FINANCE-BRAZIL: Billions of Dollars Smuggled Out Through Paraguay

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Jun 8 1999 (IPS) - The Brazil-Paraguay border is an open door for tax evasion and the flight of billions of dollars, according to Brazilian officials.

The justice ministers from Argentina, Brazil, Paraguay and Uruguay discussed the issues of money laundering, illegal trafficking of firearms and drugs across Mercosur borders (Common Market of the South) during their meeting in Asuncion this week.

Prosecutors from Brazil’s Public Ministry and the Federal Police recently uncovered major centres of illegal activity in three border cities: Foz de Iguazu, Cascavel and Ponta Poran.

In Foz de Iguazu, nearly 40 percent of local businesses are “ghost” businesses created as fronts for the “mafia”there, which launders money from illegal activities and sends it overseas, confirmed Paulo Gomes Junior, a local public prosecutor.

In this city located across the Friendship Bridge (Puente de la Amistad) from Paraguay’s Ciudad del Este, an estimated seven billion dollars were illegally sent to foreign destinations over the last three years.

The mafia takes advantage of gaps in the Brazilian banking system to send cash overseas legally, using accounts held by foreigners or non-resident nationals.

“We found that very poor people, unemployed and living in shacks, were ‘partners’ in firms that invoice many millions of reales,” said Gomes Junior. These so-called “naranjas” (oranges) are people who allow their names to be used by illegal businesses to give them an appearance of legality.

In nearby Cascavel, another public prosecuter, Celso Antonio Tres, identified 310 such people. Nearly 5,000 million dollars left the country over the last two years through their bank accounts.

The Brazilian city’s location near the border (150 km) enables anyone to present themself as a Paraguayan resident with the right to open a bank account, known as CC-5, which allows the legal flight of capital.

“It was a failure on the part of the Central Bank,” given the obvious irregularities that indicated the large number of CC-5 accounts and many large transactions in a relatively poor city with a population of just 220,000, said Tres.

The public prosecutor of Cascavel will present accusations before the parliamentary commission that investigates irregularities in the banking system. The commission invited Tres to give his testimony in the next few days.

Thousands of Brazilians visit Ciudad del Este in Paraguay every day to buy supplies for the enormous informal market in their country.

The city’s proximity attracts this type of illicit activity, but also justifies the bulk of currency exchanges and money wired overseas.

However, the huge amounts of money in the CC-5 accounts were suspicious, even considering the intensive border trade which can reach one billion dollars per month, admitted an official of the Central Bank.

An excess of CC-5 accounts is also reported in Ponta Poran, north of Paraguay, in Brazil’s Mato Grosso do Sul state.

The Federal Police found the equivalent of more than four billion dollars passed through these bank accounts in the names of non-existent people from 1994 to 1996.

The local chief of police guesses that so much money is the result of drug-trafficking, contraband in firearms, as well as political corruption.

The Parliamentary Research Commission will also present new banking and tax regulations to reduce potential “legal” fraud in the financial system. The creation of the commission two months ago provoked a flood of illegal banking claims.

The secretary of Federal Collections, Everardo Maciel, revealed that the equivalent of 485,000 million dollars are transferred illegally in Brazil every year without paying any taxes.

Half of the 530 largest Brazilian corporations and 28 of the 66 largest banks are exempt from paying income taxes. Legal accounting manoeuvers, like the CC-5 accounts, allow them to avoid paying any taxes, said Maciel.

The vast majority of tax evasion, as well as ongoing capital flight, occurs in Brazil’s border cities.