In what is known as the tri-border area where Argentina, Brazil and Paraguay converge, we see the long-standing presence of Islamic extremist organisations, primarily Hezbollah

Francis Taylor, US State Department

In testimony to Congress on 10 September the US State Department Co-ordinator for Counter-terrorism, Francis Taylor, described American concerns.

"In what is known as the 'tri-border area' where Argentina, Brazil and Paraguay converge, we see the long-standing presence of Islamic extremist organisations, primarily Hezbollah," he said.

"These organisations engage in document forgery, money laundering, contraband smuggling, and weapons and drug trafficking."

Evidence of lack of government control are in sight throughout bustling downtown Ciudad del Este.

Accounts examined

Here, where business is conducted in Spanish, Portuguese, Arabic and Chinese, the sidewalks are crowded with stands piled with watches, cigarettes and liquor - nearly all brought in duty-free, and most pirated imitations of famous brands.

Behind them, the back-to-back electronics stores offer larger, more expensive items.

Paraguay imposed strict controls after the attacks on the WTC

In the streets, men hustle out of stores and warehouses carrying boxes destined to be smuggled across the Parana River into Brazil.

The 11 September attacks on the US prompted Paraguayan authorities to attempt to impose some control on activities here.

In recent sweeps, police have arrested 14 Arab immigrants on immigration charges and seized allegedly incriminating material.

At the request of US authorities, 46 bank accounts are also being examined.

Suspects

No ties to the 11 September attacks have been found, and nobody suggests that the great majority of this area's large Lebanese immigrant community are anything but hard-working businesspeople.

But the authorities say the area's combination of porous borders, rampant corruption and huge black market economy could all make this a convenient place from which to plan or finance terrorism activities with little to fear from law enforcement.

Our help, the money which we send, we always send to our families, to reconstruct, such as helping orphans

Sheik Mounir Fadel

"Our society's vulnerability greatly facilitates any activity," said Paraguay's Criminal Prosecutor Carlos Calcena, who worries that terrorists could propagate support among the nation's huge poor population.

Still, officials are quick to point out that terrorism ties are still speculations.

"There's no proof, only suspicions," said Interior Minister Julio Cesar Fanego. "Any place in the world where you have three frontiers, there's concern."

But several suspected or accused terrorists have passed through the tri-border region.

They include a Palestinian immigrant suspected by US officials of planning to attack the American and Israeli embassies here and an Egyptian national wanted by his own government for suspected ties to the 1997 massacre of tourists in Luxor, Egypt.

Deepening concerns about who might be in the tri-border region was highlighted earlier this year when Paraguay's consul in Miami resigned after it was revealed he had issued more than 300 visas, including more than a dozen to Arab nationals, without following established procedures.

Hezbollah donations

Local Arabs say it would be impossible for terrorists to be hiding in their community, but make no secret about their sympathy and even financial support for Hezbollah, which the US labels a terrorist organisation.

Lebanese-born Sheik Mounir Fadel, of the Mosque of Mohammed the Prophet in Ciudad del Este, says local aid goes solely to Hezbollah's humanitarian operations.

"Our help, the money which we send, we always send to our families, to reconstruct, such as helping orphans," said Fadel, speaking in Arabic through a translator.

Fadel called the recent police sweeps an unjustified persecution of Muslims which has damaged the community's image.

Nevertheless, the most recent police raid in Ciudad del Este uncovered items which prosecutor Calcena believes indicate an active role in extremism.

'Recruitment' videos

Two weeks ago, police arrested two electronics store employees on false document charges and seized videos showing alleged terrorist training and fighting, as well as records of the transfer of tens of thousands of dollars monthly to destinations including New York and Lebanon, Mr Calcena said.

Any place in the world where you have three frontiers, there's concern

Interior Minister Julio Cesar Fanego

US embassy spokesman Mark Davidson sees the most recent evidence as part of a pattern of links of local individuals to Islamic terrorist groups.

"We have made our concerns clear to Paraguayan authorities and are pleased by their willingness to act," he said.

In the wake of the 11 September attacks, Paraguayan authorities have sent more police to the tri-border area and are working to tighten border controls.

An anti-terrorism law is also to be presented to parliament, and the tri-border region investigation is continuing.

Interior minister Fanego expects the situation to improve.

"It is possible to impose control," he said. "But 100% control is difficult."