A DIFFERENT KIND OF CHINESE LAUNDRY

How Mexican Cartels Use Chinese Crypto Brokers to Launder Drug Money

CCN
December 28, 2018

Law enforcement agencies in the United States have expressed worries that Chinese crypto channels are increasingly being used to launder money by Mexican drug cartels and other transnational organized crime groups.

This comes at a time when the size of Chinese exports such as chemicals and other ingredients used in making hard drugs to the U.S. has been growing, per Asia Times. According to a senior official at the U.S. Drug Enforcement Agency (DEA), Paul Knierim, a notable increase in money launderers from Asia has subsequently been observed:

The shift toward Chinese and Asian money launderers is believed to be, in part, due to the natural relationship created by the large volume of both licit and illicit trade goods and chemicals imported from China. The use of an Asian money broker simplifies the money laundering process and streamlines the purchase of precursor chemicals and paraphernalia utilized in manufacturing drugs for street sales.

Growing Sophistication

In a report issued a few weeks ago, the DEA pointed out that in the last eight years, a steady decline in the amount of cash seized throughout the United States had been recorded and this could mean that more discreet techniques of moving illicit cash were being employed.

Specifically, the DEA cited the Chinese Underground Banking Systems (CUBS) as a key laundering channel. The CUBS money brokers, the DEA noted, was turning to bitcoin both to launder money for drug traffickers and to assist Chinese nationals interested in moving amounts exceeding the allowed annual limit of US$50,000 outside the country:

CUBS money brokers sell Bitcoin to drug traffickers for cash earned from drug sales in the US, Australia, and Europe. This drug cash is then sold to Chinese nationals in exchange for Bitcoin the Chinese nationals use to transfer the value of their assets outside of China.

To avoid detection and traceability, these bitcoin trades are conducted over the counter with the Chinese brokers relying on foreign-based exchanges which have lax Know Your Customer and Anti-Money Laundering policies.

Multi-Agency Problem

Besides the Drug Enforcement Agency, the U.S. Department of Homeland Security has also blamed Chinese transnational criminal organizations for the rise in the use of cryptocurrencies to launder money. This was made clear during a U.S. congressional hearing earlier in the month.

But while using cryptocurrencies to launder money may offer some advantages, the extent to which they can be used is limited due to the fact that, with the exception of privacy coins such as Monero and Zcash, transactions are transparent since they can be viewed on the respective blockchains.

Globally, the money laundering turnover is estimated to reach US$2 trillion, and the use of cryptocurrencies in cleaning illicit cash is tiny compared to other channels.