US announces major bust as efforts to crack down on Chinese money launderers working with drug cartels ratchet up
By Sean Lyngaas, CNN
(CNN) — US prosecutors on Tuesday touted a major breakthrough in a crackdown against Chinese money laundering networks they say are working with Mexican drug cartels, announcing charges against 24 people for allegedly taking part in a scheme to launder more than $50 million in drugs.
It’s one of the biggest busts yet as federal agencies step up efforts to target the highest levels of Chinese money laundering rings that experts and officials tell CNN are the go-to partners for Mexico’s most dangerous drug cartels that traffic fentanyl, cocaine and methamphetamine into the US.
Two “fugitives” named in the indictment unsealed in California have been arrested — one by the Chinese government and the other by the Mexican government, the Drug Enforcement Administration said. It’s a rare breakthrough for US law enforcement collaboration with China and Mexico, which have often bristled at US overtures to crack down on drug trafficking.
The criminal network allegedly includes an array of Chinese, Mexican and American men who allegedly worked as couriers, money brokers and traffickers in an elaborate scheme to pick up big amounts of cash from the sale of cocaine and methamphetamine in the Los Angeles area and launder the money for the Sinaloa Cartel. Ten thousand fake fentanyl pills were also seized in the operation, according to the DEA.
“These Chinese criminal money laundering networks can move money faster, cheaper and at a fraction of what is usually charged,” DEA Administrator Anne Milgram said at a press conference hosted by the US Court for the Central District of California, which includes Los Angeles.
Other recently unsealed federal indictments reveal an intense effort by DEA, IRS and other agencies to investigate and surveil alleged Chinese money launderers in more than a dozen states — the product of years of investigative work. And interviews with current and former US officials offer glimpses into the tactics used to identify and infiltrate the financial networks supporting the vastly lucrative drug trade into the US.
A senior DEA official told CNN on Tuesday that the agency had in the last year seen an “uptick” in Chinese money laundering activity in the US.
“In almost every investigation we have that involves the cartels and money laundering, the Chinese (groups) are involved,” the DEA official said in an interview conducted on the condition that the official not be named.
For the last decade or more, Chinese money laundering groups have undercut their competitors in Colombia and elsewhere by charging cheaper fees and tapping into the Chinese diaspora in the US and Latin America, experts say. These money laundering rings have washed cash made from the sale of fentanyl, cocaine, methamphetamine and marijuana.
“It’s a marriage made in heaven,” Don Im, who spent three decades at the DEA tracking money laundering and other crimes, told CNN. “The world’s global drug markets have now become China’s ad-hoc bank.”
Fentanyl has been the driving factor in a surge of deadly drug overdoses in the US in the last decade. More than 74,000 people died after using synthetic opioids such as fentanyl in 2023, compared to about 5,500 in 2014, according to the Centers for Disease Control and Prevention.
The drug’s catastrophic toll has sent the Biden administration searching for new tools to cut off fentanyl supplies and their financing. Federal agents continue to seize many tons of fentanyl and other drugs at the southern border each year. But in recent months there has been a more aggressive effort to put a dent in the cartels’ coffers by seizing its cash.
Despite the growing use of cryptocurrency in the drug trade, there’s still plenty of cash to move around.
One Chinese woman arrested in Oregon in April is accused of overseeing a network of couriers who made more than 100 cash deposits worth $17 million at banks from California to Virginia. Another man allegedly part of another laundering network, who was arrested in South Carolina in March, was found with nearly $200,000 in cash in his car after driving from state to state to pick up money, according to prosecutors.
Feds focus on Chinese launderers
The DEA and departments of Homeland Security and Treasury have all announced new initiatives to track down and thwart Chinese money launderers working for the cartels in the last year.
The Treasury Department is stepping up its use of IRS agents and banking data from Treasury’s Financial Crimes Enforcement Network bureau to identify Chinese money launderers operating in the US, a senior Treasury official told CNN.
Homeland Security Investigations, a DHS agency, set up a unit in the Washington, DC, area to share intelligence with other law enforcement agencies and banks related to Chinese money laundering and other threats.
The unit, known as the Cross-Border Financial Crimes Center, has been trying to thwart a particularly effective tactic used by the money launders: the use of fake, but very convincing, Chinese passports to set up bank accounts in the US, according to Senate testimony in April from senior HSI official Ricardo Mayoral.
An HSI spokesperson did not respond to questions about the center’s budget and staffing.
The DEA created a new team to track “illicit finance” last year because “we started to see so much crossover between the cartels when it comes to laundering money,” DEA Chief of Operations William Kimbell told the same Senate panel.
The DEA has been able to “identify money laundering networks that we didn’t know previously existed,” Kimbell said.
The senior DEA official told CNN the agency’s new illicit finance team consists of about 25 people, some of whom are drawn from preexisting units that focus exclusively on the cartels
The recent intensified effort by federal agents to follow the money is clear to some observers.
A US-based lawyer who has represented accused Chinese money launderers said the tempo of law enforcement operations against the alleged launderers has increased in recent weeks as federal agents close in on “bigger fish” among Chinese money launderers in the US.
Federal agents have been interviewing accused Chinese money launderers and cross-checking names the witnesses offer in search of more senior people in the money laundering ring, said the lawyer, who spoke on the condition of anonymity to discuss a sensitive subject.
‘Money mules’
Federal agents are up against powerful economic forces that bind together Mexican and Chinese criminal syndicates operating throughout North and Central America, according to experts.
In China, citizens are allowed to send only $50,000 of currency outside of the country each year. That creates fierce demand for hard currency among Chinese nationals living abroad. Mexican cartels, on the other hand, are awash in cash but in need of people to move it around for them. and launder it through financial markets.
The cartels, experts say, are using networks of “money mules,” or couriers who pick up large amounts of cash earned from drug sales to begin a multistep laundering process. Those money mules “are opening accounts in banks big and small here in the US,” the senior Treasury official told CNN.
Treasury and IRS officials recently began privately briefing US banks and social media companies, on whose platforms the drugs are often bought and sold, to try to get a clearer picture of how the cartels are exploiting the financial system, the Treasury official said. One focus of the meetings, the official said, is how to use intelligence provided by smaller banks that can spot laundering fronts in their communities.
But it is an open question among some US senators and outside experts whether there is effective coordination among the numerous federal agencies trying to track and seize drug money.
“We have not put anywhere near the amount of attention that we should into the financial side — not just the return of the money, but also the illicit finance ecosystem that the money moves into when it exits legitimate US accounts,” said Sen. Sheldon Whitehouse, the Rhode Island Democrat who co-chairs a Senate panel focused on US counternarcotics policy.
“I would love to say that there’s a central money laundering command that draws together the effort of all of the engaged federal agencies and has excellent intel and law enforcement visibility into the scope of the money laundering and illicit finance problem. And we just don’t,” Whitehouse told CNN.
Still, the nascent initiatives at DEA, DHS and Treasury to more aggressively target the cartels’ money launderers are “working well enough to justify confidence that significantly enlarging them would be a very good strategy,” he said.
CNN asked multiple federal agencies — the DEA, Department of Homeland Security, FBI and Treasury Department — for a rough estimate of how many Chinese nationals are laundering money for the cartels in the US. No one gave an answer.
“I wish I did. If you have a ballpark estimate, we would love to hear it,” the senior Treasury official said. The senior DEA official also did not provide an estimate.
Whitehouse told CNN: “I have no idea. … Because of the weak and primitive nature of our enforcement structure, I would doubt that anybody has a very good idea.”
FBI Director Christopher Wray told the US Senate this month that the FBI has more than 350 cases “linked to the cartel leadership” and 91 of those cases are “along the southern border.”
CNN asked the FBI how many of these cases were related to Chinese money launderers working with the cartels. The FBI did not answer the question.
Instead, the FBI provided a statement that says the bureau “pursues investigations to disrupt all aspects” of the threat from transnational drug cartels, “from targeting their command-and-control structure to their key money laundering networks, as well as the local violent gangs that serve as retail distributors of their contraband.”
The White House Office of National Drug Control Policy, which oversees the federal response to the fentanyl epidemic, declined an interview request on the topic of Chinese money laundering, referring questions to the Treasury Department.
CNN has also requested comment from the US Secret Service, which also plays a role in money laundering investigations.
A lot of the federal work to counter the problem is shrouded in secrecy because it is at the intersection of two delicate subjects: ongoing drug-trafficking investigations and US-China relations. None of the federal law enforcement agencies involved in tracking Chinese money launderers agreed to be interviewed on the record.
The Biden administration has implored the Chinese government to crack down on both the production of chemicals used to make fentanyl and money-laundering networks emanating from China. Some Biden officials say China is showing more of a willingness to address these problems after a President Joe Biden discussed them with Chinese leader Xi Jinping in November — and they point to China’s arrest of one of the defendants charged on Tuesday as an example of that cooperation.
Many Republicans disagree.
“Not only is China refusing to cooperate with American efforts to stem the deadly flow of fentanyl in our communities, it’s actively fueling the crisis – all while the Biden administration sits back and watches,” Republican Sen. Charles Grassley of Iowa, the other co-chair of the Senate drug panel, told CNN.
Grassley and Whitehouse have each introduced legislation they say is key to closing loopholes in US law that are actively exploited by the cartels’ money launderers.
Elaborate networks
Recent court documents illuminate how far-flung and elaborate US-based networks of alleged Chinese money launderers are.
In an indictment returned by a grand jury in North Carolina in March, federal prosecutors accused a 37-year-old Chinese woman named Enhua Fang of running an “incredibly active cell” for laundering money for the cartels (in this case, court documents did not identify the drug being trafficked). Fang’s couriers made more than 100 cash deposits worth $17 million at banks from California to Virginia, according to the indictment.
In another case this Spring, DEA agents with drug-sniffing dogs detained a 46-year-old man named Li Pei Tan on the side of the highway in South Carolina and found nearly $200,000 in cash, two cell phones and a laptop in his car, according to an affidavit. It was the culmination of a years-long undercover effort by federal agents to penetrate a money-laundering ring stretching from China to Belize that allegedly laundered hundreds of millions of dollars in drug money for the cartels, according to court documents.
Tan, a Chinese-born man who lived in Georgia, is one of a pair of men accused of driving across the US to pick up the proceeds of fentanyl sales from affiliates of the cartels, taking a cut for themselves, and then using bank accounts in the US and abroad to launder the cash.
Joe Habachy, a lawyer for Tan, declined to comment. Matthew Rothbeind, a lawyer listed in court records for Fang, did not respond to multiple requests for comment.
DEA agents used wire taps and cell tower simulators to track Tan and Chaojie Chen from Chicago to Tulsa, and up and down the East Coast. They stopped Chen three times over five years as they built a case, pulling him over in Detroit, Chicago and Ohio. He was communicating with a “major international money launderer and drug trafficker based out of mainland China,” according to the affidavit, which did not name or charge that person.
Greg Hunter, a lawyer for Chen, declined to comment.
Mirror Transactions
Experts say the Chinese money launderers have mastered the art of so-called mirror transactions, which involve a series of deposits at multiple bank accounts to conceal the drug money.
For example, a money mule working for a Chinese money laundering ring will pick up cash that a cartel operative made from the sale of fentanyl in a given US state. The money launderers will then then transfer a comparable amount of money to a bank account in China held in the name of a front company. Once that is received, members of the money laundering ring based in Mexico will credit cartel-controlled bank accounts with a reciprocal amount of money in pesos.
The method means money doesn’t have to physically cross borders or the legitimate banking system.
Mirror transactions allow “Chinese money launderers to sidestep international monetary rules,” David Luckey, a fentanyl-focused homeland security expert at Rand Corporation, told CNN. “It creates the ability to move money without moving money.”
The tactics used by the Chinese money launderers make it “very difficult to follow the money and … to gather intelligence on all of the people involved,” the senior DEA official told CNN.
But some of the money laundering activity is allegedly going right through Wall Street’s biggest banks.
Fang, the woman indicted in the Western District of North Carolina, and her alleged co-conspirators deposited hundreds of thousands of dollars in accounts at JPMorgan Chase, Bank of America and Wells Fargo, according to court documents.
Spokespeople for Wells Fargo and Bank of America declined to comment. JPMorgan Chase did not respond to requests for comment.
US law enforcement agents will sometimes request that banks leave suspicious accounts open so that they can monitor them for an investigation, one source at a US bank told CNN.
Despite Tuesday’s bust, the money laundering rings that US officials say are the financial pulse of the cartels have every incentive to recover and rebound.
“Without the money laundering services provided by the Organization and other similar money laundering organizations, many of the DTOs’ [drug trafficking organizations’] operations would grind to a halt,” prosecutors said in a recent court filing arguing that Fang was a flight risk.
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