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CIUDAD DEL ESTE, Paraguay (CNN) -- Deep in the heart of South America, the region where Brazil, Argentina and Paraguay meet has some of the most porous borders -- and busiest black markets -- in the world.
But more than just bootlegging is going on there, according to international intelligence sources.
Sources told CNN they believe the tri-border area is being used as a haven and source of funding for terrorists linked to Iran's Party of God and to organizations that work closely with Osama bin Laden.
In Ciudad del Este, on the Paraguayan side of the Parana River, the commercial district is a mosaic of businesses owned mostly by Arab merchants. International and regional intelligence sources said those businesses and a mosque in the city serve as a revolving door for Islamic extremists.
Across the river in Foz do Iguacu, Brazil, two more mosques are suspected of involvement in terrorist activity.
Argentine intelligence documents obtained by CNN map out what the intelligence sources said are links between the mosques and a laundry list of terror groups.
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They include Egypt's Al-Gama'at al-Islamiyya and Lebanese Hezbollah, both identified by the U.S. State Department as terrorist organizations linked to Osama bin Laden, and Egyptian Islamic Jihad, linked to Iran's Imad Mughniyah, who is on the U.S. list of most wanted terrorists.
Alleged front for Hezbollah
Argentine and Paraguayan prosecutors have identified another man, Assad Ahmad Barakat, as the regional operative for the Shiite extremist organization Hezbollah.
The prosecutors believe Barakat, who is on the run after an international warrant was issued against him last month, is a major player in the 1992 bombing of the Israeli Embassy in Buenos Aires and in the 1994 bombing of the Jewish Community Center in the Argentine capital.
Barakat is co-owner of Galeria Page, one of Ciudad del Este's biggest shopping malls, which intelligence sources said they believe he has used as a front for raising funds and recruiting volunteers for Hezbollah.
And Argentine police are seeking one of his tenants in the mall, Samuel Salman Al Reda Reda, for his alleged involvement in the Buenos Aires embassy bombing.
Ten days after the September 11 attacks, Paraguayan police raided several businesses in Ciudad del Este, rounding up 20 suspects, 14 of whom were later released.
On a second raid in October, Paraguayan police attempted to capture Barakat, who evaded arrest and is believed to be hiding in Brazil or to have escaped to Lebanon.
Link between pirated CDs, terrorism alleged
Authorities identify Assad Ahmad Barakat as the regional operative for Hezbollah.
Two of his associates, Mazen Ali Saleh and Saleh Mahoud Fayoud, were arrested and charged with falsifying immigration documents and dealing in pirated compact discs.
In the raid of their Ciudad del Este apartment, the police found more than 60 hours of videotapes, propaganda for Hezbollah and copies of speeches referring to Al Moqawama -- a Party of God cell active on the Brazilian side of the tri-border.
And a brother of Mazem Saleh was arrested in February in the United States for pirating compact discs. He was convicted October 25.
Prosecutor Carlos Calcenas said he believes the pirate CD business is underwriting terrorist activities and that Barakat is just one of dozens of Arab merchants who operate fronts in the tri-border region for terrorism-related activities.
To make their case, prosecutors pointed to hundreds of millions of dollars of transactions that they said are used to support terrorism. Bank documents obtained by CNN show money transfers made by Barakat's associates to banks in New York.
Spokesman: Arabs 'unfairly targeted'
Leaders of the local Arab community denied the businesses are fronts for terror organizations and said they are unfairly targeted because they are Arabs.
The spokesman for the Arab community in Ciudad del Este, Samir Jebai, insisted his community has nothing to do with international terrorism.
"We came here fleeing the war in 1973 in Lebanon," he said, noting he wanted to be in a country where he could study, work and raise a family in peace.
"This is a very small community, where we all know each other, and if there was some activity, we would know about it. We trust the investigation and are ready to help in any way we can."
Sheik Munir Fahdel is the leader of Ciudad del Este's Prophet Mohamed Mosque, one of the mosques accused by Argentine intelligence of being associated with Hezbollah. He said he is angry at the accusations and said Hezbollah is a legitimate religious and political organization.
Paraguayan intelligence sources said they had been warning the United States about the activities of Middle East terror groups in the tri-border region for more than a year. In July 2000, the Paraguayans warned that 460 Hezbollah operatives may be living and working in the region.
