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Chinese Money Launderers Partner with Mexican Drug Cartels

Chinese money launderers are facilitating the fentanyl epidemic and helping international drug traffickers, like Mexican cartels and the Italian mafia, launder the proceeds of crime.

The Financial Times investigated the connection between capital flight from China and global organised crime and released a film exposing the issue on 21st June 2024. This article distills the main areas to bring to life the realities of money laundering and the sophisticated methods used to evade detection.

Overview

  • Chinese money launderers and Mexican drug cartels partner to launder proceeds from illegal activity including fentanyl trafficking. This collaboration has risen as a dominant and sophisticated money laundering network.
  • National and International law enforcement agencies lack sufficient tools to tackle this issue effectively. This partnership has been described by US authorities as a national security issue, impacting public health and safety.

Historical Context

  • 2017-2018: Chinese money brokers began controlling the laundering of Mexican cartel proceeds with charges as low as 1-2%.
  • Mexican cartels increased their net profits by 3-5% through this partnership.
  • 1990s: Chinese underground banking systems developed alongside China’s economic liberalization.

Underground Banking System (Mirror Transfer or Informal Value Transfer Systems)

  • Money is deposited on one end and withdrawn on another, making the transfer invisible to authorities.
  • Used for legal and illegal transactions, including the international drug trade.
  • Has fueled the fentanyl crisis affecting the US and other illegal activity.

Fentanyl Crisis

  • Leading cause of death among those under age 50 in the US decimating communities.
  • Drug and Enforcement Agency (DEA) and other national and international law enforcement agencies struggle due to lack of tools to tackle this new challenge.
  • Traditional playbooks ineffective due to the sophistication of Chinese laundering methods.

Key Individuals and Investigations

  • Ray Donovan: Former Chief of Operations, DEA, notes the rise of Chinese nationals in fentanyl trade surveillance.
  • Chinese organized crime involved not only in drug production but also in international money laundering.

Money Laundering Process

  1. Mexican cartels sell fentanyl in the US and the proceeds need laundering.
  2. Chinese money brokers facilitate the transfer using WeChat and other methods, without actual currency crossing borders.
  3. The laundered money is sold to Chinese nationals looking to invest in the US or another country.

Global Scale and Tactics

  • Chinese money laundering operations present in various countries, especially where there is a significant Chinese diaspora or infrastructure projects.
  • Surveillance revealed money counting operations and stash houses in places like Flushing, Queens, indicating the volume and sophistication of the network.

Project Sleeping Giant

  • DEA initiative aimed at spotlighting Chinese organized crime and its relationship with Mexican cartels.
  • Project struggled with inter-agency collaboration and the integration of available intelligence.

Challenges in Combatting Money Laundering

  • Lack of Mandarin-speaking agents and data scientists in DEA hampers operations.
  • Complexity of investigations due to the disciplined and sophisticated nature of these criminal networks.
  • International cooperation required but often limited by diplomatic and security concerns.
  • Underground banking and informal value transfer systems (IVTS) complicate tracking and interception.

Broader Implications

  • Fentanyl profit drives further illicit financial activities.
  • Organized crime, both Chinese and Mexican, is continuously evolving, using advanced technologies.
  • The systemic issue requires a multi-faceted approach involving various arms of the government, international partners, and robust intelligence operations.

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