U.S. fears terror activity in Paraguay

? In this gritty border town known as a haven for drug smugglers, arms dealers and counterfeiters, stacks of money change hands in the open on every corner, and thousands of people each day stream across Friendship Bridge into Ciudad del Este.

They carry packages on their backs, in wheelbarrows or on carts, and border police stop few. Such chaotic scenes give life to the city’s reputation of lawlessness and U.S. officials’ description of the tri-border area where Paraguay, Brazil and Argentina meet as a key South American point for Islamic terrorist fund raising to the tune of $100 million a year.

Yet few arrests have been made or assets frozen, and local officials told The Associated Press they were ill-prepared to fully track financial movements.

“We need more resources and greater controls,” said Juan Carlos Duarte, a district attorney in Ciudad del Este who recently carried out several raids on currency exchange houses. “Frequently, it’s difficult for even the Paraguayan Central Bank to track these movements. To get to bottom of this we need more staff. We won’t be able to solve anything without more help.”

The raids carried out this spring are aimed, in part, at snuffing out illegal transactions and helping investigators piece together a money trail used by drug runners and counterfeiters and other purported businesses operating in Ciudad del Este, Duarte said.

Dozens of exchange houses crowd alleyways offering to send money as far away as Asia and the Middle East. On street corners, money changers’ fanny packs bulge with U.S. dollars, euros, Brazilian reals, Paraguayan guaranis and Argentina pesos. Store owners open cash tills brimming with bills.

It all is testament to this region’s reputation as South America’s contraband and smuggling capital — a place where anything from drugs to arms to pirated software reputedly can be had.

That reputation brought U.S. scrutiny in the post-Sept. 11 era. Much of the focus has fallen on the 25,000-strong Muslim community in the area built up by former Paraguayan dictator Alfredo Stroessner during the 1970s as a trading hub for his iron-fisted regime.

Yet after more than three years under U.S. watch, American and some regional officials remain divided over the potential for terrorist links, and unregulated trade flourishes.

U.S. officials suspect as much as $100 million a year flows out of the region, much of it diverted to Islamic militants linked to Hezbollah and the Palestinian militant group Hamas.

Those American officials say much of the money is sent back through an assortment of difficult-to-trace means — via couriers, complex wire transfers, some hand-carried.

“We are concerned about material support emanating from the area and its weaknesses: the ability to move people, goods, and money in a way that goes largely untracked,” said Juan Zarate, the U.S. Treasury Department’s deputy assistant secretary for terrorist financing and financial crimes.