Unravelled

Grupo Cartes restructures its business interests after Paraguay’s former president is sanctioned.

Horacio Cartes, Paraguay’s former president and businessman, was recently sanctioned by the US for his “involvement in the rampant corruption that undermines democratic institutions in Paraguay.” Cartes’s business empire, Grupo Cartes, is large and diverse and the fallout from the sanctions has impacted many of the country’s industries from banking to construction. 

“Companies belonging to Cartes own 12% of the country’s banking system,” explained a Paraguayan Senator, “and more than 40% of the Paraguayan stock market!” This makes Grupo Cartes the largest business conglomerate in the country and the sanctions are not only against Cartes personally but also against four of his companies, including in the cattle breeding, beverage distribution, and pharmacy chain sectors. “It is difficult for any company in Paraguay to be completely unrelated to the complex network of Cartes’s companies,” explained a former Minister of Finance, “therefore, it is hard to have complete trust in the system and although he has been sanctioned, his heirs will take over.” 

“It is difficult for any company in Paraguay to be completely unrelated to the complex network of Cartes’s companies, therefore, it is hard to have complete trust in the system and although he has been sanctioned, his heirs will take over.”

A former Minister of Finance, Paraguay

Consequently, US officials have called for all Paraguayan companies with links to the US financial system to undertake a risk analysis of the transactions carried out with Cartes’s sanctioned entities. In turn, multi-national law firms worldwide sprang into action, Allen & Overy publicly alerted foreign companies operating in Paraguay of the risks and challenges of operating in the country, advising clients to “carefully evaluate any existing relationships with Paraguayan sanctioned nationals and […] consider the best means of mitigating these risks”, due to the ubiquity of Cartes’s business ventures in the country. 

In response to the sanctions, Cartes and his conglomerate have also been busy divesting from some companies and transferring the ownership of others to close relatives including his children and sister. A former banking executive in Paraguay didn’t think this would be enough, “Cartes’s assets are changing hands but it’s mostly cosmetic and adds to the lack of credibility of the whole system. In addition to these transfer, some assets have been sold to individuals, frontmen, who certainly don’t have the financial capacity to acquire them.” 

“Cartes’s assets are changing hands but it’s mostly cosmetic and adds to the lack of credibility of the whole system. In addition to these transfer, some assets have been sold to individuals, frontmen, who certainly don’t have the financial capacity to acquire them.”

A former banking executive, Paraguay

The distressed former president recently admitted that he was going through a hard time but life could get worse for the former president after the Attorney General Office of Paraguay announced last week that it was launching a corruption probe into the former president. Cartes will be investigated for blocking a multinational criminal investigation to protect his own personal and political interests. 

The Attorney General Office’s decision is seen as a reaction to the US State Department perception of corruption in Paraguay, which has tarnished the country’s reputation at an international level. The State Department argued that widespread corruption at top levels of Paraguayan institutions often prevents convictions in money laundering and terrorism financing charges. Unfortunately, corruption has a long history in Paraguay, the Senator confirmed, “It is hard to eradicate corruption in Paraguay since the country has been a tunnel for international criminal groups for decades. The anti-money laundering framework of the country is still very weak and although many cases have been reported, the Prosecution is not a reliable institution and may be corrupt itself.” 

There are some signs of change though, particularly in the banking industry, where companies are making considerable efforts to align with the Basel International Regulatory Framework. This won’t be the entire answer though as a former Central Bank director commented, “One further complication is that there is a lot of cash circulating in Paraguay, from illicit activities, that has never entered the banking system.” 

International organisations are also keen to assist, for example, last February the regional representative of the UN Office on Drugs and Crime for the Andean Region and the Southern Cone (“UNODC”), Candice Welsch, travelled to Asunción where she met with the comptroller general and the head of the Paraguayan Secretariat for the Prevention of Money Laundering (“SEPRELAD”) to discuss anti-corruption best practices in the country. 

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