Top Producer in Contraband Tobacco

Guaíra sits on the edge of the sluggish, muddy, mile-wide Paraná River that cuts a natural border between Brazil and Paraguay. Here the soil is red, the terrain is flat with ample soybean and mate leaf plantations. On its face, Guaíra is a well-kept Western Brazilian city of 30,000. Men chatter among themselves sitting in small plazas and barber shops. The streets downtown are clean, the houses are freshly painted and pay phones are decorated with natural motifs — you can call from the gut of a fish or the chest of a parrot.

Last September, Guaíra made headlines across Brazil when 15 people were murdered at a makeshift riverside warehouse. The killings were the result of a vendetta among drug smugglers and, officials here say, they weren’t all that unusual. Just 150 miles north from the notorious Tri-Border Area, where Brazil, Paraguay and Argentina meet, Guaíra is today a major weapons and drugs corridor in the region. But no product, police say, is more widely smuggled through this city, and more profitable to smugglers, than Paraguayan cigarettes.

Dozens of motor boats crammed with tobacco cross the Paraná River daily from the neighboring Paraguayan city of Salto del Guairá. The smugglers feed an illicit trade that injects billions of cigarettes into Sao Paulo, Rio de Janeiro, and other large Brazilian cities, where the cheap, untaxed Paraguayan sticks account for 20 percent of the entire cigarette market. Guaíra sits at the heart of this trade, a strategic gateway and a place where many residents — up to half its population, locals say — rely directly or indirectly on smuggling for their livelihood. A few reap millions from the illicit trade. Guaíra’s most famous criminal son, Roque Fabiano Silveira, made a fortune and a name, trafficking Paraguayan cigarettes thousands of miles away.

imageClick to EnlargeSilveira, 44, nicknamed Zero Um (“The Kingpin”), is a larger-than-life border boss who fled to Paraguay after being charged in Guaíra with orchestrating the 1996 murder of a businessman. In Paraguay his cigarette business took off, and in 1999 he opened a sizable cigarette factory on the outskirts of the country’s capital, Asunción, which soon became the operational base for a smuggling network that spanned two continents and reached deep into the United States. Starting in 2003, Silveira cut deals with tobacco traders in Arizona and smoke shop owners in Indian reservations in Washington state to smuggle millions of Paraguayan-made contraband cigarettes through the ports of Miami, Norfolk, and Baltimore. The sticks were then distributed across the country and the profits were laundered to bank accounts in Paraguay and the United States. Silveira not only manufactured the cigarettes, U.S. prosecutors said, but also greased political and law enforcement hands in South America that guaranteed swift passage north for the cargoes. His former associates describe him as smart and cold, with an eye for fine suits.

The tale of Roque Silveira is emblematic of the criminal nature and global reach of the teeming Paraguayan cigarette industry, one that experts and law enforcement officials say is, largely, set up for and devoted to transnational smuggling. Fifteen years ago cigarette manufacturing was minimal in Paraguay, one of South America’s poorest countries and a place notorious for corruption and trading in counterfeit goods. Today Paraguay, a landlocked, California-sized country, ranks among the world’s top producers of contraband cigarettes, responsible for 10 percent of the world’s contraband tobacco, experts estimate.

Paraguay’s factories churned out 68 billion cigarettes in 2006, more than 20 times what the country consumes, according to a study by the Centro de Investigación de la Epidemia de Tabaquismo (CIET), a Uruguay-based NGO that tracks the economics of the region’s tobacco market. The vast majority of the cigarettes — up to 90 percent of production, worth an estimated $1 billion — disappears in the black market, law enforcement officials say. The cigarettes are flooding Brazil and Argentina, where taxes are much higher than in Paraguay, and have turned up as far away as Ireland.

Once dominated by multinational tobacco companies, the global illicit cigarette trade today involves an array of crime syndicates which, much like the Silveira network, rob governments of billions of dollars in much-needed tax money, fuel organized crime, and help spread addiction by placing cheap cigarettes in the world’s black markets. The steep growth of Paraguay’s cigarette industry alarms law enforcement agencies and health officials alike, who fear that the South American nation could become be the next nightmare in global cigarette trafficking. Industry sources say manufacturing cigarettes in Paraguay today is cheaper than in China — the top producer of contraband smokes — while the quality of the product is far superior.

“There is a real danger that this situation could escalate very rapidly,” says Austin Rowan, head of the anti-tobacco smuggling operations at the European Union’s Anti-Fraud Office (OLAF). What’s distinctive about Paraguay, investigators say, is the massive number of obscure, cheap brands its factories produce — more than 2,600 brands have been registered with the Ministry of Industry and Commerce, including the likes of “Dirty,” “Fidel,” “Hamlet,” and “Opus Dei” — which makes it harder for investigators to track the trade. In contrast, only a handful of local brands are sold in the domestic market, where smokers pay some of the lowest cigarette taxes in the world.

Multinational tobacco firms are alarmed at the size and speed at which the Paraguayans have built up an off-the-books industry. Investigators for Big Tobacco say Paraguayan cigarettes are shipped to known Caribbean smuggling hubs like Aruba and Panama, where they believe the shipments enter the black market. In 2006 Irish customs seized a container loaded with five million Paraguayan cigarettes concealed in bales of plywood. While making inquiries about the case among his EU peers, David Godwin of Irish Customs says he was told: ‘If you think you have problems with China, the Middle East, and the rest, brace yourself because you haven’t seen anything. … The capacity is just endless in South America.’”

Tobacco factories in Paraguay range from sprawling, state-of-the-art manufacturing plants that boast cutting-edge technology to miniature “mobile” factories — also called submarines — which are assembled inside of trucks. Paraguayan government officials say that if all cigarette-making machines in Paraguay were to work at maximum output, the country could produce up to 100 billion sticks annually — enough to supply about two-thirds of the Brazilian market.

Smuggling is made easy in Paraguay, officials confide. There is virtually no industry regulation, and illegal manufacturers and traffickers are often insulated from prosecution by those in power. Bankers, politicians, and soccer club barons are themselves involved in the business and make hefty campaign contributions. Although the administration of President Fernando Lugo — a former Catholic bishop who in 2008 unseated the powerful Colorado Party after more than 60 years in power — has pledged to change the country’s reputation as a smuggling haven, there already have been some mishaps. In February, the president named a convicted cigarette smuggler as his Air Force intelligence chief. Lugo later backed off amidst intense criticism.


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