South America's Terror Connection

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Each year thousands of tourists are drawn to the beauty of Iguacu Falls in an undeveloped area of South America where Paraguay, Brazil and Argentina meet: the Tri-border region.

But CBS News correspondent Trish Regan reports that a large, influential Arab population flourishes in the area. Many of them are reaping huge profits in a variety of illegal activities. Members of the American military have charged that the region harbors radical Islamic terrorists, and that the area is a growing threat to U.S. security interests.

Millions of dollars flow through these streets every year — and basically nothing is done to stop illegal trade. Paraguay's money-laundering laws are seldom enforced, and there's little interest in knowing where the money ends up.

"There is so much illegal activity from the counterfeiting of all kinds of goods to drugs to weapons to terrorist fund-raising to money laundering," says Walt Purdy of Washington's Terrorism Research Center, who has been tracking activity in the area for years.

So who's down there?

"Everybody from Hezbollah to people who are connected to al Qaeda," he says. "They've used it to raise money; they've used it for a safe haven."

According to U.S. and Israeli intelligence, Ciudad del Este served as the launch pad for the Hezbollah car-bombing attacks on the Israeli embassy in Argentina in 1992 and the Jewish Community Center in Buenos Aires in 1994. They say that over the last decade, the area increasingly has grown into a terrorist hiding place.

"The idea here is accessibility with no records. Anonymity at all costs," says Tom Cash, who oversaw Latin America for the Drug Enforcement Administration in the 1990s. Cash, now with Kroll Inc., adds that the area is a terrorist's paradise.

"It's not 'Catch Me If You Can'-type territory," he says, "because no one's even looking."

For example: Local authorities did arrest one Tri-border resident, Assad Amad Barakat, a suspected Lebanese terrorist financier. But they didn't nab him on charges that he contributed to terror organizations — because in Paraguay, that's legal. Instead, he faced much lesser charges of tax evasion.

An examination of Barakat's bank records have led authorities to believe he wired as much as $50 million to terror groups. He even got a thank-you note: CBS News secured a copy of a handwritten letter from the head of Hezbollah, Hassan Nasrullah, that personally thanked Barakat for his contributions.

Purdy feels it's time that something is done to cut off the money supply — or else.

"If we don't take enough aggressive measures to cut off that funding," he says, "maybe the funding and the manufacturing of counterfeit goods in South America will one day finance an attack on us."

Counter-terrorism sources say Hamas, which is set to take over the Palestinian government, is sending delegations to the Tri-border area in an effort to raise money. The concern is that groups like this will work with other terror groups in the region. They've got the money ... and it's an area in which they can move freely.