Although Paraguay was generally cooperative on counterterrorism and law enforcement efforts, a politicized judicial system, corrupt police force, and the absence of counterterrorist financing legislation continued to hamper the country's counterterrorism efforts. The Paraguayan People's Army (EPP), a small, leftist guerilla group seeking to destabilize the Paraguayan government, kidnapped rancher Fidel Zavala on October 15 in Concepcion Department. When two police officers discovered Zavala's vehicle the following day, a car bomb exploded, critically injuring both officers. In April, unidentified individuals placed an improvised explosive device (IED) at the Supreme Court building. Although the device exploded in the building's courtyard, no injuries occurred. After that incident, anonymous callers reported dozens of bomb threats throughout Asuncion. In some cases, police located mock IEDs made to look real. Some of the devices contained trace levels of explosives, others did not. No further explosions or injuries took place.

On July 2, the Paraguayan Congress passed a law that granted the rank of Minister to the Secretariat for the Prevention of Money-Laundering (SEPRELAD) director, who now reports directly to President Fernando Lugo. The new law extends the range of financial institutions under SEPRELAD's surveillance and provides the tools to investigate institutions suspected of financing terrorism. In August, the Egmont Group lifted sanctions against Paraguay following the new SEPRELAD bill. Separately, on July 20, Paraguay implemented amendments to its current anti-money laundering regulations as part of a revised penal code. A draft counterterrorist finance bill and a draft criminal procedure code were pending in Congress at year's end.

Paraguay did not exercise effective immigration or customs controls at its porous borders. Efforts to address illicit activity occurring in the Tri-border Area with Argentina and Brazil were uneven due to a lack of resources and, more principally, corruption within customs, the police, the public ministry, and the judicial sector.

Phase I of the Millennium Challenge Corporation's Threshold Program, largely focused on anti-corruption, enabled Paraguay to issue updated national identity documents and passports beginning on September 21. While the new documents exceeded the standards established by the International Civil Aviation Organization, and included fingerprints, machine readable text, and other anti-counterfeiting security measures; fraud involving purchase of the new documents continued. Phase II of the Threshold Program includes assistance to both Paraguayan customs and the National Police. Other U.S. government assistance included FBI training on money-laundering and terrorist financing in September for 35 members of the public ministry, judiciary, SEPRELAD, police, military, and customs.

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