Paraguay has become a magnet for smuggling and organised crime activities, especially around the Triple Frontier where it meets Brazil and Argentina. According to the 2024 Global Organized Crime Index from the European Union, Paraguay now ranks as the fourth most impacted country worldwide, behind only Myanmar, Colombia and Mexico. Just a few years ago, it was in 16th place. This massive jump shows how deeply rooted the problem has become. 

While its neighbours threw up barriers and taxed imports heavily, Paraguay kept the doors open. Since the 1980s, the country has leaned into this role through the so-called tourism regime, which was designed to attract buyers from across the border by offering drastically reduced taxes on many products. On paper, tourists are supposed to buy modest amounts, “ranging from USD 300 to 500 depending on the period,” noted an academic director of an educational institution, but in reality, these limits are almost impossible to enforce. 

This is especially true when you look at what’s happening with Brazil. “In the case of Brazil, smuggling occurs on a much larger scale, involving more organised operators,” remarked the director. A big reason is the steep price differences created by tax policies. In Paraguay, alcohol faces a relatively low excise tax - around 11–13 percent - plus 10 percent VAT. In Brazil, there is a tangled mess of federal excise (“IPI”), state VAT (“ICMS”) and other levies that can push the total tax burden on spirits well over 40 percent. 

“In the case of Brazil, smuggling occurs on a much larger scale, involving more organised operators.”

Academic director of an educational institution, Paraguay

No product shows this better than whisky. The director explained, “For cross-border trade whether legal or illicit the most important beverage in terms of both volume and value is whisky, a large proportion of which originates from Scotland.” Whisky is high-value, easy to transport and hugely profitable, making it the smuggler’s top pick. Beer and wine do cross over, but they don’t generate nearly the same margins. 

The scale of this trade is enormous, as the academic director confirmed, “Some estimates suggest that only 80 percent of the alcoholic beverages entering the country remain in Paraguay.” In other words, a lot of what comes in quickly leaves again, headed straight into the Brazilian black market. This isn’t just small-time shoppers, as highlighted by our sources, “an army of Brazilian smugglers, known as sacoleiros, routinely cross from Brazil into Paraguayan cities such as Ciudad del Este or Pedro Juan Caballero to purchase goods under this regime and then resell them in Brazil.” Some even fly small planes packed with goods, demonstrating how weak the enforcement really is. 

Cigarettes are another story entirely. Unlike alcohol and electronics, tobacco isn’t even covered by the tourism regime’s exemptions. Yet the volume is staggering. “Estimates suggest that around 2.5 billion packs of cigarettes are produced in Paraguay each year, but only 200 million are consumed domestically. The remaining 2.3 billion are sold on Brazil’s black market,” cited the founder of an organisation focused on research and training in economic development. This one product alone fuels a billion-dollar illegal trade network that nobody seems able to stop. 

“Estimates suggest that around 2.5 billion packs of cigarettes are produced in Paraguay each year, but only 200 million are consumed domestically.”

Founder of a research and training in economic development organisation, Paraguay

The fallout of all this smuggling is evident on both sides of the border, but “the negative impact is felt primarily by Brazilian commerce,” observed the company founder. Legal shops in Brazil struggle to keep up with the wave of cheap contraband undercutting their prices. Interestingly, “Due to the size of Brazil’s economy, its trade balance with Paraguay remains in surplus,” elaborated the founder. In other words, because Brazil still sells more overall to Paraguay, the government doesn’t always see this as urgent enough to crack down decisively. 

Meanwhile, in Paraguay, the flood of foreign cash keeps border towns alive. The academic explained, “For Paraguay, although it is not the most significant sector, the sale whether legal or illegal of goods under the tourism regime represents an inflow of USD 2.8 billion in foreign currency.” That’s no small sum in an economy whose total exports (mainly soy, beef and energy) only reach about USD 12 billion. To put it in perspective, “the entire maquila industry, which builds auto parts for Brazilian cars, only brings in approximately USD 1.2 billion.” 

At the heart of all this is a problem bigger than taxes or trade policies. The director understood the main issue to be institutional, “These deeply rooted practices in Paraguay contribute to the corruption of certain institutions, such as Customs and the Police.” When everyone, from smugglers to customs agents to retailers, has something to gain, no one feels responsible for fixing it. 

Until Paraguay and its neighbours find a way to coordinate enforcement, close loopholes and clean up the institutions that allow smuggling to flourish, the Triple Frontier will keep operating as South America’s most notorious grey market. For now, no one is ready, or willing, to change that.