## This Report on the Observance of Standards and Codes for the FATF 40 Recommendations

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---

### B. Key Findings
- Substantial dollar contraband trade on borders with Argentina and Brazil facilitates money laundering in Paraguay.
- Paraguay is a major transit point for narcotics trafficking, smuggling, and counterfeit goods; Paraguay is the leading marijuana-producing country in South America.
- Ciudad del Este is the heart of Paraguay’s informal economy and believed to facilitate much of the money laundering in Paraguay.
- Under new UAF Director (appointed in August 2007) there has been notable progress in quality and coverage of AML regulations, but:
  - Country falls short of complying with most FATF Recommendations.
  - Where legal provisions exist, implementation is generally not effective.
  - Level of awareness of ML/FT risks is low in both public and private sectors.
- Since criminalization of ML in 1996, achievements remain modest:
  - At least 15 convictions for ML since 1997 (with only six confirmed and final rulings).
  - Corruption at all levels in the public sector is a serious obstacle to combating ML and serious predicate offences.
- Paraguay has not been confronted with terrorism nationally; no local subversive organizations active.
  - Allegations that proceeds from border-area offences may be diverted to finance terrorist activities in the Middle East.
  - Authorities confirm significant amounts of money originating near Paraguay’s border with Brazil and Argentina are regularly sent to the Middle East and elsewhere through wire transfers and informal means, but authorities could not confirm incidence of FT without reservations.
  - No provisions allowing authorities to freeze suspected terrorist assets in accordance with relevant UN Security Council Resolutions (UNSCRs).
- The UAF lacks an adequate legal framework, governance structure for operational independence, and sufficient resources.
- Regime of preventive measures on financial institutions is generally weak; deficiencies identified in:
  - customer due diligence on beneficial owners, reporting of suspicious transactions, wire transfers, internal control systems, regulation and supervision, training, and resources.
- Low implementation and compliance with FATF Recommendations in the financial sector due to:
  - lack of ongoing and effective supervision (particularly securities, insurance, cooperatives), lack of supervisory resources, and lack of effective and dissuasive sanctions.
- Deficiencies in AML/CFT preventive measures also apply to DNFBPs; AML Law does not cover certain non-financial businesses and professions.

### C. Legal Systems and Related Institutional Measures
- Money laundering offence (Article 196 CC) is not in line with UN Vienna Convention (arts. 3.1(b) &(c)) and Palermo Convention.
- Under Paraguayan legislation ML is a misdemeanor (not a crime), sanction: imprisonment not exceeding five years or a fine.
- Categorization as misdemeanor, limited resources/capacity, and lack of clarity on whether prior conviction for predicate offence is necessary are major obstacles to effective prosecution.
- Narrow range of predicate offences restricts prosecution, legal assistance, and extradition related to ML.
- Paraguay is a Party to the UN International Convention for the Suppression of the Financing of Terrorism but legislation does not criminalize FT.
- No specific provisions to freeze terrorist funds or other assets designated pursuant to UNSCR 1267 or in context of UNSCR 1373.
- UAF history and structure:
  - Established in 1997 within SEPRELAD; became operational in 2004.
  - SEPRELAD organizational structure (high-level officials chaired by Minister of Industry and Commerce) hinders implementation of Law 1015/97.
  - In practice UAF has assumed SEPRELAD functions despite inadequate financial and human resources.
  - Since August 2007 director appointment, UAF has hired and trained additional analysts and updated AML regulation.
- Budgetary/resource constraints:
  - UAF budget insufficient for database processing and adequate salaries.
  - More than half of analyses of STRs transmitted to Office of the Attorney General (OAG) do not lead to commencement of criminal investigation.
  - Only a small number of ML convictions to date have resulted from UAF-provided financial intelligence.
  - Recommendation: re-examine ML law regarding SEPRELAD, ensure UAF operational autonomy, allocate necessary resources.
- Cross-border cash controls inadequate:
  - Airports and land border crossings lack adequate controls for cross-border cash movements.
  - Persons transporting U.S. $10,000 into or out of Paraguay required to file a customs report, but reports are not collected or checked.

### D. Preventive Measures – Financial Institutions (findings and recommended actions)
- Overall: AML regime provides basic legal and regulatory framework but needs strengthening.
- SEPRELAD issued sector-specific resolutions on customer identification and due diligence; these are considered “other enforceable means” but:
  - Resolutions should be modified for sector-specific activities (PEPs, beneficial ownership, wire transfers, money remitters, internal controls, internal audit, compliance officers, training).
  - No evidence of enforcement actions or sanctions imposed on financial institutions for non-compliance.
- Coverage gaps: AML Law does not cover full range of financial institutions required by FATF Recommendations; not covered include:
  - financial leasing, transfer of money or value, trading in transferable securities and commodity futures trading, safekeeping and administration of cash or liquid securities on behalf of other persons, insurance agents and brokers, securities brokers, and cooperatives other than credit and consumer cooperatives.
- STRs:
  - Number of STRs appears low given perceived level of criminal activity; majority of STRs from banking and insurance sector.
  - Low STR count possibly related to inconsistent interpretation of SEPRELAD resolutions and lack of effective supervision.
  - SEPRELAD should provide additional guidance to financial institutions on detecting suspicious transactions.
- Supervisory authorities lack sufficient resources (financial support, personnel, technology), negatively impacting supervision in insurance, securities, cooperatives, training, and application of sanctions.
- Informal money or value transfer systems appear to operate in Paraguay based on anecdotal evidence; authorities should review existence for registration/licensing and AML/CFT oversight.

Key recommendations for financial institutions (preserve Rec. numbers and statuses):
- R.5 – NC; R.6 – NC; R.7 – NC; R.8 – PC
  - Establish legal prohibition against anonymous accounts and require CDD, including for beneficial owners.
  - Establish clear requirements (law/regulation/OEM) for CDD on legal arrangements, money remitters, and higher risk categories.
  - Require rejection/termination of accounts when CDD cannot be completed and consider making STRs; maintain up-to-date customer records.
  - Require insurance companies under the SIS to apply CDD on existing customers based on materiality and risk.
  - Require risk management systems for PEPs and clear requirements for correspondent relationships and non face-to-face transactions.
- R.4 – PC
  - Establish formal mechanisms for competent authorities to share information without court order.
- R.10 – PC; SR.VII – NC
  - Oblige FI to retain customer records and business correspondence for at least five years after relationship end and make data available to competent authorities; modify SIB resolution to align with SR.VII and monitor compliance.
- R.11 – NC; R.21 – NC
  - Establish clear requirements for transaction and relationship monitoring in line with R.11 and R.21.
- R.13 – PC; R.14 – C; R.19 – NC; R.25 – NC; SR.IV – NC
  - Define “financial institutions” and expand FI list; require direct reporting to SEPRELAD; consider currency reporting in line with R.19; require reporting of transactions suspected or linked to terrorism; provide guidance and feedback mechanisms.
- R.15 – PC; R.22 – NC
  - Require FI (including money remitters) to implement internal controls, screening, compliance officers, independent audit, and training; require branches/subsidiaries to monitor transactions from some countries per R.22.
- R.18 – LC
  - Clearly prohibit establishment of shell banks in Paraguay.
- R.17 – NC; R.23 – NC; R.29 – NC
  - Ensure effective, proportionate and dissuasive administrative sanctions; designate competent authority to regulate and supervise money remitters; establish measures preventing criminals from owning/controlling FI; explicit fit and proper measures for directors and senior management; empower SIB, SIS, CNV, INCOOP to supervise and sanction FI; strengthen supervisory processes.
- SR.VI – NC
  - Designate supervisory body for licensing/regulation/supervision of MVTS operators; investigate and monitor informal MVTS systems.

### E. Preventive Measures – Designated Non-Financial Businesses and Professions (DNFBPs)
- Article 13 list of DNFBPs falls short of FATF standard:
  - Lawyers, notaries, other independent legal professionals and accountants are not covered.
  - Provision of trust and company services is not covered (service provided by lawyers).
  - Lawyers are not required to submit STRs and are not subject to other AML/CFT measures.
- Limited indication that covered DNFBPs implement required preventive measures:
  - No systems for monitoring/ensuring DNFBP compliance and little training provided.
  - No STRs submitted by DNFBPs.

Key recommendations:
- R.12 – NC
  - Make all DNFBPs subject to CDD and record-keeping; ensure application for PEPs, new technologies, and reliance on intermediaries.
- R.16 – NC
  - Require lawyers and other independent legal professionals to report suspicions; apply recommendations for R.13, 14, 15, and 21 to DNFBPs.
- R.24 – NC; R.25 – NC
  - Charge supervisory authorities with AML/CFT regulation and supervision of all DNFBPs; establish guidelines (FIU could establish) to help DNFBPs implement and comply.
- R.20 – NC
  - Extend CDD to pawnbrokers and identify other vulnerable non-financial businesses/professions; incentivize modern and secure transaction techniques.

### F. Legal Persons and Arrangements & Non-Profit Organizations
- Registries and transparency issues:
  - Legal entities gain legal status when entered in National Directorate of Public Registries.
  - Public Registry records relate to incorporation and board composition; changes of shareholders are not registered.
  - Records are manual and only record information from 1986 onwards; entries not regularly updated.
  - Companies with bearer shares may be incorporated but no provision ensures transparency of share ownership.
  - No provisions ensuring transparency concerning beneficial ownership of legal persons.
  - Mission unable to obtain exact number of registered corporations or non-profit organizations due to manual maintenance.
- Trusts:
  - Trust documents required to be registered only when transfer of ownership rights of registrable property (real estate, motor vehicles).
  - Trust documents involving other property types not subject to registration requirements.
  - No provisions/mechanisms to ensure transparency concerning identity of ultimate beneficiary of the trust.
- Nonprofit organizations (NPOs):
  - Paraguay has not reviewed adequacy of domestic laws/regulations relating to NPOs.
  - Available information has not been used to evaluate activities, size, or other relevant features of NPO sector.

Recommendations:
- R.33 – NC; R.34 – NC
  - Introduce mechanisms to provide transparency regarding beneficial owners and controllers of legal persons; enable competent authorities timely access to adequate, accurate, and current information.
  - Prevent unlawful use of trusts by requiring adequate transparency in commercial, trust and other laws and enabling competent authorities to access trust beneficial ownership/control information.
- SR.VIII – NC
  - Carry out comprehensive domestic review of the non-profit sector; adopt measures to protect the sector from terrorist financing through outreach and oversight; implement effective domestic cooperation and information-sharing among competent authorities holding NPO information.

### G. National and International Co-operation
- Domestic cooperation/coordination among law enforcement authorities limited to narrow areas, affecting detection and pursuit of serious offences, particularly organized crime and drug trafficking.
- No centralized responsibility for operational and policy coordination in AML/CFT.
  - UAF has taken initiative in organizing domestic coordination among supervisory and law enforcement agencies but approach is unsystematic, resulting in moderate cooperation and insufficient information sharing.
- International cooperation:
  - OAG appears to have means to expedite mutual legal assistance (MLA), but effectiveness difficult to assess due to limited information.
  - Potential delays when requests not transmitted directly to OAG; lack of systematic compilation of incoming/outgoing request statistics prevents comprehensive assessment.
- Given limitations of ML offence and absence of FT offence, provision of MLA and extradition in relation to ML or FT appears limited.

Recommendations for cooperation and mutual legal assistance:
- R.31 – NC
  - Establish formal and informal mechanisms to support cooperation and coordination at policy-making and operational levels among law enforcement, the UAF, and other competent authorities; facilitate consultation between competent authorities, financial sector, and DNFBPs.
- R.35 – PC; SR.I – NC
  - Amend AML Law and enact CFT legislation to fully cover ML and TF offences and fully implement Vienna, Palermo and Terrorist Financing Conventions; implement UNSC Resolutions with necessary procedures and mechanisms.
- R.36 – PC; R.37 – LC; R.38 – NC; SR.V – NC
  - Establish provisions for provisional measures at foreign request for search, seizure and confiscation; consider an asset forfeiture fund and arrangements for coordinating seizure/confiscation actions and sharing confiscated assets with participating countries.
- R.39 – PC; R.37 – LC; SR.V – NC
  - Enhance procedures to avoid undue delay in extradition requests; provide alternative simplified procedures on a case-by-case basis; establish statistical tools to accurately account for extradition requests.
- R.40 – PC; SR.V – NC
  - Consider establishing operational task forces at an early stage of investigations at regional level for criminal matters involving proceeds of crime, ML and TF.

### Summary Table of Observance and Key Recommendations (selected items)
- R.1 – PC; R.2 – PC (Criminalization of Money Laundering)
  - Amend legislation to include all FATF categories of serious offenses as predicate offenses.
  - Amend CC to:
    - include all ML conducts in line with Palermo Convention;
    - allow proving property is proceeds of crime without need for prior conviction of predicate offence;
    - criminalize “conspiracy”, “facilitation” and “counseling” to commit ML;
    - re-categorize ML as a crime (not a misdemeanor);
    - raise range of sanctions to be effective, proportional and dissuasive relative to other serious offences.
- SR.II – NC (Criminalization of Terrorist Financing)
  - Criminalize FT in keeping with requirements of SFT Convention.
- R.3 – PC (Confiscation, freezing, and seizing of proceeds of crime)
  - Amend CC to allow forfeiture of property of corresponding value and allow initial applications to seize property subject to forfeiture to be made ex-parte or without prior notice.
  - Allocate resources to improve registries: informatization, facilities, reduce registration costs, increase public awareness, amend laws to sanction failures to register relevant acts/information.
- SR.III – NC (Freezing of funds used for terrorist financing)
  - Put in place a system for freezing terrorist assets ex parte and without delay, including mechanisms for recognizing/reviewing terrorist lists of other countries and guidance to financial institutions.
- R.26 – PC (The Financial Intelligence Unit and its functions)
  - Strengthen financial analysis capacity of UAF staff and processing of STRs.
  - Provide UAF adequate resources and autonomy to allow staff to focus on core mission.
- R.27 – NC; R.28 – C (Law enforcement, prosecution and other competent authorities)
  - Develop training program focused on operative investigations and law enforcement coordination.
  - Develop national specialized training for judges on interpretation of evidence in ML and FT cases and on autonomy of these offences.
- SR IX – NC (Cross Border Declaration or disclosure)
  - Apply effective control on cross-border cash transport.
  - SEPRELAD should coordinate with customs and police for effective implementation of Resolution No. 61.

### Other issues: Resources & Statistics
- R.30 – NC; R.32 – NC
  - Conduct a review of the effectiveness of the cooperation and coordination systems for AML/CFT in the short term and thereafter on a regular basis.
  - Statistics should be updated and maintained in line with the recommendations in Rec. 32.

### H. Authorities’ Response (summary and actions reported)
- Government position (paragraphs 28–33):
  - Government of Paraguay, under His Excellency, President Fernando Lugo Méndez, prioritizes prevention of money laundering and terrorist financing.
  - Government concurs with assessors on most strengths and weaknesses and emphasizes designing an AML/CFT National Action Plan.
  - Government took office on August 15, 2008, and publicly committed to reduce vulnerabilities to organized crime, money laundering and financing of terrorism.
  - Government characterizes the report as “strictly static” but agrees the assessment fairly reflects the actual situation.
- Actions taken since assessment visit (paragraphs 33–39):
  - Submission of draft amendment of Law 1015/97 “Preventing and punishing illicit acts intended to legitimize money or assets” (draft contains three key aspects referenced).
  - Draft seeks to broaden scope per Law 2381/04 ratifying the Convention against Terrorism; to legitimize SEPRELAD powers to demand SARs on operations related to financing of terrorism.
  - Establish SEPRELAD as a Secretariat with status of a Ministry, reporting exclusively to the Office of the President; current Secretariat is a collegiate body of six officials from different government institutions.
  - Expand sectoral coverage of the law to include nonfinancial activities and professions, and sectors engaged in general commercial activities involving transfers of money or assets.
  - Draft presidential decree in preparation to establish a structural organization chart for SEPRELAD pending amendment of Law 1015/97.
  - Achievements to date include:
    - Support for legislative initiative of the Committee against Drug Trafficking and Related Serious Crimes of the House of Deputies for planned amendments to Law 1015/97.
    - Extension of the Egmont suspension to March 2009.
    - Discussions with the President on promoting bills related to combating money laundering and financing of terrorism.
    - Technical cooperation from Brazil to reform Paraguayan legislation on financing of terrorism.
    - Draft organization chart approved by Legal Section of the Office of the President; pending Presidential Decree.
    - IT work started to connect reporting parties to receive SARs electronically.
    - Broadening of the budget.
    - Initial draft amendment of Resolution Nº 263 on the insurance sector completed; work ongoing on other resolutions.
    - Interinstitutional agreements on information sharing between Central Bank of Paraguay – Superintendency of Insurance; Ministry of Finance – Undersecretariat of State for Taxation; National Anti-drug Secretariat (SENAD).
    - Drafting of tentative 2009 training program delivered and received by SEPRELAD.
- Government conclusion (paragraph 40):
  - Government agrees with assessors’ conclusions and believes the assessment report fairly reflects Paraguay’s AML/CFT regime.
- Date of authorities’ response: February 20, 2009

*This Report on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering (AML) and 9 Special Recommendations on Combating the Financing of Terrorism (CFT) was prepared by the Legal Department of the IMF based on information available at the time of the mission from July 1st through 16, 2008 and using the 2004 Assessment Methodology. The detailed assessment report (DAR) was adopted by GAFISUD on December 3, 2008.*

### 1.      This Report on the Observance of Standards and Codes for the FATF 40 Recommendations

### 1.      This Report on the Observance of Standards and Codes for the FATF 40 Recommendations

### B. Key Findings
- Substantial dollar contraband trade on borders with Argentina and Brazil facilitates money laundering in Paraguay.
- Paraguay is a major transit point for narcotics trafficking, smuggling, and counterfeit goods; Paraguay is the leading marijuana-producing country in South America.
- Ciudad del Este is the heart of Paraguay’s informal economy and believed to facilitate much of the money laundering in Paraguay.
- Under new UAF Director (appointed in August 2007) there has been notable progress in quality and coverage of AML regulations, but:
  - Country falls short of complying with most FATF Recommendations.
  - Where legal provisions exist, implementation is generally not effective.
  - Level of awareness of ML/FT risks is low in both public and private sectors.
- Since criminalization of ML in 1996, achievements remain modest:
  - At least 15 convictions for ML since 1997 (with only six confirmed and final rulings).
  - Corruption at all levels in the public sector is a serious obstacle to combating ML and serious predicate offences.
- Paraguay has not been confronted with terrorism nationally; no local subversive organizations active.
  - Allegations that proceeds from border-area offences may be diverted to finance terrorist activities in the Middle East.
  - Authorities confirm significant amounts of money originating near Paraguay’s border with Brazil and Argentina are regularly sent to the Middle East and elsewhere through wire transfers and informal means, but authorities could not confirm incidence of FT without reservations.
  - No provisions allowing authorities to freeze suspected terrorist assets in accordance with relevant UN Security Council Resolutions (UNSCRs).
- The UAF lacks an adequate legal framework, governance structure for operational independence, and sufficient resources.
- Regime of preventive measures on financial institutions is generally weak; deficiencies identified in:
  - customer due diligence on beneficial owners, reporting of suspicious transactions, wire transfers, internal control systems, regulation and supervision, training, and resources.
- Low implementation and compliance with FATF Recommendations in the financial sector due to:
  - lack of ongoing and effective supervision (particularly securities, insurance, cooperatives), lack of supervisory resources, and lack of effective and dissuasive sanctions.
- Deficiencies in AML/CFT preventive measures also apply to DNFBPs; AML Law does not cover certain non-financial businesses and professions.

### C. Legal Systems and Related Institutional Measures
- Money laundering offence (Article 196 CC) is not in line with UN Vienna Convention (arts. 3.1(b) &(c)) and Palermo Convention.
- Under Paraguayan legislation ML is a misdemeanor (not a crime), sanction: imprisonment not exceeding five years or a fine.
- Categorization as misdemeanor, limited resources/capacity, and lack of clarity on whether prior conviction for predicate offence is necessary are major obstacles to effective prosecution.
- Narrow range of predicate offences restricts prosecution, legal assistance, and extradition related to ML.
- Paraguay is a Party to the UN International Convention for the Suppression of the Financing of Terrorism but legislation does not criminalize FT.
- No specific provisions to freeze terrorist funds or other assets designated pursuant to UNSCR 1267 or in context of UNSCR 1373.
- UAF history and structure:
  - Established in 1997 within SEPRELAD; became operational in 2004.
  - SEPRELAD organizational structure (high-level officials chaired by Minister of Industry and Commerce) hinders implementation of Law 1015/97.
  - In practice UAF has assumed SEPRELAD functions despite inadequate financial and human resources.
  - Since August 2007 director appointment, UAF has hired and trained additional analysts and updated AML regulation.
- Budgetary/resource constraints:
  - UAF budget insufficient for database processing and adequate salaries.
  - More than half of analyses of STRs transmitted to Office of the Attorney General (OAG) do not lead to commencement of criminal investigation.
  - Only a small number of ML convictions to date have resulted from UAF-provided financial intelligence.
  - Recommendation: re-examine ML law regarding SEPRELAD, ensure UAF operational autonomy, allocate necessary resources.
- Cross-border cash controls inadequate:
  - Airports and land border crossings lack adequate controls for cross-border cash movements.
  - Persons transporting U.S. $10,000 into or out of Paraguay required to file a customs report, but reports are not collected or checked.

### D. Preventive Measures – Financial Institutions
- AML regime provides basic legal and regulatory framework but needs strengthening.
- SEPRELAD issued sector-specific resolutions on customer identification and due diligence; resolutions considered “other enforceable means” but:
  - Resolutions should be modified for sector-specific activities (PEPs, beneficial ownership, wire transfers, money remitters, internal controls, internal audit, compliance officers, training).
  - No evidence of enforcement actions or sanctions imposed on financial institutions for non-compliance with these resolutions.
- AML Law does not cover full range of financial institutions required by FATF Recommendations; not covered: financial leasing, transfer of money or value, trading in transferable securities and commodity futures trading, safekeeping and administration of cash or liquid securities on behalf of other persons, insurance agents and brokers, securities brokers, and cooperatives other than credit and consumer cooperatives.
- Number of STRs appears low given perceived level of criminal activity; majority of STRs from banking and insurance sector.
  - Low STR count possibly related to inconsistent interpretation of SEPRELAD resolutions and lack of effective supervision.
  - SEPRELAD should provide additional guidance to financial institutions on detecting suspicious transactions.
- Supervisory authorities lack sufficient resources (financial support, personnel, technology), negatively impacting supervision in insurance, securities, cooperatives, training, and application of sanctions.
- Informal money or value transfer systems appear to operate in Paraguay based on anecdotal evidence; authorities should review existence for registration/licensing and AML/CFT oversight.

### E. Preventive Measures – Designated Non-Financial Businesses and Professions (DNFBPs)
- List of DNFBPs under Article 13 of AML Law falls short of FATF standard:
  - Lawyers, notaries, other independent legal professionals and accountants are not covered.
  - Provision of trust and company services is not covered (service provided by lawyers).
  - Lawyers are not required to submit STRs and are not subject to other AML/CFT measures.
- Limited indication that covered DNFBPs implement required preventive measures.
  - No systems for monitoring/ensuring DNFBP compliance and little training provided.
  - No STRs submitted by DNFBPs.

### F. Legal Persons and Arrangements & Non-Profit Organizations
- Legal entities gain legal status when entered in National Directorate of Public Registries.
  - Public Registry information generally relates to incorporation and board composition; changes of shareholders are not registered.
  - Records are manual and only record information from 1986 onwards; entries not regularly updated.
  - Companies with bearer shares may be incorporated but no appropriate provision to ensure transparency of share ownership.
  - No provisions ensuring transparency concerning beneficial ownership of legal persons.
  - Mission unable to obtain exact number of registered corporations or non-profit organizations due to manual maintenance.
- Trusts:
  - Trust documents required to be registered only when transfer of ownership rights of registrable property (real estate, motor vehicles).
  - Trust documents involving other property types not subject to registration requirements.
  - No provisions/mechanisms to ensure transparency concerning identity of ultimate beneficiary of the trust.
- Nonprofit organizations (NPOs):
  - Paraguay has not reviewed adequacy of domestic laws/regulations relating to NPOs.
  - Available information has not been used to evaluate activities, size, or other relevant features of NPO sector.

### G. National and International Co-operation
- Domestic cooperation/coordination among law enforcement authorities limited to narrow areas, affecting detection and pursuit of serious offences, particularly organized crime and drug trafficking.
- No centralized responsibility for operational and policy coordination in AML/CFT.
  - UAF has taken initiative in organizing domestic coordination among supervisory and law enforcement agencies but approach is unsystematic, resulting in moderate cooperation and insufficient information sharing.
- International cooperation:
  - OAG appears to have means to expedite mutual legal assistance (MLA), but effectiveness difficult to assess due to limited information.
  - Potential delays when requests not transmitted directly to OAG; lack of systematic compilation of incoming/outgoing request statistics prevents comprehensive assessment.
- Given limitations of ML offence and absence of FT offence, provision of MLA and extradition in relation to ML or FT appears limited.

### Summary Table of Observance and Key Recommendations (selected items)
- R.1 – PC; R.2 – PC (Criminalization of Money Laundering)
  - Amend legislation to include all FATF categories of serious offenses as predicate offenses.
  - Amend CC to:
    - include all ML conducts in line with Palermo Convention;
    - allow proving property is proceeds of crime without need for prior conviction of predicate offence;
    - criminalize “conspiracy”, “facilitation” and “counseling” to commit ML;
    - re-categorize ML as a crime (not a misdemeanor);
    - raise range of sanctions to be effective, proportional and dissuasive relative to other serious offences.
- SR.II – NC (Criminalization of Terrorist Financing)
  - Criminalize FT in keeping with requirements of SFT Convention.
- R.3 – PC (Confiscation, freezing, and seizing of proceeds of crime)
  - Amend CC to allow forfeiture of property of corresponding value and allow initial applications to seize property subject to forfeiture to be made ex-parte or without prior notice.
  - Allocate resources to improve registries: informatization, facilities, reduce registration costs, increase public awareness, amend laws to sanction failures to register relevant acts/information.
- SR.III – NC (Freezing of funds used for terrorist financing)
  - Put in place a system for freezing terrorist assets ex parte and without delay, including:
    - mechanism for reviewing and giving effect to actions initiated under freezing mechanisms of other countries and recognizing/reviewing terrorist lists of other countries;
    - clear guidance to financial institutions and others holding targeted funds on obligations under freezing mechanisms.
  - Put in place procedures to examine and give effect to actions initiated under freezing mechanisms of other jurisdictions.
- R.26 – PC (The Financial Intelligence Unit and its functions)
  - Strengthen financial analysis capacity of UAF staff and processing of STRs.
  - Provide UAF adequate resources and autonomy to allow staff to focus on core mission.
- R.27 – NC; R.28 – C (Law enforcement, prosecution and other competent authorities)
  - Develop training program focused on operative investigations and law enforcement coordination.
  - Develop national specialized training for judges on interpretation of evidence in ML and FT cases and on autonomy of these offences.
- SR IX – NC (Cross Border Declaration or disclosure)
  - Apply effective control on cross-border cash transport.
  - SEPRELAD should coordinate with customs and police for effective implementation of Resolution No. 61.

*This Report on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering (AML) and 9 Special Recommendations on Combating the Financing of Terrorism (CFT) was prepared by the Legal Department of the IMF based on information available at the time of the mission from July 1st through 16, 2008 and using the 2004 Assessment Methodology. The detailed assessment report (DAR) was adopted by GAFISUD on December 3, 2008.*

### 2.  Preventive Measures: Financial Institutions

### 2.  Preventive Measures: Financial Institutions

### Risk of money laundering or terrorist financing
- (No explicit findings listed in this section of the source text.)

### Customer due diligence, including enhanced or reduced measures
- R.5 – NC
- R.6 – NC
- R.7 – NC
- R.8 – PC
- Recommendations:
  - Establish, through law, a prohibition for financial institutions (FI) to opening anonymous accounts or accounts in fictitious names; and an obligation to identify and undertake customer due diligence (CDD) measures, including for the beneficial owner when establishing the business relationship.
  - Establish through law, regulation, or other enforceable means (OEM) clear requirements for FI to conduct adequate and enhanced CDD measures on legal arrangements; relationships with money remitters; and higher risk categories of customer, business relationships, or transactions.
  - Establish requirements for FI to: reject opening an account when unable to complete CDD and to consider making a STR; consider terminating the relationship and making a STR when the relationship has commenced and the FI is unable to complete the CDD; and 6) maintain up-to-date customer records.
  - Establish requirements for insurance companies under the SIS to apply CDD measures on existing customers on the basis of materiality and risk and to conduct due diligence on such relationships at appropriate times.
  - Establish through law, regulation or OEM clear requirements for FI to have appropriate risk management systems to deal with PEPs in line with R.6.
  - Establish clear requirements for FI to deal with correspondent relationships.
  - Establish clear requirements for FI under the INCOOP to deal with non face-to-face transactions and new technologies.

### Third parties and introduced business
- R.9 – N/A
- Recommendation:
  - Not applicable.

### Financial institution secrecy or confidentiality
- R.4 – PC
- Recommendation:
  - Establish formal mechanisms and/or effective measures for competent authorities to share information, without the need of a court order.

### Record keeping and wire transfer rules
- R.10 – PC
- SR.VII – NC
- Recommendations:
  - Establish a legal obligation for recordkeeping for FI to maintain and retain all customer records and business correspondence for at least five years after the business relationship is ended, or longer period, if requested by the competent authorities, and to make the data available to competent authorities.
  - Modify existing resolution for FI under the SIB in line with SR.VII and monitor compliance.

### Monitoring of transactions and relationships
- R.11 – NC
- R.21 – NC
- Recommendations:
  - Establish clear requirements for FI to comply with R.11.
  - Establish clear requirements for FI to comply with R.21.

### Suspicious transaction reports and other reporting
- R.13 – PC
- R.14 – C
- R.19 – NC
- R.25 – NC
- SR.IV – NC
- Recommendations:
  - Define the term “financial institutions” and expand the list of FI in line with the Assessment Methodology.
  - Modify the existing legal obligation to establish the requirement for financial institutions to report directly to the SEPRELAD.
  - Consider implementing a currency reporting requirement in line with R.19.
  - Establish a legal obligation for FI to report to the FIU transactions suspected or linked to terrorism in line with SR. IV.
  - Provide guidance to FI to improve their AML/CFT procedures.
  - Establish communication standards and a feedback mechanism.

### Internal controls, compliance, audit and foreign branches
- R.15 – PC
- R.22 – NC
- Recommendations:
  - Establish clear requirements for FI, including for money remitters, to develop and maintain adequate programs against ML and FT, including internal controls, screening procedures, compliance officers, independent audit, and training in line with R.15.
  - Establish clear requirements for branches and subsidiaries of FI to pay particular attention to transactions from some countries in line with R.22.

### Shell banks
- R.18 – LC
- Recommendation:
  - Clearly prohibit the establishment of shell banks in Paraguay.

### Supervisory and oversight system–competent authorities and SROs
Role, functions, duties and powers (including sanctions)
- R.17 – NC
- R.23 – NC
- R.29 – NC
- Recommendations:
  - Ensure that effective, proportionate and dissuasive administrative sanctions are available to the competent supervisory authorities in line with R.17.
  - Designate a competent authority to regulate and supervise money remitters on AML/CFT matters.
  - Establish explicit and clear measures to prevent criminals or their associates from owning or controlling a FI.
  - Establish explicit fit and proper measures for directors and senior management of FI.
  - Establish a direct obligation that empowers the SIB, the SIS, the CNV, and the INCOOP to supervise and sanction FI on AML matters.
  - Strengthen the SIB, the SIS, the CNV, and the INCOOP overall supervisory process to effectively address AML/CFT matters.

### Money value transfer services
- SR.VI – NC
- Recommendations:
  - Designate a supervisory body responsible for the licensing, regulation and supervision of money or value transfer service (MVTS) operators.
  - Investigate and monitor informal MVTS systems.

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### 3.  Preventive Measures: Non-Financial Businesses and Professions

### Customer due diligence and record-keeping
- R.12 – NC
- Recommendations:
  - All DNFBPs should be made subject to CDD and record-keeping requirements.
  - Ensure the application of CDD by DNFBPs with respect to politically exposed persons, in the case of the use of new technologies, and in the case of reliance on intermediaries or third parties.

### Suspicious transaction reporting
- R.16 – NC
- Recommendations:
  - Lawyers and other independent legal professionals should be required to report suspicions.
  - The recommendations made regarding R.13, 14, 15, and 21 should also apply to DNFBPs.

### Regulation, supervision, monitoring, and sanctions
- R.24 – NC
- R.25 – NC
- Recommendations:
  - Supervisory authorities should be specifically charged with the AML/CFT regulation and supervision of all DNFBPs.
  - Establish guidelines to help DNFBPs implement and comply with AML/CFT requirements. The FIU could be assigned the role of establishing such guidelines.

### Other non-financial businesses and professions
- R.20 – NC
- Recommendations:
  - Extend CDD requirements to pawnbrokers and identify other non-financial businesses and professions that may be vulnerable and consider extending AML/CFT requirements to them.
  - Apply measures to provide greater incentive for developing modern and secure transaction techniques.

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### 4.   Legal Persons and Arrangements & Nonprofit Organizations

### Legal Persons–Access to beneficial ownership and control information
- R.33 – NC
- Recommendations:
  - Introduce mechanisms to provide transparency regarding the beneficial owners and controllers of legal persons.
  - Adopt measures to allow competent authorities to obtain or have access in a timely fashion to adequate, accurate, and current information on beneficial ownership and control of legal persons.

### Legal Arrangements–Access to beneficial ownership and control information
- R.34 – NC
- Recommendations:
  - Adopt measures to prevent the unlawful use of trusts in relation to money laundering by ensuring that commercial, trust and other laws require adequate transparency concerning the ownership and control of trusts.
  - Adopt measures that may allow competent authorities to obtain or have access in a timely fashion to adequate, accurate, and current information on beneficial ownership and control of legal persons.

### Nonprofit organizations
- SR.VIII – NC
- Recommendations:
  - Implement adequate measures in line with the FATF requirement. In particular:
    - (1) carry out a comprehensive domestic review of the non-profit sector;
    - (2) adopt the necessary measures to protect this sector from terrorist financing through outreach and effective oversight; and
    - (3) implement effective domestic co-operation and information-sharing mechanisms among competent authorities that hold information on non-profit organizations.

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### 5.   National and International Cooperation

### National cooperation and coordination
- R.31 – NC
- Recommendations:
  - Establish formal and informal mechanisms to support cooperation and coordination at policy-making and operational levels among the various law enforcement authorities, the UAF, and other competent authorities involved in combating ML/FT.
  - Establish mechanisms to facilitate consultation between competent authorities, the financial sector and other sectors (including all DNFBPs) on implementation of the AML/CFT laws, regulations, guidelines or other measures.

### The Conventions and UN Special Resolutions
- R.35 – PC
- SR.I – NC
- Recommendations:
  - Amend the AML Law and enact CFT legislation to fully cover the ML and TF offences and thus completely implement the Vienna, Palermo and Terrorist Financing Conventions.
  - Implement the UNSC Resolutions by developing and executing the necessary procedures and mechanisms.

### Mutual Legal Assistance
- R.36 – PC
- R.37 – LC
- R.38 – NC
- SR.V – NC
- Recommendations:
  - Establish specific provision for applying provisional measures at the request of a foreign country for search, seizure and confiscation.
  - Consider establishing an asset forfeiture fund, as well as arrangements for coordinating seizure or confiscation actions with other countries and to share confiscated assets with other countries which participated in coordinated action.

### Extradition
- R.39 – PC
- R.37 – LC
- SR.V – NC
- Recommendations:
  - Consider enhancing procedures to ensure that extradition requests are not unduly delayed and provide for alternative simplified procedures for extradition on a case-by-case basis.
  - Establish statistical tools in order to have the ability to provide an accurate accounting of extradition requests received and sent.

### Other Forms of Cooperation
- R.40 – PC
- SR.V – NC
- Recommendation:
  - Consider establishing operational task forces at an early stage of investigations at regional level of criminal matters involving the proceeds of crime, money laundering and terrorist financing.

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### 6.   Other Issues

### Resources & Statistics
- R.30 – NC
- R.32 – NC
- Recommendations:
  - Conduct a review of the effectiveness of the cooperation and coordination systems for AML/CFT in the short term and thereafter on a regular basis.
  - Statistics should be updated and maintained in line with the recommendations in Rec. 32.

### Other relevant AML/CFT measures or issues
- (No specific items listed in the provided source text.)

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### H.   Authorities’ Response

- Paragraphs 28–33 summarize governmental position and context:
  - The government of Paraguay, under the leadership of His Excellency, President Fernando Lugo Méndez, considers it a priority to be at the forefront of preventing money laundering and terrorist financing in our region.
  - The government concurs with the assessors on most strengths and weaknesses in the detailed assessment report and emphasizes focusing on points of convergence to design the AML/CFT National Action Plan.
  - The government took office on August 15, 2008, and publicly committed to reduce vulnerabilities to organized crime, money laundering and financing of terrorism.
  - The report is characterized as “strictly static” and not incorporating key current data; the government notes a political sea change likely to lead to a major proactive role.
  - The government states it has achieved continuous and consistent achievements and receives support from neighboring countries, international organizations, and cooperating nations.
  - Difficulties were experienced translating drafts from English; despite time constraints, comments were provided to the assessors.

- Paragraphs 33–39 list actions taken since the assessment visit:
  - Submission of the draft amendment of Law 1015/97 “Preventing and punishing illicit acts intended to legitimize money or assets”.
  - The draft has three key aspects (not enumerated in the provided excerpt).
  - With respect to applicability: scope broadened as provided in Law 2381/04, which ratifies the Convention against Terrorism; seeks to legitimize the powers of SEPRELAD to demand that parties file Suspicious Activities Reports (SARs) on operations related to the financing of terrorism.
  - Establishes SEPRELAD as a Secretariat with the status of a Ministry, reporting exclusively to the Office of the President of the Republic. The Secretariat is currently set up as a collegiate body of six officials from different government institutions.
  - Includes and expands sectoral coverage of the law to include nonfinancial activities and professions, and sectors engaged in general commercial activities, which involve transfers of money or assets, whether formal or informal, in accordance with the Law.
  - A draft presidential decree is in preparation advocating that a structural organization chart for SEPRELAD be established for the duration of Law 1015/97; the Law omits mention of a general directorate, subdirectorates, or their functions.
  - Achievements to date include:
    - Support for the legislative initiative of the Committee against Drug Trafficking and Related Serious Crimes of the House of Deputies, with respect to the submission of planned amendments to Law 1015/97.
    - Extension of the Egmont suspension to March 2009. Discussions with the President of Paraguay on promoting bills related to combating money laundering and the financing of terrorism.
    - Technical cooperation from the government of Brazil to reform Paraguayan legislation on the financing of terrorism.
    - Submission of a draft advocating the approval of a structural organization chart of the Secretariat, pending the amendment of Law 1015/97.
  - The draft organization chart was approved by the Legal Section of the Office of the President, the last step before the forthcoming Presidential Decree.
  - Technological advances: work started on IT initiatives to connect reporting parties so they can receive SARs electronically.
  - Broadening of the budget.
  - Amendment of resolutions: an initial draft amendment of Resolution Nº 263 on the insurance sector has been completed and work is being done on other resolutions.
  - Interinstitutional agreements on information sharing between:
    - Central Bank of Paraguay – Superintendency of Insurance
    - Ministry of Finance – Undersecretariat of State for Taxation
    - National Anti-drug Secretariat (SENAD).
  - Drafting of the tentative 2009 program of training delivered and received by SEPRELAD, in the course of its duties.

- Paragraph 40:
  - Based on the aforementioned observations, the government agrees with the assessors’ conclusions and thinks that the assessment report fairly reflects the actual situation of Paraguay’s AML/CFT regime.

- Date at end of response:
  - February 20, 2009

*Source: _cr09234 - 2.  Preventive Measures: Financial Institutions*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09234.pdf_