Ciudad del Este’s deadly trade route

Crossing the Friendship Bridge

Adelin has a big smile and no shame. His monthly shopping trip from Brazil to Paraguay’s Ciudad del Este complete, he saunters back across the Friendship Bridge. Carrying three plastic bags packed with a DVD player, a stereo, a cordless telephone and a few smaller items, he looks like any Brazilian tourist toting home a few bargains for his relatives from the shoppers’ paradise next door.

“Oh, this isn’t for my family,” he says. “It’s to sell.” His haul cost him 800 reais, or about $447 – only a little more than the $300 monthly duty-free limit imposed by Brazil in a bid to crack down on trafficking from the contraband capital of Latin America. But Adelin can’t resist spilling the beans: “I spent another $11,200 today – I bought digital cameras, perfume, make-up. They’ll bring it to my hotel tonight,” he says, pleased with his boldness, although he draws the line at having his photo taken.

A worker unloads goods destined for the city’s shopping centres: despite the global financial crisis, low import duties and sales taxes on electrical items and computers continue to make the city an attractive destination for shoppers and smugglers alike

Adelin is one of the army of petty smugglers known by their Brazilian name sacoleiros, or bag-carriers. Until recently, people such as Adelin would have been even more brazen, and busier too, bustling over the ­border in greater numbers and lugging bigger bags. Since it opened in 1965, the Friendship Bridge has become one of South America’s most well-worn informal trade routes. A few years ago, its footway would have been chock-a-block with porters ferrying boxes of goods destined for resale in Brazil at a handsome mark-up. Similarly, the traffic heading to Foz do Iguaçú, on the Brazilian side, would have been clogged with vans piled high with crates of consumer goods, making their way past border officials busy turning a blind eye.

Now, though, Brazil has clamped down on contraband in an effort to get a grip on the billions of dollars in tax revenue that are being lost to evasion and piracy. Trade liberalisation has also eroded the competitive advantage Paraguay enjoyed in the legal sale of consumer goods that it imports cheaply wholesale, taxes lightly and then sells retail (a situation taken advantage of by the smugglers, who then spirit the goods across the border, evading higher Brazilian taxes). Paraguay, too, has stepped up efforts to boost taxes and clean up its image by bringing the town’s merchants into the formal economy.

At the Brazilian end of the Friendship Bridge, a large green flag flutters over the border crossing at the entry to Foz. But on the Ciudad del Este side, advertising hoardings announce that you’re stepping into Paraguay, and visitors pass the gleaming white façade of a new shopping centre and casino even before they arrive at customs (where there are, anyway, no checkpoints or passport controls). A small flag in Paraguay’s red, white and blue colours flies from a tower a few hundred yards away, but it looks like an afterthought. Multilingual messages to consume are everywhere.

The “City of the East” is some 200 miles east of Paraguay’s capital, Asunción, and it reeks of money. It was hacked out of the jungle 50 years ago when the country needed an eastern outpost to link it to Brazil, and lies in the “Tri-Border Area” where Brazil, Argentina and Paraguay meet, near the gigantic Iguazú Falls. Now, its cramped downtown is full of ­shopping centres, some patrolled by rifle-toting security guards, with computers, watches, cameras and toys on sale.

On the streets, row after row of stalls display everything from fake sunglasses, bootleg DVDs and rip-off trainers to blankets, children’s clothes and imported tools. Hawkers mill around trying to press gaudy Chinese-made trinkets on to passers-by or, if you prefer, fake watches, fake ­perfumes, fake Viagra. There is a big trade in Chinese-made goods that are finished in Paraguay and embellished with false logos.

Money-changers with fat leather wallets sit in the shade, sipping ­Paraguay’s ubiquitous chilled herbal drink, tereré. Brazilian, US and Paraguayan currencies circulate as seamlessly as the languages that fill the air, among them Paraguay’s native Guaraní and the Arabic of its thousands of Lebanese immigrants. The place looks and feels shifty, a city of hustlers, a mix of nationalities including Chinese, Korean and Indian, and it throbs with the buzz of motorbikes ferrying people in and out over the bridge.

But many observers – not least the city’s counter-terrorist and anti-­narcotics officials – believe that even as the volume of contraband ­consumer goods is squeezed, a growing trade in less visible but more lucrative drugs and arms smuggling is where the real money is being made.

Shoppers throng the streets of Ciudad del Este, Paraguay

Fear of the crime bosses operating out of the city is palpable. The US State Department, Drug Enforcement Administration and other counter-terrorist and anti-drugs groups accuse the city of leaking arms and even terrorists into the region, and of pumping out drugs and millions of ­dollars to be laundered in the US or funnelled to radical Islamic groups.

Small wonder, then, that Ciudad del Este is regarded as one of the seediest and most suspicious border crossings in the continent. And its illicit activities show scant signs of disappearing, even though Fernando Lugo, the country’s president, made cleaning up the corruption and crime with which Paraguay is so associated a key pledge when he took office in 2008.

The city’s raison d’être is smuggling; legitimate trade was eclipsed long ago. Huge planeloads of goods are flown legally into the city’s tiny airport from Asia, paying Paraguay’s rock-bottom import duties. Taxes – including port taxes and sales tax – on computers and electrical goods, which make up 65 per cent of the goods on sale, can be as low as 3.5 per cent.

Ten to 15 years ago, total sales in Ciudad del Este – including the retail resale of imported goods – was worth $15bn-$20bn a year but that fell gradually to about $3bn by 2003. It hovered around those levels until the 2008-09 global financial crisis, says Nelson Amarilla, industry and trade secretary in the Alto Paraná departmental government, which includes Ciudad del Este. He reckons the crisis, exacerbated by currency fluctuations, slashed total sales in the city to between $1bn and $1.5bn, but said that sales had recovered to pre-crisis levels of around $3bn. “We’re expecting a good 2010 for Ciudad del Este,” he says.

Though the volume of electronic goods smuggled over the border and resold illegally has fallen, the cargoes men such as Adelin are likely to be biking or carrying across the bridge are often easier to conceal. And, says Andrew Nickson, a reader in Latin American studies at the University of Birmingham, less can well mean more because items such as MP4 players and pen drives have high resale values. “You don’t see the same degree of movement, but that doesn’t necessarily mean the value [of contraband] has declined drastically,” he says.

Boxes wrapped in plastic in preparation for the clandestine voyage across the river to Brazil

Paraguayans rise early. The city of 280,000 inhabitants is alive before dawn, so by mid-morning, Ciudad del Este’s shopping centres are crammed with men piling electronic goods, toys, perfumes and watches into cardboard boxes. As the business day draws to a close around 3pm, the air is filled with the screech of fat rolls of sticky tape being unfurled to secure hundreds of goods-crammed boxes ordered for illegal delivery to Brazil. Once every inch of the boxes has been waterproofed with tape and secured for the voyage ahead, teams of youths hoist them into the trucks and off they rumble, bound for the river. No one bats an eyelid.

A brief boat trip is all it takes to see where the contraband goes next. Steps carved into the banks of the River Paraná are easy to spot; so too the clusters of wooden rowing boats. Even in broad daylight, bare-chested men, some of them pretending to fish, lounge beside the plastic-clad boxes piled up on the rocks for loading. These clandestine ports operate in full view of the Friendship Bridge, where Paraguay’s police, customs and navy are on duty all day.

In the space of a 10-minute ride downriver you can spot ports like these every couple of hundred yards, although it is upriver, just beyond the bridge, in the shanty town of San Rafael, where some of the biggest and most ­dangerous ports operate. The owner of the boat I take down-river, a member of a fishing club, refuses to go near San Rafael for fear of ­reprisals. “These people have eyes everywhere. They’re very, very dangerous,” he says.

Port bosses typically take a $2 to $5 cut per box transported, depending on its contents (a clandestine port can shift as many as 300 boxes a night). They pay local youths as little as 50,000 guaranies ($10) a day to haul and load the goods. Though the main business is done after dark, men are already shouldering boxes, inching their way down flights of steps, like ants carrying huge leaves on their backs. Below, others are loading rowing boats, ready to cross. It is midday and, barring a few fishermen out in boats, there is no one to stop them.

Original packaging abandoned in the street by smugglers, who cram the goods into larger boxes

María Adelaida Vázquez is one of Ciudad del Este’s two anti-­narcotics prosecutors. Her work makes chasing down tax-­dodging MP3-smugglers look like a piece of cake. Paraguay is one of the world’s top marijuana producers and its pot is prized for its strength. Colombian cocaine and crack is also flown into the Paraguayan border town of Pedro Juan Caballero, north of Ciudad del Este, or arrives overland from Bolivia, and is transited through the city to Brazil, where it can command double the price.

“We know for sure that cocaine moves millions of dollars,” says Vázquez. She believes that some drugs traffickers are running their narcotics rings from the city’s Paraná Country Club, a fiercely guarded ultra-chic housing development overlooking the river. Many of the “Country’s” mansions have their own heliports. She believes that drugs are packed in among other contraband and ferried across the river from the club. She is certain that arms, too, are smuggled across.

“Who’s monitoring this? Nobody! You could get anything through, even an elephant,” says Vázquez. There are only eight government anti-­narcotics special agents and two anti-drugs prosecutors in the entire Alto Paraná department – and the prosecutors don’t even have vehicles. The special agents have just one. “It seems like the state isn’t really bothered about cracking down on drugs trafficking,” she says.

But she’s not giving up. Last September, she oversaw the arrest of two Brazilians suspected of supplying drugs and arms to the infamous Comando Vermelho gang, which funnels them to Rio de Janeiro’s crime-ridden favelas. In January this year, she impounded three light aircraft allegedly used by drugs traffickers to fly marijuana into Argentina.

A delivery arrives at the back of a store

Vázquez is critical of the country’s navy (although landlocked, Paraguay does have one), one of whose commanders has an office right down on the river bank. But if you expected to see detailed charts of the river on his wall, perhaps plotting the likely locations of the scores or even hundreds of clandestine ports believed to dot the area, you would be disappointed. Instead, there is a large map of the world.

The naval officer refuses to be identified or quoted. He smiles broadly but says orders from above prevent him from speaking about operations. Monitoring the waters is, anyway, the job of a special customs unit known as the Technical Customs Department for Special Surveillance, or Detave, which in 2008 was given 12 boats under a programme funded by Washington’s international development agency, USAid. But none was immediately deployed to Ciudad del Este on a permanent basis and, in any case, half the boats have been recalled for repairs.

Vázquez accuses the navy of looking the other way when it comes to the smugglers’ ports operating under its nose. “The navy is conscious of all this and there’s a reason why,” she says. “This is not simple omission. We’re almost certain they’re part of the corruption.”

Ciudad del Este’s anti-contraband prosecutor, Humberti Rosetti, also has nothing but criticism for the main crime-fighting authorities. “The police, the navy and the customs are all giving protection to the people running the clandestine ports,” he says. Young and cool, with black, slicked-back hair and a revolver lying casually on his desk, Rosetti looks as if he could have stepped off the film set of Miami Vice, parts of which were filmed in Ciudad del Este in 2005.

Rosetti says that port bosses are frequently tipped off about raids on the shanty towns of San Rafael and nearby Remansito. By the time his team arrives, all the merchandise has been spirited out of sight. Or, when he asks for police support, “they’re suddenly not available and they switch their ­cellphones off. It’s impossible.” It’s also dangerous. “It’s like in the films – there are clashes. I’ve been shot at and have had to fire back.”

But corruption among officials is a fact of life in this part of the world, and Rosetti knows who he blames. “If contraband exists, it’s because both Paraguay and Brazil have porous frontiers and authorities,” he says. Given a month of daily raids, he reckons he could clear out the 100 clandestine ports he believes dot the riverbanks between Ciudad del Este and Salto del Guairá – a border town fast becoming a “Ciudad del Este II” 90 miles to the north. Clandestine ports are typically run by a local leader. Marcial Vázquez, alleged to be Ciudad del Este’s biggest trafficker of electronic goods and drugs when he was arrested with 11kg of cocaine in the back of his jeep in April 2009, was a football-club boss. He is in jail awaiting trial. Rosetti shrugs off his frustration with unco­operative local officials. “If necessary,” he adds, “we’ll put them on trial too.”

. . .

The US has greater fears than being overwhelmed by marijuana and cheap consumer goods. It suspects that money from drugs and contraband is being used to fund Islamic terrorism. Some in Washington believe that radical Islamic groups such as Hizbollah, the Iranian-backed Lebanese movement, are involved in drugs trafficking in the region. Until June 2009, Admiral James Stavridis was commander of the US Southern Command, which oversees military operations in Central and South America. “Islamic terrorist networks are present in the Tri-Border Area,” Stavridis told the armed services committees of Congress in the command’s most recent public report, in April 2009. He added: “A robust Hizbollah financial support network exists in the region, as well as an active group of sympathisers and supporters of Hizbollah. Also present are Sunni groups, including Hamas, whose members possess operational backgrounds. Moreover, known al-Qaeda members have journeyed to Latin America and the ­Caribbean, and other terrorist-inspired Islamic radicals have been arrested in the region.”

Sheikh Hassan Bourgi, who dismisses as “media lies” claims that the city’s 12,000-strong Arab community shelters active Hizbollah cells and fundraisers

Argentina says that Hizbollah attacked the Israeli embassy and a Jewish community centre in Buenos Aires in the early 1990s, and both it and the US believe that Ciudad del Este shelters active cells and a huge fundraising operation. As many as 12,000 Arabs, mainly of Lebanese origin, live in the city and ­Muslim leaders there say they fed up with hearing what they claim are baseless charges.

“It’s a lie that the media propagates – do you have proof?” says Hassan Bourgi, the sheikh of the city’s Shi’ite community. Sheikh Bourgi lives in a tiny apartment in a tower block that also houses the Mosque of the Prophet Mohammed. Some Lebanese in Ciudad del Este sympathise with Hizbollah, he says, but that’s as far as it goes. “I send my mother and father money, and all my family are not terrorists,” he ­complains. “I don’t care what the media say. We know the truth and what we are doing.”

Ali Kasom, an electronic goods wholesaler, asks why Hizbollah would need “small change” from compatriots in Paraguay if it were being bankrolled by Iran. In any case, he says, it’s getting harder and harder to send money home. His uncle, who runs a Lebanese food bar, is looking for cheaper premises after the rent went up from $300 to $500 a month.

Charif Hammoud owns the Monalisa department store (the “Harrods” of Ciudad del Este, say people in the city), which stocks only original iPhones, Cartier and Tag Heuer watches, Dior couture and Bulgari ­jewellery, as well as perfumes, golf equipment and other must-haves for well-heeled ­tourists. Hammoud says his turnover fell by 40 per cent in the downturn, although it has regained some ground thanks to a stronger Brazilian economy. Sales in Monalisa and the city in general are 15 to 20 per cent higher than the low point they touched after the crisis, but have not yet recovered in full, he says. However, Hammoud is confident that Ciudad del Este will bounce back, reeling in Brazilian and Argentine tourists who can no longer afford to shop in Miami, London, New York or Paris.

The mayor of Ciudad del Este, Sandra McLeod de Zacarías, says the city is “winning the war to change our image”

Ciudad del Este is widely considered the “lungs” of Paraguay, breathing life into the economy of one of the region’s poorest countries and accounting for about a fifth of the nation’s total tax income. But amid the global economic crisis, merchants such as Hammoud say the city has been undergoing a gradual transformation over the past few years, with businesses increasingly emerging from the shadowy informal sector by paying taxes and workers’ contributions (although the city’s mayor, Sandra McLeod de Zacarías, says last year’s tax revenues have roughly halved since 2008 and officials say recovery is still slow).

The next step is legislation proposed by Paraguay and signed into law by Brazil’s President Luiz Inácio Lula da Silva that will, in effect, transform the sacoleiros into micro-businessmen by levying an import tax at a rate expected to be 25 per cent. (The law is not yet in force, however, as certain regulatory issues have still to be defined.) The aim is to give them an incentive to operate legally without incurring charges higher than their existing transport costs, thus reducing evasion and cutting crime to “acceptable levels”, says Nelson Amarilla.

Turning Ciudad del Este legal will not wipe out its competitive advantage, says Amarilla. Although its electronic goods vendors are finding it harder to compete with increasingly cheap, Brazilian-made computers, he believes the city will retain a niche as a place to buy the latest high-tech items. “The danger of Ciudad del Este disappearing as a centre for ­shopping is still far off,” he predicts.

Some visible changes are under way. A new tourist police has slashed the number of robberies perpetrated on bus passengers travelling from Brazil on shopping trips, and a new customs command is being built at the end of the bridge. But revolutionising ingrained attitudes towards what is legal and acceptable will take far longer. Despite its ­ambitious pledges, Paraguay’s government has had little impact so far in stamping out the culture of graft. In Ciudad del Este, pliable journalists are still bribed by corrupt officials while uncooperative ones are cold-­shouldered. The city still appears to run on well-greased wheels, challenging McLeod de Zacarías’ assertion that the city is “winning the war to change our image”.

Rosetti, the prosecutor, is sanguine. “We’re not going to get rid of all this. We just have to try to reduce it,” he shrugs. “We can’t expect to eliminate drugs and contraband. It’s impossible.”

Jude Webber covers Paraguay, Argentina, Chile and Uruguay for the FT. Her last story for the magazine was a profile of Michelle Bachelet, the first female president of Chile. Read it at www.ft.com/bachelet