!J1lJ!c~Q!<iiliciillillllinlllil:§Jlili::c: 

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Emanuele Ottolenghi June 8, 2016 

Lebanese businessman with Brazilian nationality, and is mn by Ali Farhat,59 a BrazilianLebanese resident ofFoz do I~oruassn who studied journalism at the local university. 

The overlap between religious, political, intelligence, and financial activities by the same 

individuals highlights the difficulty of treating charitable activities as separate categories from 

radicalization, and ten-or ll.mdraising. Hezbollah loya.lty through apparently benign 

social structures. It then leverages loyalty to solicit and use business connections to its own 

advantage. 

Lack of adequate legislative measures to combat terrorism and terror finance 

These networks have been able to thrive partly because Brazil lags behind its Western 

counterparts in the adoption of legislative tools to combat terrorism and ten-or tinance. Brazil 

only recently adopted anti-ten-or lcgislation,60 after, in Febmary 2016, the Financial Action Task 

Force's plenary lamented "Brazil's continued failure to remedy the serious deficiencies'· and its 

failure to criminalize ten-or-financing.61 The new legislation stipulates that recruitment, training, 

and finance of tenorism are also punishable acts. Radicalization and incitement, however, are 

not, nor are the display of symbols and flags of Hezbollah at demonstrations and sports events. 

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Emanuele Ottolenghi June 8, 2016 

A pro-Hezbollah demonstration in the Avenida Paulista, in Siio Paulo (.<;;ummer 2006). 152 

Cheering Iran and }{ezbollah during the Iran-Nigetia world cup soccer match, Curitiba Stadium (June 16, 20 14). 63 

The TBA offers proof of how the absence of proper local legislative tools to combat terror 

finance has limited the impact of U.S. measures to counter it. Interest in the TBA began in the 

1990s and culminated with Treasury designations nine individuals and two corporate 

entities (the shopping center Galeria and Casa a business located in it that was 

owned by the U.S.-sanctioned Hamzi Barakat)64 l visited Galeria Page in April 2016. 

The shopping mall is still there it has been renamed Galeria Uniamerica, although street 

currency traders serving its shops were still wearing its distinctive turquoise T -shirts.65 

Despite U.S. designations, Barakat continued his business activities until his arrest in Brazil in 

2013, not for terror finance but fraud. His arrest is the best indication that the 2006 terrorist 

designation may have cut him off from the U.S. financial system but allowed him to continue to 

operate his businesses with impunity. Jt ultimately took a set of financial crimes in Brazil for 

authorities to take action against him.66 

Foundation for Defense ofDcmocraeies 

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in favor of 

capital of d1e 

JraJ:J-l'llgtma2014 World 

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Emanuele Ottolenghi June 8, 2016 

Case study: the Mega-evasion investigation in the TBA 

Having described the conditions that facilitate Hezbollah's operations in the TBA and its 

probable cooperation with drug traffickers, I will now tum to explaining the mechanism through 

which money is laundered there by terror organizations and organized crime. I will do so through 

reference to a recently leaked investigation into a tax evasion scheme in Ciudad Del Este, which 

local authorities have dubbed a "Mega-evasion" due to the participation of 285 local companies 

in the scheme. 

The "Mega-evasion" invcstigation67 exposed a group of local accountants who had issued false 

invoices on behalf of 285 companies and people registered in the TBA in order to evade taxes 

(Paraguayan authorities estimate the fraud at $270 million)68 

The list was leaked in February 2016 as the investigation got underway. 69 As part of this 

investigation, authorities looked into a cluster of six companies on the list of suspects and 

established a possible link to Islamic terrorism. They also identified a Lebanese national and 

holder of a Paraguayan identity number, Ja' afar Balhas, as a shareholder in three of the six 

companies. 

67 "Destapan nueva mega evasion (Uncovering a New Mega Evasion)," Paraguay. com (Paraguay), June 4, 2015. 

(http://www. paraguaL£Qm/nacionales/j:lestapan-nueva-mega-evasion-1290 13) 68 "Mega-evasion" por USD 270 miliones ("Mega Evasion" for 270 million USD)," La Nacion (Paraguay), February 

I 0, 2016. (l.J1tp://www.1anacion.com. py/20 16/02/1 0/Mega-evasion-millonaria-por -_usd-2 70-rnillon.~/) 69 "Salta lista de las crnpresas investigada par Mega-evasion en Ciudad Del Este (List of companies investigated for 

Mega Evasion in Ciudad Del Este)," ABC Color (Paraguay), February 12, 2016. (http://"'\'W.abc._c_om.py/edicionimpresa/cconomialsalta -lista-de-empresas-investigadas-por-.Mega-evasion-en-ciudad-del,cste-14 52500. html) 

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Emanuele Otto!enghi June 8, 2016 

There is a second Lebanese partner in the cluster of companies- Walid Amine Sweid. Sweid is a 

prominent businessman who lives in the TBA and is associated with a number of successful 

business endeavors in recent years, including the establishment of a local factory for the 

production of blank CDs and DVDs. Sweid is the common thread connecting the six companies, 

all of them tied through the presence, as a shareholder or an employee, of Maria Celeste Aracely 

Gonzalez, a Paraguayan resident ofCiudad Del Estc who works for Sweid. 

It remains to be seen whether Swcid and Balhas act as financiers of Hezbol!ah or whether their 

companies will be convicted in the Mega-evasion case. Their network of companies is 

interesting, nevertheless, because it illustrates how money and merchandise arc moved around in 

theTBA. 

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Emanuele Ottolcnghi June 8, 2016 

According to an article in the Paraguayan press from August 2015/0 Sweid is close to senior 

Paraguayan politicians, customs inspectors, and the Paraguayuan-Lcbanesc businessman, and 

now Paraguay's ambassador to Lebanon, Hassan Khalil Dia. Dia's family is highly influential in 

the TBA. His brother Hussein Dia recently posted photos of himself with Brazil's newly swornin president Michel Tcmcr outside the National Congress in Brasilia. 71 Hussein Dia owns Co Iisee 

SRL72 and Dia Imports Exports SRL73 in Ciudad Del Este with his ambassador brother and 

another family member, Mahmoud, who is on the list of 285 companies and people investigated 

in the Mega-evasion case. 

The Asuncion-based daily ABC Color published a photo of Sweid and ambassador Dia on a 

yacht, taken during a 2015 oflicial visit by the president of Paraguay's parliament, Hugo 

Velazquez, to Lebanon. Sweid was described as a key player in the shipment of merchandise 

in Lebanon)," ABC 

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Emanuele Ottolcnghi June 8, 2016 

from the Far East to the TBA, including shipments suspected of including counterfeited goods. 74 

Global Logistics Solutions/5 a Kong-based company, was mentioned as the merchandise 

transportation company. Corporate tor Global Logistics Solutions confirm that Swcid 

owns the company, which he established in 2014. 76 

Wafid SHY!id on a yacht rvith Pm•aPumN>n ambassador to Lebanon. Hassan Khalil Dia. 

Pm•·apummn ojJicials. The photo 

Augus/2015. 

aeropuerto 

Multradi, Dirnadi, Bambll, MZ Trading, L'1 Roma, Michigan~ Amanecer, 

En reiteradas ocasiones las mercaderias fueron decomisadas sospechas de fal:;ifico<:i6t1, pero mayormente 

tcrminan siendo liberadas por los fiscales de marca de Ia 75 Not to be confused with Global Logistics Solution (HK) Ltd. Sweid's company appears to have deliberately used 

the same name (minus an 'S') of another transport company in Hong 

~=lW>Y.UJl\',!!!~';<Jllh!ll\ is almost the same as the other 

Corporate entries the Hong Kong-based Global 

incorporated in 2014. The sole shareholder of Global Solutions is a Chinese national who as 50% 

shareholder for Sweid's other company in Hong Kong, Electronics. Spaltec and Global Logistics Solutions 

share an address. Entries for both companies can be retrieved at the Search Centre of the Integrated 

Companies Registry Information System for a tee. 

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Emanuele Ottolenghi June 8, 2016 

Along with Sweid, the photo showed Ricardo Galeano, a Paraguayan citizen who works for 

Sweid alongside Juan Carlos Sosa and Javier Vazquez. An ABC Color expose of Sweid's 

businesses suggest that these men have political connections that allow the import of the fake 

products without paying taxes and "ensure that the whole system has the support of Customs 

officials, attorneys and business leaders."77 

As indicated, trade-based money laundering relies on commercial goods that are not produced in 

Paraguay but imported into it. The weapons often smuggled across the Paraguay-Brazil border 

for the benefit of criminal cartels are also often legally imported into Paraguay and not produced 

there. 

The porous nature of the borders, therefore, does not relate only to what exits Paraguay, but also 

how and which merchandise enters Paraguay. 

A landlocked country whose main exports are agricultural products, Paraguay imports most of its 

consumer goods by land or air. Imports by sea come through nine ports in neighboring countries, 

where in each, a small area of the harbor facilities acts as a Paraguayan free port. Paraguay 

maintains free port facilities in Buenos Aires and Rosario (Argentina); Paranagua, Santos, and 

Rio Grande do Sui (Brazil); Antonfagasta and Iqique (Chile); and Montevideo and Nueva 

Palmira (Uruguay). Some imports come into Paraguay's southern port of Encarnacion and to 

Asuncion on the Parana and Paraguay Rivers. 

Goods also arrive by air cargo to both Asuncion and Ciudad Del Este. Ciudad Del Este, a city of 

almost 350,000 residents, has a functioning airport but almost no traflic only three scheduled 

passenger flights to Asuncion. Nevertheless, the local airport has a runway that allows the 

landing of large cargo planes. 

Two cargo airlines land at Ciudad Del Este's airport Emirates' Sky Cargo and the Miami-based 

Centurion Air Cargo. The former flies weekly on Thursday nights to Ciudad Del Este trom 

Dakar, Senegal before continuing on to Campinas, Brazil; Quito, Ecuador; Willemstad, Curacao; 

Amsterdam; and Frankfurt. Centurion Air usually flies from Miami and sometimes from other 

regional destinations. Its flights are more frequent, though not as regular as the Emirates' weekly 

flight. 

Flight data obtained from a commercial flight tracker78 show that since April 21, four out of six 

Emirates' Skycargo flights were diverted to Campinas. Centurion Air's flights are not as regular, 

though they are frequent, and usually come in from Miami, where the airline is based. Most 

merchandise imported for sale to Ciudad Del Este appears to be flying from Miami. 

77 "Acusan a despachantes paraguayos de liderar esquema de contrabando (Paraguayan brokers are accused of 

leading a contraband scheme)," ABC Color (Paraguay), August 9, 2013 (h!_tp://w~"!!cl1£.com.py/edicionimpresa/economia/acusan-a-despachantes-paraguayos-de-liderar-esquema-de-contrabando-604933.html) 

78 Data obtained from Flight Radar 24 (www.flightradar24.com). Accessed June 3, 2016. 

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Emanuele Ottolenghi June 8, 2016 

Cargo Flights to Ciudad Del Este, December 2015 to June 2016 

Number 

Emirates 77X/B77L Ciudad Campinas EK9913 

Del Este 

Emirates 77X!B77L Dakar Del EK9913 diverted l\J 

Campinas 

Emirates 77X!B77L Ciudad Campinas EK9913 

Del Este 

Emirates A6-EFK Dakar EK99!3 diverted to 

Campinas 

Centurion Air N904AR Miami Ciudad Del GG55l 

Cargo Este 

Centurion Air N904AR Miaini 

Cargo 

Emirates A6-EFK Ciudad Campinas EK9913 

Del Este 

Emirates A6~EFK Dakar CiudadDel 

Este 

Emirates A6-EFG 5-May-16 Dakar Ciudad Del EK99!3 

Estc 

Centurion Air N902AR l-May-16 Ciudad Moutevideo GG515 

Cargo De!Este 

Centurion Air N902AR 30-Apr-16 Miami Ciudad Del GG5!5 

Cargo Este 

Emirates A6-EFK 29-Apr-16 Ciudad Ca1llpinas EK9913 

DelEste 

Kmirates A6-EFK 28-Apr-16 Ciudad Del EK99B 

Este 

Centurion Air N904AR 25-Apr-16 GG351 

Cargo Del 

Centurion Air N904AR 24-Apr-16 Miami Ciudad Del GG53l 

Cargo Este 

Emirates A6-EFL 21-Apr-16 Dakar CiudadDel EK9913 

Este 

Centurion Air N904AR 17-Apr-16 Ciudad Bogota GG514 

Cargo Del Es!e 

Cellturion Air N904AR 16-Apr-16 Miami CiudadDd GG515 

Cargo Este 

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Emanuele Ottolcnghi June 8, 2016 

Del Este 

Emirates A6-EfM 14-Apr-16 Dakar Ciudad Del EK9913 

Este 

Centurion Air N902AR 10-Apr-16 Ciudad Santiago GG541 

Cargo Del Este 

Centllrion Air N902AR .10-Apr-16 Miami CiudadDel GG54l 

Cargo Este 

Emirates A6-EF!l g-Apr-!6 Ciudad Campinas EK9913 

Del Este 

Emir'ates A6-EFH 7-Apr-16 Dakar CiudadDel 

Este 

Centurion Air N742WA 5-Apr-16 Ciudad Asuncion GG531 

Cargo De! Este 

Centurion Air N904AR n-Mar- Ciudad AsUncion GG505 

Cargo 16 

Emirates A6-EFK 2(>-Mar- Ciudad Campinas EK9913 

16 Del Este 

Emirates A6-EFK 26-Mar- Dakar EK99!3 

16 

Centurion Air N742WA 21-Mar- Ciudad Asuncion GG50l 

Cargo 16 Del Este 

Centurion Air N902AR 13-Mar- KYE525 

Cargo 16 

Centurion Air N902AR 12-Mar- Miami Ciudad De! KYE525 

Cargo 16 Este 

Centurion Alr N742WA 7-Mar-16 Ciudad Asuncion KYE531 

Cargo I)e! Este 

Centurion Air N902AR 29-Feb-16 Ciudad Santiago KYE524 

Cargo Del Este 

Centurion Air N904AR 2I-Fcb"16 Santiago KYE504 

Cargo 

Centurion Air N904AR 21-Feb-16 Miami Ciudad Del WE555 

Cargo Este 

Centurion Air N904AR 13-Feb-16 Ciudad Buenos Aires KYE531 

Cargo De!Este 

Centurion Air N904AR !3-feb-16 Miami Ciudad Del KYE531 

Cargo Este 

Centurion Air N902AR 12-Feb-16 KYE54l 

Cargo Del 

Centurion Air N742WA 7-Feb-16 Ciudad Santiago WE531 

Cargo Del Este 

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Emanuele Otto!enghi June 8, 2016 

Emirates A6-EfH 4-Feb-16 Dakar Ciudad Del EK9913 

Este 

Emirates A6-EFG 2R-Jan-l6 Dakar CiudadDel EK9913 diverted to 

Este Campinas' 

Emirates A6-EFJ 22-Jan-16 Ciudad Campinas EK9913 

Del Este 

Emirates A6-EFJ 21-Jan-16 Dakar CiudadDe! EK99l3 

Este 

Centurion Air N742WA 17-Jan-16 Ciudad Santiago WE531 

Cargo Del Este 

Emirates A6-EFK 15-Jan-16 Campiuas EK9913 

Emirates A6-EFK 14-Jan-16 Dakar Ciudad Del EK99!3 

Este 

Centurion Air N742WA 10-Jan-16 Santiago WE53l 

Cargo 

Centurion Air N742WA 10-Jan-16 Miami Ciudad Del KYE53l 

Cargo Este 

Centurion Air N742WA 21-Dec-15 Santiago KYE540 

Cargo 

Centurion Air N742WA 21-Dcc-15 Miami CiudadDel KYE541 

Cargo Este 

Emirates A6-EFL 19-Dec-15 Campinas EJ';_9913 

Emirates A6-EFL !R-Dec-15 Dakar Ciudad Del EK99!3 

Este 

Centurion Air N904AR 13-Dec-15 Cindad KYE5!5 

Cargo DclEste 

Centurion Air N904AR !3-Dec-15 Miami Ciudad Del KYE541 

Cargo Este 

Emirates A6-EFK ll-Dec-15 Campinas EK9913 

Emirates A6-EFK !0-Dec-!5 Dakar Ciudad Del EK9913 

Este 

Centurion Air N902AR 6-Dec-15 Santiago KY£520 

Cargo Este 

Centurion Air N902AR 6-Dec-15 Miami Ciudad Del WE971 

Este 

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An analysis of import and export data for the six companies linked to Sweid and Balhas shows 

merchandise deliveries from China often coincide with the above flights. Bravat Home, for 

example, received fifteen separate shipments from China on April 8, 2016 by Emirates' Sky 

Cargo to Ciudad Del Este via Dakar. 79 The shipper, Spaltec Electronics, is a company registered 

in Hong Kong and 50-percent-owned by Sweid. Spaltec SA, a company also owned by Sweid in 

Ciudad Del Este, is under investigation in the same Mega-evasion case. 

Spaltcc Electronics in Hong Kong is the shipper for all recent deliveries received by Ponto Com 

Megastore S.A., another company linked to Sweid through one of his associates and currently 

under investigation in the Mega-Evasion case. Sweid sells electronics and beauty and fashion 

products with high-end labels through his companies ByDubai, Spaltec and Ponto Com,80 

alcohol and spirits through WASPY Inc.,S1 and manufactures CDs in Factory Group SA.82 He is 

also listed as owner of Zomo Tobacco and CY A Paraguay. 83 

A bill of lading for assorted electronics and bathroom accessories to Ponto Com Megastore from 

Spaltec Electronics in Hong Kong documents a delivery by air on April 29 (the day an Emirates' 

Sky Cargo flight landed at Ciudad Del Este). Global Logistics was the company responsible for 

the shipment. In short, Sweid owned every company involved in the transaction the consignee, 

shipper, and transportation company. 

79 All shipments references come from data available through the Import Genius Latin American database, a 

commercial database providing import-export bills oflading from commercial ports in ten Latin American countries. 80"Homepage," PontoCom (Brazil), accessed June 6, 2016. (http://'N-ww.pontocom.com/); Spaltec, Facebook, 

accessed June 6, 2016. (!li!!l~:I/'-"WW.facebook.comls.Pl!!!ec/info/?tab=overview) 

81 "Homepage," Wine and Spirits (Paraguay), accessed June 6, 20!6. (http://www.winesand'i.Pi.ti!§.C0!!1QY_/) 82 "Factory Group S.A. Industrial and Comercial," Find the Company, accessed June 6, 2016. 

(http:l/fichas.findthecQ!llP."I]Y,SOm.mx/l/12833278~/Factory-Gr()uQ:S.::fdllil!Il'Jr.i!'Jo.Y::.C<:>.!ll.ersia!::en-Ciudad-DelEste) 

"' Information provided in person to the author by officials involved in the Mega-evasion investigation. 

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April 29, 2016 Bill of lading for air shipment from Spa/tee Electronics in Hong Kong to Ponto Com Megastore S.A. 

in Ciudad Del Este. 

Sweid also used a U.S. company- Electro Game Export LLC incorporated in Florida in 2009 -

to ship videogames to the Ciudad Del Este-registered Best West S.A. The three shipments from 

February and April 2010, when Sweid was still a managing director at Electro Game Export 

LLC, were worth a combined $1.3 million.84 Best West S.A. is also being investigated in the 

Mega-evasion case. Sweid no longer appears on Electro Game Export LLC's directory of 

personnel. 

The shopping center where Sweid's many companies are located is part of a commercial real 

estate portfolio owned by the Jebai Group, a Lebanese-Paraguayan company that invests in 

84 Record available from Import Genius database. 

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Miami real estate. 85 Sweid's companies Ponto Com and Spaltcc both list their address in the 

Jebai shopping center. Spaltee 's social media suggest they are essentially the same company. 86 

Other companies implicated in the same investigation but not linked to Sweid operate in similar 

fashion - many using Miami, rather than Hong Kong, as their transit point for merchandise and 

paperwork. 

Tigers del Este, a company trading in electronics at Ciudad Del Este's Jebai shopping center, 

routinely made shipments of electronics relying on a Miami-based company named Tiger USA 

Inc. Both companies, Tigers del Este and Tiger USA Inc., are owned by a Lebanese national and 

Brazilian resident named Walid Abboud.87 

Abboud's company was incorporated by Joseph Shomar, a Florida-based public accountant who 

was linked to a 2008 scheme to defraud the Florida State Treasury. Shomar incorporated the 

construction company used for the scheme by Lebanese national Ali Hassan Hammond. 

Hammond was arrested in Miami on his way to Lebanon after he had managed to transfer $5.7 

million to Lcbanon,88 and was eventually sentenced89 

A sample bill of lading, reproduced below, for Grupo Cell Motion S.A., another company 

investigated in the Mega-evasion case, shows that Chinese merchandise reaches Ciudad Del Estc 

by Centurion Air Cargo flights from Miami. The shipper is also a Miami-based company. 

85 "Projects" TheJebai Group, accessed June 6, 2016. (http://jebaigroup.com/projects/) 86 Spaltec, Facebook, accessed June 6, 2016. (https://www.facebook.com/spalteci) 87 Walid Abboud, Linkedln, accessed June 5, 2016. (https://www.linke.din.com/inlwa1id-abboud-760a02a4); Florida 

Department of State Division of Corporations, Corporate Filing, "Tiger USA, INC.," 77-0694557, accessed June 6, 

2016. 

(http://search.sunbiz.org/Inguirv!CorporationSearch/ScarchResultDetail?inguirytype=EntityName&directionTvre~ I 

nitial&searchNameOrdet=TIGERUSA%20P070000872870&aggregatcld=domp-p07000087287-feb94d4c-eb5a4ca6-b9JJ9_:.1i!L8cee22d468&searchTerm=tiger%;10usa&listNameOrdet=TIGERUSA %20P070000872870) 88 Lucy Morgan, "Scheme thwarted after nearly taking Florida for millions" Tampa Bay Times, July 29, 2008. 

(http://www.tampabay.com/news/politics/state/scheme-thwarted-after-nearly-taking-florida-for-millions/747388) 

89 Federal Bureau oflnvestigation, Jacksonville Division Press Releases, "Former Bank Employee Charged with 

Making False Statements in Fraud Investigation" Accessed June 6, 2016. (https://www.fbi.gov/jacksonville/pressreleases/20 1 O/ja06021 O.ht111) 

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iva 

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June 8, 2016 

HB Games S.A. - a company registered at the Jebai Shopping Center in Ciudad Del Este and 

implicated in the Mega-evasion case also appeats to be using a Florida-registered LLC, Group 

HB LLC, to transfer merchandise through the U.S. from China to Paraguay. Hassan Bassal, a 

resident of Ciudad Del Este, owns both companies. His social media connections show him 

linked through friendship to Swcid. 

This mechanism, whereby a sister company abroad buys merchandise in East Asia, usually 

China, before shipping it to Ciudad Del Este, appears prevalent among the 285 companies under 

investigation. Selling merchandise to oneself from jurisdiction to jurisdiction is a typical moneylaundering method. 

Conclusively proving a direct link between any of these companies and Hezbollah cannot rely on 

open sources alone. But the Mega-evasion case shonld raise alarrn bells with U.S. authorities. 

After all, this scheme relied on a small group of accountants used by all companies involved in a 

massive case of tax evasion implicating companies buying products on U.S. markets and 

possibly using their limited liability companies to launder it iu Florida. Numerous individuals 

implicated in this case through their companies arc Lebanese nationals who do not hide their 

political sympathies for Hezhollah on social media. 

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Emanuele Ottolcnghi June 8, 2016 

Recommendations 

Mr. Chairman, Ranking Member, and members of the Task Force, I offer the following 

recommendations: 

1. Build local capacity working with regional allies 

Paraguay needs its armed forces and drug-enforcement agency to build capacity to patrol border 

areas. The absence of monitoring capabilities through aerial radars in a region where drugs tend 

to move by small planes is a serious deficiency. 

2. Facilitate cross-border cooperation 

Custom and police authorities manning borders need to coordinate with neighbors. Joint 

cooperation and resource sharing are necessary components to combating the threat of 

transnational organized crime and terrorism. A key area would be intelligence sharing. Terror 

finance networks thrive in border areas by exploiting weak coordination among governments to 

patrol their shared borders. The United States can facilitate this cooperation. One important step 

would be to revive the Regional Intelligence Center established in 2006 to combat transnational 

crime and corruption in the TBA. 90 

3. Improve controls at ports of shipment 

As outlined in my testimony, Paraguay's borders may be porous, but much of the merchandise 

being shipped to the country to support illicit activities comes from abroad. Initiating more 

stringent controls and better monitoring ofmerehandise is desirable and possible. As noted, most 

problematic shipments by air reach the TBA from two points of departure- Miami International 

Airport and Dubai (via Dakar). The U.S. should immediately institute stricter controls over 

shipments to Ciudad Del Este leaving from Miami, and perform more effective and timely due 

diligence on companies shipping to the Paraguayan city. The same can be said over cargo 

arriving to the TBA from Dubai via Dakar. Washington is investing considerable energy working 

with Gulf allies to fight Hezbollah's terror finance. Seeking greater scrutiny over merchandise 

and its recipients before the weekly cargo leaves Dubai would go a long way to filter illicit 

shipments and raise the costs for Hczbollah middlemen in the TBA. 

4. Designate more Hezbollah backers in Latin America 

The U.S. administration has shown dedication in squeezing Hezbollah's sources of revenue and 

cutting the group from the global financial system. Still, it is important that the administration, 

whose focus in recent months appears to have been overwhelmingly on Lebanon and the Gulf, 

refocus on Latin America and target Hezbollah financiers by seeking new designations. The 

TBA and other border areas offer a target-rich environment. Recently Washington boasted of 

causing 10,000 bank accounts to close in Lebanon. It is to be hoped that similar action be soon 

taken against Latin American targets as well. 

5. Work in concert with local authorities to close bank accounts in Latin America 

The governments of Argentina, Brazil, and Paraguay are more receptive than at any time in the 

past ten years to U.S. leadership in the fight against terror finance, and terrorists' increasingly 

90 Eric Green, "U.S. 'Pleased' by Creation of South American Intelligence Center," 1/P Digital. August 24, 2006. 

(h!ln;i,iij.rujjgi_tal.usembassy,gov/sUenglish/article/200_@~/200608231715051 XJ'neerg0.904522l.html) 

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brazen cooperation with drug cartels and other criminal groups. The U.S. should therefore 

encourage authorities to be more proactive in combating terror finance. Washington should also 

pursue the same approach adopted by Treasury in the past of reaching out directly to financial 

institutions. Based on internal figures that a senior Paraguayan official shared with me, most of 

the cash flows out of that country go to the United States. If that is indeed the case, it is plausible 

to assume that the U.S. financial system is being used to launder revenue from illicit trafficking. 

Having significant consequences for being on the wrong side of the U.S. Treasury would go a 

long way towards getting local banks to look at what is happening in their own backyard. 

Latin America is a land with huge potential. Transnational crime is a serious obstacle to the 

development of strong institutions and robust economics, two pillars of democratic 

consolidation. It is in the national interest of the United States to help Latin American 

governments build them. 

Mr. Chairman, on behalf of the Foundation for Defense of Democracies, I thank you for the 

opportunity to testify and look forward to your questions. 

0 

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