How Chinese Crypto Money Laundering Networks Enable Mexican Drug Cartels

By Elizabeth Gail

A recent Senate judicial sub-committee audience on border security and immigration revealed that Mexican drug cartels rely more than ever on Chinese cryptocurrency money laundering networks.

The Sino-Mexican crypto money laundering relationship stems from years of cooperation allowing the North American nation’s narcos to obtain precursor chemicals used to process drugs such as methamphetamine.

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Credit: Reuters / Handout

Police piled piles of cash and weapons after a raid on the home of Chinese businessman Zhenli Ye Gon in Mexico City in March 2007.

China is a major supplier of controlled substances such as ephedrine and pseudoephedrine which are essential ingredients in the production of methamphetamine (meth). This East Asian country is also a major exporter of fentanyl, a synthetic opioid that is about 50 to 100 times more potent than morphine.

It is medically used as a pain reliever in extreme cases and approved for people with painful conditions such as cancer. Fentanyl is now used to mix drugs like cocaine and heroin to make them more potent.

Mexican cartels choose to partner with the Chinese because of their extensive money laundering networks, which have been propagated by the country’s strict limits on transferring money to foreign markets. Dubbed the Chinese Underground Banking Systems (CUBS), they are made up of a complex network of money and cryptocurrency brokers who move currencies into and out of the economy while bypassing the country’s banking system.

They have traditionally responded to the emerging need of wealthy Chinese citizens to bypass the government’s annual external fund transfer limit of $ 50,000. It is not just Mexicans, but Australian and European drug traffickers who are now relying on the Chinese to launder their illegal products.

China’s underground banks are estimated to have more than 10,000 customers and launder more than US $ 100 billion each year. According to statistics published by the United States Office on Drugs and Crime, approximately US $ 2 trillion is laundered in the global marketplace each year.

Director of the US Department of Homeland Security’s Joint Investigative Working Group Janice Ayala has publicly stated that China’s transnational operations are responsible for the recent spike in crypto money laundering.

Chinese networks have successfully channeled laundered funds through the country’s banking systems, which are then returned to Mexican shell companies operated by drug cartels. Their crypto money laundering financial maneuvers are apparently behind the steady decline in cash seizures linked to drug trafficking activities in Mexico and the United States.

Bitcoin has been observed as the cryptocurrency of choice for transnational criminal organizations (TCOs) because it is widely accepted in the wider market and can easily be traded in over-the-counter markets, and lax trading knows your client and anti-money laundering policies.

Chinese brokers involved in money laundering mainly help clients transfer assets from China and allow bitcoin money transactions. They also sell bitcoin for money obtained through illicit means.

That said, however, cryptocurrencies are still not the ideal setup for money laundering due to the vicissitudes of the market. They are, however, one of the many means used by criminals to launder money.

Scammers, however, view cryptocurrencies as a safer way to store currency holdings and conduct transactions. Privacy coins like Dash, Monero, and Zcash offer feature-rich options that help users stay anonymous, making them an ideal choice for people looking to avoid reviews.

Cash seizures on the decline

In the past, Mexican drug cartels have faced huge seizures of money. In 2007, for example, hundreds of millions of dollars were seized from one of the properties owned by Chinese-Mexican businessman Zhenli Ye Gon following a money laundering investigation.

He was arrested soon after for allegedly contributing to the Mexican drug trade. This was after it was discovered that four containers of pseudoephedrine and ephedrine had been inappropriately imported. Pseudoephedrine is a major chemical precursor used in the treatment of methamphetamine. The search of his home resulted in the seizure of approximately $ 205 million in cash.

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Credit: Reuters / Handout

Zhenli Ye Gon, a businessman accused of working with drug cartels, is escorted by Interpol agents after arriving from the United States on an extradition flight to a hangar belonging to the Attorney General’s office in Mexico City, October 18, 2016.

The money, which was mostly in US $ 100 bills, weighed around two tons and in various other denominations, including Hong Kong dollars and Mexican pesos. It became the largest seizure of money in the history of drug trafficking and so today cryptocurrencies have offered drug smuggling networks a sanctuary away from such situations and inconveniences.

At present, US customs seizures of money linked to drug trafficking operations in Mexico are at an all-time low. In 2011, for example, the Arizona Port Authority recorded seizures amounting to approximately US $ 12 million. The 2016 figures were US $ 960,000, a drop of over 90%.

Silk Road’s contribution to the current situation

The infamous Silk Road The online market was the pioneer of cryptocurrencies and the connection to the black market. It has allowed drug traffickers and sellers of other illegal paraphernalia to trade anonymously by supporting transactions made primarily in bitcoin.

Named after the ancient trade routes that connected the eastern and western hemispheres, it was launched in February 2011 by Ross Ulbricht, who bore the nickname Dread Pirate Roberts.

The website was shut down by agents from the Federal Bureau of Investigations in October 2013 and Ulbricht was arrested. However, it has become a model for future money laundering and black market websites on the darknet. Many variations of the network have been built over the years.

The AlphaBay market is one example. Launched in December 2014, it was closed in 2017 following a joint effort by law enforcement in Thailand, the United States and Canada. Its founder, Alexandre Cazes, a Canadian national, died in Thailand three days after his arrest. He was suspected of having committed suicide.

Read more: Chinese investors reeling from plunge in blockchain industry

The News Lens has been granted permission to republish this article. It was originally published on CoinCentral.com here.

TNL Editor: Nick Aspinwall (@ Nick1Aspinwall)

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