¶1. Following is Brazil's 2006 INCSR. As requested in reftel, the money laundering portion of the INCSR will be submitted separately. ---------¶I. SUMMARY ---------¶2. The Brazilian Federal police (DPF) had a number of successes this past year against foreign narcotrafficking organizations operating within Brazilian territory, the biggest of which included the arrest of a kingpin target in Sao Paulo and the confiscation of millions of dollars of assets in a number of countries. Inroads are also starting to be made against Mexican and Colombian groups involved in sending heroin to the U.S. Attention is also now being given to groups that illegally sell prescription drugs via the internet. The DPF

appears to be placing a higher priority on interdiction capabilities along the Bolivian border, where there has been a noticeable increase in the amount of cocaine paste that has been seized over the last year. It is believed that the amounts will continue to grow due to an increase in coca leaf production. ¶3. Brazil is a major transit country for illicit drugs shipped to Europe and, to a lesser extent, to the United States. Brazil continues to cooperate with its South American neighbors in an attempt to control the remote and expansive border areas where illicit drugs are transported. Brazil is a signatory of various counternarcotics agreements and treaties, including the 1988 UN Drug Convention, the 1995 bilateral U.S.-Brazil counternarcotics agreement, and the annual Memorandum of Understanding (MOU) with the U.S. --------------------II. STATUS OF COUNTRY --------------------¶4. While not a significant drug-producing country, Brazil is a conduit for cocaine base and cocaine HCL moving from source countries to Europe, the Middle East and Brazilian urban centers, as well as a conduit for smaller amounts of heroin moving from source countries to the U.S. and Europe. Cocaine and marijuana is used among youths in the country's cities, particularly Sao Paulo and Rio de Janeiro. Powerful and heavilyarmed organized drug gangs, located principally in

Rio de Janeiro and Sao Paulo, are involved in narcotics related arms trafficking. -----------------------------------------III. COUNTRY ACTIONS AGAINST DRUGS IN 2006 -----------------------------------------POLICY INITIATIVES ¶5. Brazil has undertaken various bilateral and multilateral efforts to meet all objectives of the 1988 UN Drug Convention, has implemented adequate legal law enforcement measures, and achieved significant progress in the fight against illegal drugs. ¶6. In 2005, the GOB drafted a bill to update its anti-money laundering legislation. If passed, this bill, which has not yet been presented to Congress, would facilitate greater law enforcement access to financial and banking records during investigations, criminalize illicit enrichment, allow administrative freezing of assets, and facilitate prosecutions of money laundering cases by amending the legal definition of money laundering and making it an autonomous offense. The draft law also allows the Brazilian Government's interagency financial crimes investigations unit (COAF) to receive suspicious transaction reports directly from obligated entities, without their first having to pass through the supervisory bodies such as the Central Bank. COAF would also be able to request additional information directly

from the reporting entities. COAF includes representatives from regulatory and law enforcement agencies, including the Central Bank and Federal Police. COAF regulates those financial sectors not already under the jurisdiction of another supervising entity. Brazil has established systems for identifying, tracing, freezing, seizing, and forfeiting narcotics-related assets. COAF and the Ministry of Justice manage these systems jointly. Police authorities and the customs and revenue services are responsible for tracing and seizing assets, and have adequate police powers and resources to perform such activities. The GOB planned to introduce in 2006 a computerized registry of all seized assets to improve tracking and disbursal. The judicial system has the authority to forfeit seized assets, and Brazilian law permits the sharing of forfeited assets with other countries. ¶7. Brazil's first line of defense against drug smuggling commences at the heavily transited border crossings that it shares with a number of Latin American countries. Narcotraffickers also exploit the expansive border in areas where Brazilian law enforcement only has a minimal presence. In order to more effectively combat trans-border trafficking organizations, Brazil is cooperating closely with its' neighbors by establishing joint intelligence centers (JIC) in strategic border towns. The JIC in Tabatinga near Brazil's northern border with Colombia has been in operation for four years and is staffed by the Brazilian Federal Police along with Peruvian and Colombian National Police representatives.

The newest JIC is located near the Brazilian/ Bolivian/ Peruvian border in the Brazilian town of Epitaciolandia. The JIC operates out of the Federal Police offices and is staffed by Brazilian DPF and a Bolivian law enforcement representative. Peru and Brazil are now connected by a new highway that opened in 2006 thus providing a much-needed outlet for Brazilian agricultural exports to the Far East. The DPF believe that traffickers will undoubtedly try to take advantage of the heavy flow of tractor-trailers and containers across the border. The JIC in the southern tri-border area at Foz do Iguazu is inching closer to becoming reality. The Foz JIC is one of the principal topics to be discussed at the three plus one meeting (between the governments of Brazil, Argentina, Paraguay, and the U.S.) scheduled for December 2006 in Buenos Aires. ¶8. Brazil's Unified Public Safety System (SUSP), which was created in 2003, is now fully functional and showing results. SUSP, which is administered by SENASP (Brazil's national public safety secretariat), is a national system to integrate diverse state civil and military police forces. Collaboration between SENASP and the USG/NAS was very good in 2006. A number of courses, to include crisis management, training for counter-drug SWAT teams and training for dog handlers, were sponsored by NAS and hosted by SENASP for state law enforcement officials from throughout Brazil.

--------------ACCOMPLISHMENTS --------------¶9. In 2006, the GOB exercised a regional counternarcotics leadership role. The Federal Police play a major role in "Operation Seis Fronteras." The main objective of this operation is the disruption of the illegal flow of precursor chemicals in the region. The GOB continued its support of "Operation Alliance" with Brazilian and Paraguayan counterdrug interdiction forces in the Paraguayan-Brazilian border area. -----------------------------ILLICIT CULTIVATION/PRODUCTION -----------------------------¶10. With the exception of some cannabis grown primarily for domestic consumption in the interior of the northeast region, there is no evidence of significant cultivation or production of illicit drugs in Brazil. Drugs for domestic consumption or transshipment originate in Colombia, Paraguay, or Bolivia. -----------DISTRIBUTION -----------¶11. As a result of improved capabilities, the Brazilian Federal intelligence Police have

enjoyed increased success against international trafficking organizations that transship cocaine and heroin to Europe, Africa, and the Middle East. The distribution of drugs in Brazilian cities is carried out by domestic networks that operate in the major urban areas of the country. ----------------------------SALE, TRANSPORT AND FINANCING ----------------------------¶12. Cocaine from Bolivia is primarily destined for domestic consumption within Brazil, as is the case for marijuana smuggled in from Paraguay. Organized groups based in Sao Paulo and Rio de Janeiro arrange for the transport of the contraband through contacts in the border areas. The drugs are purchased from criminal organizations that operate on the other side of the borders. Proceeds from the sale of narcotics are used to purchase weapons and to strengthen the groups' control over the slums (favelas) of Rio and Sao Paulo. ------------ASSET SEIZURE ------------¶13. Many assets, particularly motor vehicles, are seized during narcotics raids and put into immediate use by the Federal Police under a March 1999 Executive Decree. Other assets are auctioned and proceeds distributed based on court decisions. Federal Police records show that 2 airplanes, 634

motor vehicles, 58 motorcycles, 13 boats, 146 firearms, and 1,116 cell phones were seized in 2005 (2006 totals not yet available). ----------EXTRADITION ----------¶14. According to the Brazilian Constitution, no Brazilian shall be extradited, except naturalized Brazilians in the case of a common crime committed before naturalization or in cases where there is sufficient evidence of participation in the illicit traffic of narcotics and related drugs. Brazil cooperates with other countries in the extradition of non-Brazilian nationals accused of narcoticsrelated crimes. Brazil and the U.S. are parties to a bilateral extradition treaty signed in 1961. No extraditions have been carried out in 2006. Four extraditions were carried out during 2005, none in 2004 and three extraditions from Brazil to the U.S. in 2003, one of which was narcotics-related. ¶15. There are no pending narcotics-related extradition cases of non-Brazilian citizens. There are currently two non-Brazilian citizens (both AMCITS) that are incarcerated in Brazil and awaiting extradition to the U.S., one for financial fraud and the other on organized crime charges. -------------------------------MUTUAL LEGAL ASSISTANCE/TRAINING --------------------------------

¶16. During 2006, various USG agencies and sections, including NAS, Public Diplomacy, ECON, DHS, DEA, FBI, USSS and others have provided training throughout Brazil in a wide variety of law enforcement areas, including combating money laundering, airport interdiction, community policing, container security, Counter-Drug SWAT operations and demand reduction programs. ¶17. Brazilian Law Enforcement also eagerly accepted opportunities to attend training programs in the United States. Money laundering, Prevention Seminars, and the F.B.I. academy were some of the more notable areas of interest. --------------------------------------LAW ENFORCEMENT AND TRANSIT COOPERATION --------------------------------------¶18. The Brazilian Federal Police (DPF) maintain excellent relations with their counterparts in neighboring countries as well as U.S. law enforcement. They are willing to share information as well as participate in joint operations. ¶19. Brazil cooperates with authorities in neighboring countries, particularly Colombia, Peru, and Bolivia, to enhance regional counternarcotic efforts. Coordinated Intelligence Centers are functioning or soon will be functioning on the borders with Colombia, Bolivia, Paraguay, and

Argentina. Each has or will have law enforcement representatives from each respective country. Brazil also actively participates in operations with their neighbors in controlling pre-cursor chemicals. Brazil currently has Federal Police Attaches in Argentina and Paraguay and looks to expand the number of Attache positions to other countries in the future. ---------------DEMAND REDUCTION ---------------¶20. The National Anti-Drug Secretariat (SENAD), located within the Presidency's Institutional Security Office, is charged with oversight of demand reduction and treatment programs. Some of the larger NAS supported programs include a nationwide 800 number for counseling, a nationwide DARE program (Brazil has the largest DARE program outside of the U.S.) and a national household survey of drug use among teens. SENAD also supports drug councils that are located in each of the state capitals. These councils coordinate treatment and demand reduction programs throughout their respective states. ----------------------LAW ENFORCEMENT EFFORTS ----------------------¶21. In 2006, the Federal Police seized 11.5 metric tons of cocaine HCl and 144 kilograms of

crack. Marijuana (cannabis) seizures totaled 135.0 metric tons in 2006. These numbers are incomplete, since only those of the Federal Police, and not those of local police forces, are reported on a national basis. Federal Police sources estimate they record perhaps 75 percent of seizures and detentions. ---------CORRUPTION ---------¶22. As a matter of government policy, Brazil does not condone, encourage, or facilitate production, shipment, or distribution of illicit drugs or laundering of drug money. The Federal Police have carried out a number of high profile investigations of public officials and State Police involved in money laundering and/or narco-trafficking. The fight against corruption remains a high priority for Brazilian law enforcement. ----------------------AGREEMENTS AND TREATIES ----------------------¶23. Brazil became a party to the 1988 UN Drug Convention in 1991. Bilateral agreements based on the 1988 convention form the basis for counternarcotics cooperation between the U.S. and Brazil. Brazil also has a number of narcotics control agreements with its South American neighbors, several European countries, and South Africa.

Brazil cooperates bilaterally with other countries and participates in the UN Drug Control Program (UNDCP) and the Organization of American States / Anti-drug Abuse Control Commission (OAS/CICAD). ----------------DRUG FLOW/TRANSIT ----------------¶24. Marijuana from Paraguay and cocaine from Bolivia are smuggled into Brazil across remote border areas and are destined primarily for domestic consumption. Higher quality cocaine from Colombia for export to Europe, the Middle East, and Africa enters by boat and is placed in ships departing from Brazil's northeastern ports. Traffickers have reduced the number of long flights over Brazilian territory due to Brazil's introduction of a lethal-force air interdiction program in 2004. However, traffickers still make the short flight over Brazil en route to Venezuela and Suriname. Colombian cocaine smuggled out of Brazil's southern ports is first flown to Paraguay and then transported across the border. ----------------------U.S. POLICY INITIATIVES ----------------------¶25. U.S. counternarcotics policy in Brazil focuses on liaison with and assistance to Brazilian authorities in identifying and dismantling international narcotics trafficking organizations,

reducing money laundering and increasing awareness of the dangers of drug abuse and drug trafficking and related issues such as organized crime and arms trafficking. Assisting Brazil to develop a strong legal structure for narcotics and money laundering control and enhancing cooperation at the policy level are key goals. Bilateral agreements provide for cooperation between U.S. agencies, the National Anti-drug Secretariat and the Ministry of Justice. --------------------BILATERAL COOPERATION --------------------¶26. In accordance with the bilateral U.S.-Brazil letter of agreement (LOA) on counternarcotics, bilateral programs that took place in 2006 included: support of the northern border interdiction operation COBRA and the joint intelligence center located in Tabatinga; the establishment of the joint intelligence center on the Bolivian border; and training courses in airport interdiction and container security to name but a few. Prevention and treatment assistance included support for DARE and the toll free drug counseling/information hotline as well as an ongoing national household survey of drug usage. Brazil and the U.S. are seeking to meet all goals set forth in the bilateral LOA. ¶27. Through the LOA, in 2006, the USG worked closely with the Federal Police, SENASP, and SENAD. Various operations, such as the annual Operation Alianza (Brazil, Paraguay) that involved marijuana

eradication/interdiction, Operation Seis Fronteras and operation Twin Oceans were supported with LOA funds. With SENASP, the USG worked with local state and military police forces throughout Brazil to ensure such forces had basic law enforcement equipment and training. Seminars and courses for State police representatives from throughout Brazil consisted of SWAT training for anti-narcotics police, in service training for drug dogs and their handlers, and crisis management. These courses, held in Rio de Janeiro, will also assist the Brazilian authorities with security preparations for the 2007 Pan American games. ¶28. Brazil continues to be actively involved in IDEC. Worldwide conferences are held annually, and sub-regional conferences are held approximately six months after the general conference. These conferences, sponsored and supported by DEA, bring law enforcement leaders from Western Hemisphere countries together to discuss the counterdrug situations in their respective countries and to formulate regional responses to the problems they face. Brazil is a member of the Andean and Southern Cone Working Groups. ¶29. In 2006, Brazil participated in Operation Seis Fronteras (Six Borders) Phase VIII that was held in Buenos Aires. Operation Seis Fronteras is a DEA-sponsored international chemical enforcement initiative, which targets the movement and diversion of chemicals used in the production of cocaine and heroin in South America.

¶30. Bilateral cooperation between the Narcotics Affairs Section and its three principal Brazilian partners continued to be excellent during 2006. Wide-ranging anti-narcotics programs involving a number of USG Agencies were successfully carried out. -------------THE ROAD AHEAD -------------¶31. While 2006 proved to be a very productive year for Brazilian Federal Police in their fight against narcotrafficking organizations, there still remains a daunting challenge ahead for Brazilian law enforcement. Increased attention must be given to the expansive land border regions to stem the rise of cocaine being smuggled into Brazil. Improving control of Brazil's immense land borders became a significant political issue in the 2006 presidential race, and appears likely to remain in the public eye. The Federal Police have started to focus their efforts at major border crossings. The amount of heroin interdicted last year showed that Brazil is increasingly being utilized as a trans-shipment route to the U.S. Plans to beef up airport interdiction efforts and target international trafficking networks should show positive results over the next year. -----------------Statistical tables ------------------


Calendar year

2006 11.5 .14 .92 135.0 destroyed. 57 kgs 2,042

2005 15.8 .13 1.54 146.6

2004 7.7 .12 .69 149.2 to

Coca Eradication (mt) Cocaine seizures (mt) Crack cocaine (mt) Cannabis Eradication*

Marijuana seizures (mt) * .92 million plants metric tons not given. Heroin Arrests




Note: All figures shown are those provided by the Federal Police and do not include the activities of state, local and highway police. No surveys were conducted; market for cannabis is domestic. -------------------------PRECURSOR CHEMICAL CONTROL -------------------------¶33. The GOB's Justice Ministry issued a decree, Portaria Ministerial No 1.274-MJ, in August 2004 to prevent the manufacture of illegal drugs; this regulation made Brazil's law pertaining to

chemical control arguably the most stringent in South America. The decree established the control of 146 chemical substances that can be utilized in the production of drugs; Brazil previously controlled 12 chemical substances. All companies that handle, import, export, manufacture, or distribute any of these 146 substances must be registered with the Brazilian Federal Police. There are approximately 25,000 companies, which handle controlled chemicals, registered with the Brazilian Federal Police. These registered companies are required to send a monthly report to the Brazilian Federal Police of their usage, purchases, sales, and inventory of any of these 146 substances that they handle. Any person or company that is involved in the purchase, transportation, or use of these products must have a certificate of approval of operation, real estate registry, certificate, or special license; which are issued by the Brazilian Federal Police. Companies that handle the 22 substances in List I, commonly referred to as precursors, of the aforementioned decree are also regulated by Brazil's National Sanitary Vigilance Agency (ANVISA). ¶34. The GOB has fulfilled the 1988 UN drug convention goals relating to chemicals and is a party to international agreements on a method for maintaining records of transactions of an established list of precursor and essential chemicals. The GOB participates in and supports multilateral chemical control initiatives. The Brazilian Federal Police have agreed to work with the DEA to perform a study on the use within Brazil and the exportation of Acetic Anhydride from Brazil; this is in conjunction with Operation

Topaz. The Brazilian Federal Police respond to the DEA's Multilateral Chemical Reporting Notifications (Pre-notifications of exports of controlled chemicals) in a timely fashion. The Brazilian Federal Police make records relating to chemical transactions available to USG law enforcement officials when requested. In summary, the GOB is interested and proactive in chemical control. CHICOLA (Edited and reading.) reformatted by Andres for ease of