Chinese international money laundering schemes
Mustapha BOUZIZOUA
Head of Compliance- Policy Oversight (Financial Crimes)- HSBC Continental Europe chez HSBC - ACAMS French Chapter Board Member- Trainer- Speaker
A fascinating article from the FT completing the documentary available on YouTube on the same topic showing how the Chinese money launderers work worldwide with drugs traffickers to launder their billions dollars in cash by using compensation outside the financial system in the placement phase, and how such schemes also allows Chinese actors to circumvent the capital controls in China.
Some interesting extracts:
« more than a dozen current and former DEA agents and high-ranking law enforcement officials in the US, UK and Italy have raised the alarm about a method of money laundering that they say is evading standard forms of surveillance and is thwarting their efforts to pursue drug traffickers. » and in France as well as shown by Quentin Mugg.
« The Sinaloa cartel, she added, now “relies on a network of Chinese money launderers to profit from selling drugs across the US »
« underground banking system that minimises the movement of funds across borders. »
Referring to the cash: « In this scheme, “dollars don’t leave the US, pesos don’t leave Mexico, and renminbi does not leave China”, Urben explains. “Encrypted communications [allow] all of this to happen instantly”. And Euro does not leave France as it was brillantly described via the Cassandra investigation and in the fantastic book from Quentin Mugg.
« The Chinese groups charge a commission that vastly undercuts what their competitors used to demand — in some cases, officials say, charging one or two cents on the dollar. » in some cases 0% is mentioned
« But the most sophisticated element of the alleged laundering scheme they outlined is the same one identified by DEA agents tracking other operations in the US — so-called mirror transfers using Chinese bank accounts that are practically invisible to US authorities. »
The question for the obliged entites is: when and how the laundered money come back in the official financial System (via shell or commercial companies, real estate investments etc)? To ensure that such schemes which worlwide consist in billion of dollars a year (from 3 to 6B for France for cannabis and cocaine) are well analysed and consider in the KYC and transaction monitoring framework .
Some responses are provided:
"The laundered money rapidly makes its way back into the legitimate economy. US authorities say that the cash is sometimes used to buy expensive cars and luxury property across the US, without any alarms being raised."
« The FBI has warned that in some cases, Chinese students pay for tuition at US universities with cash that has been laundered. These transactions must be reported to the US Treasury if they involve sums over $10,000, but were not necessarily flagged as suspicious by the department, DEA officials said. »
« The process usually begins with Mexican gangs delivering dollars in bulk to Chinese money laundering organisations in the US. In motels and parking lots across the country, authorities have witnessed cartel members drop off bags of cash to Chinese nationals. These are normally not criminals, but rather students, retail workers or taxi drivers recruited to secure the money who in some cases are not aware of the connection to drug traffickers. Once the couriers have the cash, they send a verification code through an encrypted app. Upon confirmation of receipt, the Chinese brokers pay the cartels using associates in Mexico, often in pesos. To clean the cash they have accumulated, the money laundering groups often sell the dollars to wealthy Chinese in the US. In return, these individuals authorise a bank transfer in China of the equivalent amount in renminbi to accounts controlled by the money laundering organisation. »
Other interesting extracts showed what is the extent of the schemes :
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« Within a few years, says Donovan, who has since retired from the DEA, the Chinese became “the biggest money launderers in the world”.
« The first was the rise of encrypted messaging platforms, in particular China’s WeChat, launched in 2011. »
« A myriad different ruses are deployed to spirit funds out of China. While experts and law enforcement officials believe the global networks of underground banks are the most common route, other methods involve over-invoicing for imports, using cryptocurrencies or charging payment for non-existent services overseas. »
"$738bn is Annualised rate at which private capital flight from China was running in the third quarter of 2022"
« Authorities believe Italian criminals have grown more reliant on Chinese underground bankers to not only launder the proceeds of their drug sales but also to pay for shipments of narcotics. »
« recent investigations have shown how the mafia uses Chinese brokers to settle drug payments in Latin America. »
« Court documents filed by prosecutors in both cases showed that the brokers had laundered money through several of the largest and best-known banks in China. »
Some officials who spoke to the FT said they believed the Chinese government, which is able to inspect messages on encrypted platforms that remain invisible to the western agencies, is not providing as much information to counterparts as it could. »
Sources:
Associate Special Agent in Charge
5moWhen they decided to get into ML they went all in.