Los Angeles Times
August 24, 1998


              Jungle Hub for World's Outlaws

              Ciudad del Este, on Paraguay's border with Brazil and Argentina, has
              been a smugglers paradise for decades. But an influx of gangsters and
              terrorists now makes it a symbol of the globalization of crime.

              By SEBASTIAN ROTELLA, Times Staff Writer

                      CIUDAD DEL ESTE, Paraguay--The gangsters came a long
                      way to die.
                      Wong Chun Shan was a boss in the Tai Chen, the Cantonese mafia.
                      Yan Wu was his soldier. They migrated a few years ago to this
                      riverfront outpost of frontier capitalism in the jungle where the
                      borders of Paraguay, Brazil and Argentina converge: Ciudad del
                      Este. City of the East.
                      The triple border was a global village of outlaws: Lebanese
                      terrorists, Colombian drug smugglers, yakuza hoodlums from Japan,
                      Nigerian con artists. The Tai Chen ruled by fear in the trash-strewn
                      downtown, a Latin American casbah seething with smugglers,
                      merchants and shoppers haggling in Spanish, Portuguese, Arabic,
                      Asian languages and indigenous Guarani.
                      But then the gangsters tried to extort $200,000 from Roberto Shih,
                      a Taiwanese immigrant building an industrial park here. He resisted,
                      even when an investor was killed. On Oct. 13, Wong and Yan
                      stormed into Shih's office and forced him to accompany them to the
                      gravel parking lot.
                      "They showed me their guns and told me I had to go with them to
                      see their 'brothers,' " Shih recalls. "I accepted. But finally I asked
                      them if I could bring my cellular phone with me. They accepted."
                      Instead of a phone, Shih pulled a 9-millimeter pistol from the glove
                      compartment of his car. He killed both Wong and Yan in the
                      ensuing shootout, which authorities ruled self-defense. He has lived
                      a hunted, heavily guarded existence ever since.
                      The bloodshed revealed a beachhead of Asian mafias in South
                      America. And it contributed to a realization in the region--and as far
                      away as the United States, Taiwan and Israel--that the triple border
                      has become an alarming enclave of lawlessness. The polyglot mix of
                      thugs epitomizes a foremost menace of the post-Cold War world:
                      the globalization of organized crime.
                      "The triple border is a magnet for organized crime," says Mario
                      Baizan, an Argentine presidential advisor. "It is a danger to the
                      entire continent."
                      During a recent South American visit, FBI Director Louis J. Freeh
                      announced a multinational crackdown here, an initiative seen as the
                      seed of a hemispheric police alliance. Freeh called the border region
                      "a free zone for significant criminal activity, including people who are
                      organized to commit acts of terrorism."
                      Mafias, primarily drug cartels, have replaced restive militaries as the
                      top threat to democratic stability on the continent. Paraguay, one of
                      the hemisphere's poorest, most fragile democracies, has become "a
                      prototypical laboratory for developing a base for bad guys," a U.S.
                      diplomat says.
                      Despite the remoteness of the triple border, its geography, history
                      and economics have attracted a billion-dollar criminal industry--the
                      dark side of the foreign investment that has poured into South
                      America in the 1990s.
                      Brazil has the world's eighth-largest economy, and Argentina has
                      one of Latin America's highest standards of living. Starting in the
                      1950s, a rapacious dictatorship made Ciudad del Este a capital of
                      institutionalized smuggling that today flows back and forth to other
                      Latin nations, Europe, the United States, Asia and the Middle East.
                      And until a recent slump, the city's retail economy ranked third
                      worldwide behind Hong Kong and Miami in volume of cash
                      transactions, peaking at $12 billion in 1994. As at the U.S.-Mexico
                      line, legal and illegal trade overlap. Opportunities that lure foreign
                      merchants also foment extortion and money laundering: Brazilian
                      police are investigating bankers who reportedly laundered at least
                      $7 billion here.

                      Mafias Benefit From Blurring of Borders
                      Worldwide, mafias have benefited from the interconnected
                      economies, blurring of borders and decline of East-West power
                      blocs that followed the Iron Curtain's fall. In this region, the mafias
                      threaten to overwhelm governments weakened by corruption and
                      jurisdictional obstacles, and demonstrate remarkable power and
                      * Middle Eastern terrorists find refuge in the influential Arab
                      communities of Ciudad del Este and Foz do Iguacu, the Brazilian
                      city across the border. The terrorist presence is linked to deadly
                      anti-Jewish bombings in Argentina.
                      * The region is increasingly a hub for the drug trade, primarily
                      cocaine and heroin bound for Europe and the United States.
                      Washington this year conditionally "decertified" Paraguay's anti-drug
                      fight, citing pervasive corruption and "no successful investigations of
                      significant traffickers."
                      * U.S. industries() lost an estimated $150 million
                      last year due to the assembly and sale of pirated CDs, videos and
                      software in the area, according to corporate watchdog groups.
                      Asian-dominated piracy has sparked a threat of trade sanctions and
                      withdrawal of Disney Co. products from Paraguay.
                      * Contraband fuels an underground economy that rivals Paraguay's
                      gross national product of $10 billion. Brazil last year confiscated
                      $1.5 billion in contraband arriving from Paraguay, where more than
                      100 clandestine airstrips have been detected by Argentine
                      intelligence services.
                      Argentina has led the way in toughening controls. In June, the
                      Brazilian army cracked down on tens of thousands of small-time
                      smugglers who make the odyssey by bus to buy goods for resale on
                      Brazil's huge black market. The operation ended after angry
                      Paraguayan vendors and taxi drivers shut down the border bridge.
                      Although Paraguayan officials insist that they are changing their
                      notoriously lax ways, political turmoil hampers reform. And even
                      Interior Minister Jorge Garcete defends Paraguay's role in the
                      time-honored contraband business.
                      "It's not really contraband--it is commerce of all types," Garcete
                      says. "If the buyers sneak their purchases into another nation
                      without paying taxes, that's the problem of the buyer, not the seller

                      A Tijuana Without Beaches or Factories
                      The anarchic energy of Ciudad del Este recalls Tijuana. But imagine
                      a Tijuana without nightclubs, beaches, factories or big hotels, a
                      small and especially grim Tijuana stripped of almost everything
                      except bare-knuckled border commerce.
                      "We need to clean up this country," says Julia, a vendor who sells
                      pistol-shaped cigarette lighters in a warren of outdoor stalls. "This is
                      the United Nations of crime."
                      The view from Julia's corner stand recalls a term used by U.S.
                      sociologists to describe urban mayhem: a slow-motion riot.
                      Everyone is loading, unloading, counting money, chattering into cell
                      phones and walkie-talkies. Security men with shotguns guard
                      doorways and armored cars. Women in Islamic head scarves and
                      Buddhist monks in robes and sandals add splashes of surrealism to
                      the crowds.
                      The 20-block downtown contains about 5,000 stores. The
                      salespeople and shoppers are mostly Brazilian, the vendors mostly
                      Paraguayan. A tapestry of merchandise smothers the landscape of
                      red dust: watches, cassettes, leather jackets, flowers, onions,
                      diapers, pornographic videos.
                      Just about everything that is not biodegradable is fake. Billboards
                      assault the senses, displaying a roguish humor: A store is named "Ali
                      Baba." A sign warns, "Watch out for piracy!"
                      At rows of cigarette stands, vendors wrap boxes in waterproof
                      plastic and strap them onto smugglers' backs. Backpackers hurry
                      toward Brazil on the crowded two-lane bridge over the Parana
                      River, as brazen and numerous as illegal crossers at the U.S.
                      Hunched beneath a bale of cigarette boxes, sweating in a T-shirt
                      and shorts, a Brazilian named Junior edges along the bridge past
                      predatory street kids and youthful Paraguayan police officers in
                      oversized camouflage uniforms. The sinewy Junior, 23, makes
                      about $15 a day. He is angry about Brazil's offensive against
                      "It's an injustice," the smuggler says. "They should let us work. The
                      army treats us very badly."
                      Upon a signal from a lookout, Junior heaves his package through a
                      hole in the bridge's fence. It plummets to the water. Accomplices
                      below wade out to retrieve it and join backpackers hiking
                      unmolested on the Brazilian riverbank--a few hundred yards from
                      the customs station.

                      Cigarettes Imported, Then Spirited to Brazil
                      The same pack of cigarettes costs $1 in Paraguay and $1.80 in
                      Brazil. Paraguay imports enough cigarettes a year for every man,
                      woman and child in the population of 5.5 million to smoke a carton
                      a week. To avoid taxes, all manner of goods are exported to
                      Paraguay and spirited back into Brazil. A Brazilian police chief was
                      fired for allegedly protecting soybean smugglers.
                      More than 1,500 freight containers passed through the region
                      without scrutiny last year, according to an Argentine intelligence
                      report. Most of the 40,000 people crossing the bridge each day are
                      not checked. A blitz by Brazilian police caught 200 illegal
                      immigrants within two hours.
                      The father of this border bazaar was Gen. Alfredo Stroessner.
                      During his 1954-89 rule, the Paraguayan dictator provided a haven
                      for fugitive Nazis such as Josef Mengele. And Stroessner built a
                      jungle hamlet into a city named Puerto Stroessner, where generals
                      and politicians got rich on smuggling. The city's name changed, but
                      officially protected rackets survived.
                      Protectionist Brazil and Argentina tolerated the growth of a
                      shopping mecca where their citizens() could
                      evade prohibitive tariffs on imports. The boom attracted part of the
                      merchant diaspora from Lebanon and Asia. The Taiwanese
                      community today numbers about 8,000.
                      Roberto Shih arrived in 1991. He acquired a business in Ciudad
                      Del Este and a home in Foz, a trans-border commute reminiscent of
                      the U.S.-Mexico line.
                      Shih prospered. In 1994, he began the most ambitious factory
                      project in an industry-starved nation: a $135-million development
                      that manufactures toys, ornaments and other plastics.
                      His timing was good. Globalization is drying up traditional
                      commerce. Argentina's economic modernization brought a flood of
                      accessible imports that dampened the city's appeal to Argentines.
                      Brazil's reforms have been slower, and its internal taxes are high,
                      but it will drop tariff barriers in 2000 as part of the region's
                      Mercosur trade pact.
                      Because of the changes and tougher enforcement, sales here have
                      fallen more than 70% in three years. The slump strengthens illegal
                      alternatives. And the advent of democracy in 1993 opened up the
                      action to international gangsters.
                      Mafias, mostly from mainland China, muscled in on sales of Asian
                      imports. The names are familiar in the Chinatowns of California: Fuk
                      Ching. Big Circle Boys. Flying Dragons. And Shih's nemesis, Tai
                      "There are about 60 or 70 members of Tai Chen here," Shih says.
                      "Not all of them are that dangerous. There must be about 10 typical
                      hard-core hit men. They don't work. They smoke, drink, gamble,
                      womanize. Even if the economy is bad, they keep asking for

                      Asian Mobs Have Role in Immigrant Traffic
                      The concentration of Asian mobs is unique in Latin America,
                      according to the FBI, which is interested in their role in U.S.-bound
                      immigrant smuggling. The hoodlums come out at dusk as steel
                      shutters roll down over storefronts and streets empty. They haunt a
                      riverfront casino decorated with a giant roulette wheel on the roof.
                      And the Tai Chen talk about revenge.
                      "Four people have called me telling me to be very careful because
                      the mafia wants to liquidate me," says Shih, a 50-year-old father of
                      seven. "But I think it's going to be difficult for them."
                      Since the gunfight, Shih--who is revered by his employees--has
                      lived in a fenced compound. He takes target practice with the pistol
                      he learned to use during military service in Taiwan.
                      "I do not go outside too often, but that's more because I have a lot
                      of work than because of the mafias," Shih says. "At first I only
                      moved around with guards. Now when I have to go out, I go out
                      alone. But armed."
                      The mobsters also menace Taiwanese diplomats, according to
                      Consul Jorge Ho, an ex-police officer who tracks the underworld
                      from the hilltop consulate.
                      "The mafias historically had rules," Ho says. "They stayed in their
                      world; they didn't bother the authorities. They even had their
                      well-defined work hours, mainly at night. But these are young
                      groups. They don't respect the rules. So that's why it's dangerous."
                      There have been at least two dozen murders of Asians--merchants
                      as well as gangsters killed in turf wars. Police here formed an
                      anti-mafia unit that received training in Taiwan and struck back
                      when the mafias made a ritualistic New Year's "gift": About 80
                      merchants received bottles of whiskey, each representing an
                      extortion demand of $25,000. Police arrested two gangsters and a
                      Paraguayan woman as an accomplice.
                      Shih's unfinished factory complex represents an alternative to the
                      declining downtown marketplace. Leaders envision assembly plants
                      similar to the maquiladoras of the Mexican border. But Shih's
                      barricaded existence explains why many Asians are leaving.
                      "Every day, the mafias are getting stronger," Shih says.
                      The strength of mafias dominated by Arabs, meanwhile, alarms
                      U.S., Israeli and Argentine law enforcement experts, who say the
                      region has become a refuge for Middle Eastern terrorists. Terrorism
                      interlocks with organized crime here, a global pattern that also
                      occurs in locales such as Colombia.

                      FBI Looks at Ties With Argentina Bombings
                      The FBI is investigating connections between this suspected
                      terrorist "haven," Freeh says, and the bombings in Buenos Aires of
                      the Israeli Embassy in 1992 and a Jewish community center in
                      1994. The attacks killed 115 people. A renegade Argentine police
                      commander and other suspects frequented the triple border.
                      "Ciudad del Este has become one of the world's biggest centers for
                      financing of [the pro-Iranian militant group] Hezbollah," says
                      presidential advisor Baizan.
                      Such talk bothers the powerful Lebanese community. In verdant
                      Foz, Brazil's second-largest Arab population prays at a sumptuous
                      mosque and watches two Arabic-language television channels.
                      Many residents own stores in Ciudad del Este.
                      "Everybody works hard, and there are no terrorists here," says
                      Hussein Teiyen, head of Ciudad del Este's Chamber of Commerce
                      and owner of a general store. "We do not provide economic
                      support to anyone, because we are suffering hard times."
                      But as children played among shelves stocked with everything from
                      dolls to whiskey, Teiyen compared Hezbollah to George
                      Washington. He described the U.S. and Argentine governments as
                      "dominated by international Zionism" and called Argentine President
                      Carlos Menem, who is of Syrian descent, "a traitor."
                      Evidence of a support network exists. Businesspeople are pressed
                      for donations for terrorist groups, a kind of "war tax," according to
                      a U.S. official who knows the city well.
                      "A sheik comes by and says some brothers are coming from
                      Lebanon, they need help," the official says. "Most Arabs tell me that
                      when you get that request, you have to say yes."

                      Lebanese Drug Dealer Held in Embassy Plot
                      In an alarming 1996 case, U.S. agents arrested a Lebanese drug
                      dealer in a plot to bomb the U.S. Embassy in Asuncion, the capital
                      of Paraguay. Marwan Kadi came to the triple border after he was
                      convicted in Canada of smuggling cocaine from Brazil, escaped
                      from prison and obtained a U.S. passport under an alias. Brazilian
                      police busted him for cocaine possession, but he promptly led
                      another jailbreak and fled to Ciudad del Este.
                      Kadi then caught the attention of U.S. agents, who believe that he
                      conducted surveillance of the embassy for terrorists preparing a
                      bomb attack. When he was deported, however, U.S. prosecutors
                      charged him only with passport fraud. He served a few months and
                      was extradited to Canada, where he is in prison.
                      Although U.S. officials say the muddled denouement does not mean
                      it was a false alarm, Brazilian and Paraguayan officials complain
                      about the region's sinister image.
                      "This border has great financial, commercial and touristic potential,"
                      a Brazilian diplomat says, citing the much-visited Iguacu Falls on the
                      Brazil-Argentina line.
                      The stigma pains Faisal Hammoud, the urbane owner of the
                      incongruous Mona Lisa department store. Mona Lisa, a blue tower
                      rising above the downtown maelstrom, seems a perfumed mirage.
                      Sleek saleswomen tend mini-boutiques stocked with Lalique crystal
                      and Cartier jewelry. Hammoud pays a silver-haired pianist to play
                      the Steinways, the strains of "Hello, Dolly!" echoing off empty
                      marble floors.
                      The show-tune medleys are rarely interrupted because no one has
                      bought a piano in a long time. But Hammoud insists that a real
                      cleanup could bring respectable commerce.
                      "All these illicit groups are tied together: pirates to mafias, mafias to
                      drugs," he says. "Everything is connected because all these groups
                      think the same way. They look for places where the climate is easy
                      for them."
                                             * * *

                      Trouble Across Three Borders
                      * Cocaine from Bolivia and Colombia is smuggled from Paraguay
                      into Argentina and Brazil, and often on to Europe and the United
                      States. Colombian heroin moves through Paraguay into those
                      countries bound for the U.S. Paraguay grows marijuana that is
                      smuggled into Argentina and Brazil. Along with Ciudad del Este,
                      Pedro Juan Caballero on the border with Brazil is a prime drug
                      smuggling route. Chemicals used for refining cocaine enter Paraguay
                      from Argentina.
                      * Pirated videos, CDs, cassettes and software are smuggled from
                      Asia into Paraguay and then into the rest of South America,
                      particularly Brazil. Increasingly, pirated products are assembled at
                      clandestine workshops in Ciudad del Este.
                      * Guns from the United States and elsewhere are smuggled into
                      Paraguay and then through Ciudad del Este to other nations. Their
                      biggest customers are the violent and heavily armed Brazilian drug
                      gangs in the favelas of Rio de Janeiro and Sao Paulo.
                      * Autos
                      Auto thieves steal cars in Argentina and Brazil and smuggle them
                      into Paraguay, where the chief of the national police was fired last
                      year for his alleged involvement in an international stolen car ring.
                      Some stolen cars, especially sport utility vehicles, continue on to
                      Bolivia and are exchanged for cocaine.
                      Even cars stolen in the U.S. have ended up in Paraguay, arriving via
                      Chilean ports and across the Andes mountains through Argentina.