Latin American Criminals Go to China to Launder Money

Latin American Criminals Go to China to Launder Money

By Gustavo Arias Retana/Diálogo
November 30, 2018

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Links with mafia organizations and the complicity of the financial system make the Asian country a perfect destination for Latin American money from drugs and other illicit activities.

In August 2018, a special jury in Colorado pressed charges against 16 narcotraffickers who moved cocaine from Mexico to the United States and laundered money through Chinese banks. The process isn’t new: In 2017, the U.S. Drug Enforcement Administration (DEA) warned about criminal groups in Mexico, Colombia, and Venezuela that used their contacts with Chinese mafias to launder money through banking entities in the Asian nation.

Sara Hsu, an associate professor of Economics at the State University of New York and specialist in the Chinese financial system, explains that the Asian nation is an attractive destination to launder money coming from Latin American criminal activities. One of the reasons is the strengthened link between groups such as Mexican drug cartels and Chinese mafias.

“It’s true that Chinese regulations on money laundering were less rigorous in the past,” Hsu told Diálogo. “But the incentive comes from some Chinese gangs’ willingness to cooperate with Latin American criminals to launder money and participate in other illegal activities. As such, they become important facilitators for Latin American [criminal] organizations.”

Hsu’s description fit what the DEA indicated in its 2017 National Drug Threat Assessment on the role of Chinese criminal organizations—particularly those operating in the United States—as money laundering facilitators for Latin American criminals. According to the report, Asian transnational criminal organizations (TCOs) “play a key role in the laundering of illicit drug proceeds. Asian TCOs involved in money laundering contract their services and in some cases work jointly with other criminal groups, such as Mexican, Colombian, and Dominican TCOs.”

According to Hsu, some of the most common money laundering techniques are the purchase of Chinese products and fake commercial exchanges through casinos in Macau and Chinese money exchange houses. Gonzalo Villa, director of Latin America for the Miami-based Association of Certified Financial Crime Specialists, points to the use of cryptocurrencies like bitcoin as another strategy.

“Bitcoin and other similar currencies are very attractive, because of their perceived anonymity and decentralized system,” Villa told Diálogo. “For example, the deep web or dark web has become the ideal place for online illegal activities. Using cryptocurrencies is now a method criminals increasingly use.”

DEA also confirms that bitcoin and other cryptocurrencies allow Latin American drug cartels to easily transfer their illegal earnings worldwide. “Bitcoin is the most common form of payment for drug sales on dark net marketplaces and is emerging as a desirable method to transfer illicit drug proceeds internationally,” indicated the report.

The Chinese financial system as accomplice

One must keep in mind that many forms of money laundering Latin American criminals use in China count on a supportive financial system frequently sanctioned for its poor regulation. “Due to the weaknesses in its financial system, China has become an attractive hub to launder money at an international level,” Villa said.

In recent years, several Chinese banks received sanctions or warnings in the United States for violating legal regimes to prevent financial crimes linked to money laundering. In 2018, U.S. authorities and financial regulatory agencies sanctioned the Industrial and Commercial Bank of China Financial Services LLC due to inconsistencies in its anti-money laundering compliance program. The company’s head office in New York was cited for deficiencies in its anti-laundering programs and was required to pay a fine of $12.5 million.

In 2016, the New York State Department of Financial Services (NYSDFS) imposed a $215 million fine on the Agricultural Bank of China for violating money laundering rules, mainly for concealing suspicious transactions and silencing its compliance officer. In 2015, the Federal Reserve and NYSDFS ordered China Construction Bank to tighten money laundering controls in their New York subsidiary to resolve a legal action both regulatory bodies had submitted.

The Chinese financial system shows little interest in correcting its weaknesses, in turn becoming a perfect ally for Latin American criminals who need to launder their profits generated by business such as drug sales. These criminals found in China the perfect combination of criminal partners, money laundering mechanisms, and accomplice banks.