A Beautiful Chinese Launderette

Colleagues on mainFT — Joe Miller, James Kynge and Ben Marino — recently introduced us to the world of Chinese money launderers and their major clients, the drug cartels of Mexico. You can read the main piece here, watch the movie here, and then follow up with the detail on shovelling armfuls of cash into a Citibank ATM without anyone noticing.

But some readers have voiced their confusion over how the money flows without cash — dollars or pesos or renminbi — crossing borders. Indeed, some people seem to think we just made this up to bash the Chinese!

Which we didn’t.

So here’s some further explanation, with illustration courtesy of the Department of Justice and a San Francisco-based anti-money laundering expert called RegTech Consulting . . . 

First, understand that Chinese nationals are barred from transferring more than $50,000 out of China each year. And yet, as you are surely aware, there are many many Chinese nationals living very comfortable lives in the west, as students perhaps, or tourists, or simply not working.

Now understand that Mexican drug cartels are harvesting untold billions of dollars, in cash, selling drugs in North America — and that the pill of the moment is Fentanyl, which kills about 70,000 people a year in the US.

The chemicals to make Fentanyl come from China. These are shipped to Mexico by otherwise legit Chinese chemical manufacturers.

In Mexico, the cartels turn the chemicals into pills and smuggle these north across the border, where they are sold for cash — dollar bills that then need to be cleaned.

Meanwhile, in New York for instance, there will be a Chinese student attending an educational establishment, where the fees will be circa $66,000 a year, books and extras another $10,000, food and lodging costs of maybe $5,000 a month, or a lot more.

The $50,000 Chinese transfer cap doesn’t cover these things, so she will go on WeChat and broadcast a message to her network of friends saying: “I need dollars in New York to meet my outgoings. Can anyone help?”

In due course, someone associated with what is a very efficient Chinese underground banking system will get in touch and tell the student to meet a courier at a preordained time and place, typically a park in Brooklyn. There, the student will be handed a bundle of cash.

Back in China, the parents of the student will then be asked to transfer the same amount of money (plus commission) to an account that will eventually make its way to the chemical company that produced the precursor ingredients for Fentanyl, settling the outstanding bill for the Mexican drug cartel.

It’s that simple. Drug addicts in the US are facilitating the western education of Chinese youth, as well as helping to fund the lifestyles of other Chinese nations living outside China.

The demand for dollars from Chinese nationals abroad is such that the Mexican cartels can essentially launder their money for free.

And yes, in the US you can pay for your education in cash at many universities. Sums over $10,000 get reported to the US Treasury, but that seems to be as far as things go. In the UK, educational establishments all say they do not accept cash; anecdotal evidence suggests otherwise.

Now, there are various other add-ons to this process, such as drug money being used to fund the manufacture of other goods shipped to Mexico, but the Fentanyl trade is the cleanest example.

It’s a classic hawala system and it dates back to the origins of the Silk Road. Traders didn’t want to travel for months on end with large amounts of cash, in case they got robbed. So they would agree to pick up funds along the route, and the account would be settled back home.

For a modern take, scroll through this cinematic DoJ indictment.

And here’s a flow chart . . . 

Further reading:
— Bloodless Coup: Chinese Money Launderers Enable Mexican Transnational Criminal Organizations