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• When Cracking Down Seems Impossible 

The raid had reaffirmed a precedent for an industry accustomed to minimal accountability. “The seizure was a media show,” said José Ortiz, CEO of Tabacalera del Este (Tabesa), the top cigarette factory in Paraguay. Tabesa is reportedly owned by Horacio Manuel Cartes, a high-powered businessman whose holdings include a soccer club. The company’s cigarettes are routinely seized from smugglers in Argentina and Brazil, according to customs officials in those countries. But the cigarettes in Pindoty Porã were legal, Ortiz said, as long as local cigarette taxes had been paid and the sticks were on the Paraguayan side of the border.

José Ortiz, CEO of top Paraguayan tobacco manufacturer Tabesa. “We don’t know where our cigarettes are consumed, and it’s not our problem,” he says. Marina Walker Guevara/ICIJThe investigation remains open and customs may ultimately fine the wholesaler for attempted smuggling. But the case illustrates the virtually impossible task of cracking down on crime and contraband in a country where law often takes a back seat to power and cash. Paraguay ranked near the bottom — 138th among 180 countries — of Transparency International’s 2007 Corruption Perception Index.

The tobacco industry in Paraguay is virtually unregulated. Government agencies involved in its oversight cannot even seem to agree on the number of factories operating in the country. The minister of taxation, Gerónimo Bellasai, told ICIJ that tax evasion by tobacco factories is “very high,” but in March his team was still trying to figure out how to track company sales. A basic step to improve traceability, officials say, is to update the country’s arcane cigarette tax stamp system. Currently tax stamps — square pieces of white paper that are easily photocopied — are affixed on master cases of 10,000 cigarettes rather than on individual packs. But even this can be hard to accomplish. “When there’s a lot of money on the other side, the tax authority always loses,” Bellasai said. . . .

The chief of the Brazilian federal police in Guaíra, Érico Saconato, says there is little political will in his country to fight smuggling. Marina Walker Guevara/ICIJBrazilian and Argentine customs and police officials say they are frustrated by Paraguay’s lack of commitment to stop cigarette smuggling. But they also acknowledge faults in their own governments’ enforcement. . . .

Meanwhile, Paraguayan cigarette manufacturers are earning stunning profits while denying any involvement in smuggling or counterfeiting (Brazilian law enforcement officials, however, link the Paraguayan factories directly to the illicit trade). Those who pursue civil charges against factory owners face endless judicial battles. British American Tobacco has repeatedly sued a tobacco company owned by former presidential candidate Osvaldo Domínguez Dibb for counterfeiting several of its brands. Some lawsuits have slogged though courtrooms for as long as 11 years.

Tabesa’s CEO Ortiz was blunt when asked about Paraguay’s quid pro quo: “We give them money,” he said of politicians during election time. “And all we ask is to be left alone.”

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