Chinese brokers launder hundreds of millions for global crime groups | FT Film

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CHRIS URBEN: Chinese money launderers have partnered with Mexican drug cartels to efficiently launder the proceeds of the fentanyl trafficking.

JOE MILLER: Law enforcement in this country has not got sufficient tools to tackle it.

VANDA FELBAB-BROWN: They're really on the rise as the dominant money laundering networks.

[SPEAKING ITALIAN]

SAL MELKI: These are franchise models, highly sophisticated. They can be stood up quickly and move a lot of value in a lot of different directions simultaneously.

JAMES KYNGE: The scale and the scope of this is really quite extraordinary.

RAYMOND DONOVAN: We started bringing all the elements of the government together because it was a national security issue. It was a matter of life and death.

CHRIS URBEN: In 2017 and '18, something significant happened. We didn't know why. We couldn't understand why. Suddenly, Chinese money brokers began to control the laundering of Mexican cartel proceeds. And they started to do it for 1% to 2%. Those were charges or broker fees that were unheard of. We believe that the Mexican cartels increased their bottom line, their net profits by 3% to 5% by simply partnering with Chinese money launderers.

VANDA FELBAB-BROWN: In the 1990s, as China liberalised economically, as Chinese business started moving around the world, a system of Chinese underground banking or money exchange system developed in places where Chinese businesses were expanding, catering to businesses often operating with legal commodities in legal economies, but needing to move money, they would not be able to move through the Chinese banking system.

JAMES KYNGE: And what these underground banks do is they transfer money according to something that's called mirror transfer. A person, let's say, on the one end of the network will arrive with a sack full of money in cash, deposit it at the underground bank. And then through this mirror transfer, another person will pick up the same amount of money from the other branch of the same underground banking network.

The crucial thing about this is that no money has actually been transferred. It's completely invisible to the authorities that might wish to crack down on it. This illicit money finances all kinds of things. It finances shopping sprees by Chinese consumers who want to buy luxury in Europe. It also finances we have evidence the international drugs trade and is particularly germane when we think of the big crisis of fentanyl that's currently affecting the United States.

MALE ANCHOR: As we continue our coverage, the DEA reports fentanyl overdose, it is the leading cause of death among those under the age of 50. And they're warning communities that one pill can kill.

FEMALE ANCHOR: The deadliest drug threat our country has ever faced.

JOE MILLER: Well, I cover law enforcement here in New York for the Financial Times. And in the course of meeting with a former DEA agent in a Manhattan skyscraper, halfway through our meeting, he said, forget what you're working on now. I have a far bigger story that's being ignored.

The fentanyl crisis that is probably the biggest killer of Americans under 50 is being fueled by Chinese money laundering. And law enforcement in this country has not got sufficient tools to tackle it. For decades, the drug cartels operating in the US had developed a very sophisticated system for money laundering.

They would put the cash on trucks. They would drive them across the border. They would find ways of sending the money to people in the US who needed cash and would buy products with them, et cetera. But the DEA and enforcement agencies across America had a playbook for how to tackle this.

All of that changed with the fentanyl crisis. When I first heard about this, a few people told me, you have to speak to this guy, Ray Donovan. He would be one of the first to identify this problem. Suddenly, Chinese nationals were popping up everywhere in the surveillance of the fentanyl trade to an extent that they hadn't been before. And he and his team realised something was going on here.

RAYMOND DONOVAN: My name is Raymond Donovan. I am the former Chief of Operations for the Drug Enforcement Administration. So I grew up in an Irish neighbourhood up in the Bronx. But then we moved to a neighbourhood where it was all Puerto Rican.

I saw drugs decimate parts of my family in the '70s, in particular heroin. So I became an expert not only in the cartel, but really being able to exploit comms, or communications. In the mid '90s, cocaine was just fallen from the sky.

My first year we seized here in New York City 7,000 kilos of cocaine. When you're intercepting tens of thousands of kilos, you're really causing a lot of harm to the cartel. We were focused primarily on tractor trailers coming from the west coast to the east coast.

In 2012, I was assigned to the special ops division. SOD is basically the hub for the world as it relates to narcotics investigations and criminal networks. While at SOD, I developed a team. And we collectively pursued Chapo Guzman.

We never really focused in on Chinese organised crime. Our focus was on the Sinaloa cartel. Yeah, we're in Brooklyn, near to downtown Brooklyn. It's a warehouse area. It's an area that is known for receiving shipments of drugs coming in from Mexico or from other states across the United States.

We started realising that the Chinese organised crime was not only involved with supplying all the precursor chemicals to the Mexican cartels for production of illicit narcotics. They were also really taking over the international money laundering aspects of the entire drug trafficking as we know it across the United States.

FEMALE ANCHOR: Another fentanyl bust in the Bronx, just blocks away from the daycare where a one-year-old boy died.

RAYMOND DONOVAN: We would see an organisation that we identified through our investigation that was a fentanyl distribution network dropping off drug proceeds to a Chinese money launderer here in New York City. And then that launderer would then bring money through our investigation to an MSP, or a money service provider, in Flushing, Queens.

And from there we would launch a different sort of investigation that became more about following the paper trail of how the money is leaving through these stores because they were fronts. Often you'll see a business that from the outside looking in, it looks like it's one business. But once you walk inside, there's multiple businesses within. And that's where you'll see that they'll have a money service provider set up to launder illicit drug proceeds on behalf of the criminal organisations.

CHRIS IRVIN: We had a saying, all roads lead back to Flushing. And the reason we said that is we identified command and control leadership. All these things sort of centred back to Flushing, Queens. My name is Chris Irvin. I'm a managing director with Nardello and Co., which is a global investigations firm.

Prior to Nardello, I spent 24 years with the DEA as a special agent. This is Mexico. This is the United States. And this is China. The currencies do not cross borders, the pesos, the dollars, the Chinese RMB. Think of billion dollar pots of each currency in those countries.

Let's look at the Mexican cartels. They produce fentanyl. They ship a large shipment of fentanyl to New York to a drug distribution gang in New York. They then sell that fentanyl. And say they have $1 million that they need to have laundered back to the Mexican drug cartel. They contact the cartel and say, we have $1 million that we want to move back to you.

They contact the Chinese money broker in Mexico. That Chinese money broker via WeChat contacts a Chinese broker in New York, saying $1 million needs to be picked up. Mexican cartel contacts their drug distribution arm and says, this Chinese broker is going to pick up the million dollars.

They arrange for that pick up. It's brought back to a stash location, where they're collecting drug proceeds controlled by this Chinese money broker. Chinese money broker sees that the money is there, $1 million. WeChat messages the Chinese money broker and says, I have the million dollars.

At this point in time, those funds are released to the Mexican cartel. They've now been made whole. Their funds have been laundered for them. That million dollars now is sitting in a stash house controlled by Chinese money launderers. They then get on WeChat or a bulletin board and advertise the sale of those US dollars within the United States.

Once those dollars were put on WeChat, Chinese nationals, whether they be back in mainland China or within the United States, want to buy dollars. In this example, he's going to buy $100,000. This Chinese national has been introduced by this Chinese broker in mainland China by this Chinese broker.

Before he actually gives them the funds, the transfer is made bank to bank. As soon as that's done, he provides the cashier's check or the funds. He now has the funds. He's done. He's made his money. He's invested in the US.

In the beginning of this, we we're trying to understand it. We were following these individuals. And they were picking up millions of dollars. They follow one of these Chinese couriers who had picked up money back to a block and lost him on surveillance. Now, it was later at night. It was dark. It was in Flushing, Queens.

And they decided, let's get out. Let's walk the block and determine if we can see where he went or where he was. As they were walking down the street, they heard what they thought to be money counters. So when they went closer to this building, on the first floor, they had had the window open just a little bit. And there were six to eight money counters being run and over $10 million in this stash location.

That was the amount of money that they had to bring in, count. Showed the flow of money because they were selling that money the next day to a Chinese buyer that wanted to invest in the United States. Now, you can couple that around the world. You could say that in Africa. We noticed Chinese organised crime, where there was a Chinese diaspora. And there was a Chinese infrastructure project and dramatic amounts of money.

Chinese organised crime paralleled those efforts. The same thing is happening whether it be in Italy or throughout Europe. When you have larger narco proceeds that need to be laundered back to Colombia, Mexico, or somewhere else around the globe, Chinese money launderers are relied upon to do that on a much greater scale than they were in the past.

They're very sophisticated. They're very professional. And they can get the job done quickly.

MICHELE ALBANESE: [SPEAKING ITALIAN]

ANNA SERGI: The Ndrangheta, it was born in the province of Reggio Calabria, and in particular in the mountains of Aspromonte. Aspromonte is one of the most geographically challenging areas of Calabria. It is a constellation of about 33 villages all around the same mountain area.

The San Luca base clans are well-versed in particularly important for the cocaine trade, arriving at the port of Gioia Tauro still today.

DANILO PERSANO: [SPEAKING ITALIAN]

GIUSEPPE BOMBARDIERI: [SPEAKING ITALIAN]

MARCO SORRENTINO: [SPEAKING ITALIAN]

GIOVANNI MELILLO: [SPEAKING ITALIAN]

FRANCESCO RUIS: [SPEAKING ITALIAN]

ALESSANDRA CERRETI: [SPEAKING ITALIAN]

MALE ANCHOR: But first up tonight, more students overdosing at a local high school. This time it's happening in Loudoun County.

FEMALE ANCHOR: All believed to be fentanyl laced pills.

WILL SULLIVAN: I like talking to the addicts, figuring out their story, figuring out how it was. They start telling you about how they were prescribed medicine. Then they went to the heroin, got addicted to the heroin. And the heroin, the high wasn't getting-- they were taking more and more of the heroin. And then the fentanyl came on the market.

And it was so much stronger. And that's all they wanted. The cartels, they see the opportunity to make money. And it's just like the street dealers around here. They see the opportunity to make the quick money. And they can make a lot of money real fast.

I'm Deputy Will Sullivan with the Loudoun County Sheriff's Office. I'm assigned to the tactical support unit. I also work with our drug and gang unit. And I do traffic stops for them too. Fentanyl, it's blown up in this area. It's a really horrible, horrible drug, what it's done to people.

We're getting more and more of it on the street now. You used to get just a little a little bit of it. Now you're getting a lot of it. It's taking over people's lives. They're making lots of money on this stuff. And the dealers push and push more and more.

And you're getting busts now, where you're getting thousands of pills at a time, lots and lots of money in cash.

MIKE CHAPMAN: We're seeing the end result of what is an international major problem. My name is Mike Chapman. I'm the Sheriff here in Loudoun County, Virginia. I've been the sheriff for just over 12 years, just got re-elected.

Prior to that, I served 23 years with the Drug Enforcement Administration all over the globe. This is a photo of me sitting in a field of poppies up there by the northwest area of Pakistan near the deer district up there, not too far, I don't believe, from the Khyber Pass.

If you look back to 2020 or so, you had about 93,000 overdoses nationally, overdose deaths nationally. So you jump up a year. And it goes up to like 103,000 in 2021. 2022, it goes up to 106,000. And last year it's 112,000.

We're losing more people in a year to drug overdoses than we lost soldiers in Vietnam over a 10-year period, twice as many. So this is really significant. And this is something that we really have to take head on in every direction because it's so prevalent. And we really need to stop this.

The problem with fentanyl is that you can produce so much. And it takes so little to overdose. You're talking about a lot of pills that you can get across the border. And it doesn't take up much space. And it's so deadly. And it's easy to distribute.

This story is about greed. They don't care about parents losing their kids. They don't care about kids losing their parents. They don't care about any of that. All they care about is this. And it's something that we've got to do everything we can to stop.

MIKE GALLAGHER: The select committee will come to order. At the outset, I want to recognise that we are privileged to be joined today by families who have been directly impacted by the fentanyl crisis here in the United States. This hearing and the information that we are about to provide is for them and for those that they have lost. Mr. Donovan, you are recognised for your opening remarks.

RAYMOND DONOVAN: Good morning, Chairman Gallagher, ranking member Krishnamoorthi, and distinguished members of the committee. My name is Ray Donovan. I would like to thank you for giving me the opportunity to testify before you today on the pressing issue of the fentanyl crisis and China's role in feeding this emergency, striking Americans in areas of public health, law enforcement, and national security.

Being as deadly as fentanyl was, we said, enough's enough. And we started bringing all the elements of the government together to really focus our energies and our efforts towards these groups because it was a national security issue. It was a matter of life and death.

Project Sleeping Giant was our intent to put a big spotlight on Chinese organised crime and criminal groups that work hand in hand with Mexican cartels worldwide.

JOE MILLER: So when Ray Donovan told me about this Operation Sleeping Giant that he had set into motion around 2016, I started to research this operation and could find only a single reference to it in a budget document, in a federal budget document anywhere, really, which seems to suggest that the DEA wasn't taken as seriously as it might have been.

There really wasn't enough of a link up between the various arms of law enforcement, between the Treasury, which is supposed to monitor cash transactions, between the FBI, between the Department of Justice. These were not really as integrated as you might have hoped in the face of a completely new threat.

RAYMOND DONOVAN: I was a special agent in charge for the special ops division. And Chris was coming in to headquarters. And so what I did was I asked Chris to be in charge of what we call the counter-threat team.

CHRIS URBEN: So as this threat was evolving, the insight was evolving, Project Sleeping Giant was created to gather whatever we could pull in that was judicially acquired or through our sources. We did that. And we started to gather insight. And then we were able to provide insight to the field.

How was your case in LA, a money launderer connected to command and control in New York? How was this seizure that happened in Denver? How is that connected to command and control in New York?

And it's amazing when you get agents in the room and we talk about these cases. And we would have strategy meetings under the umbrella of Project Sleeping Giant. And we have great human sources that we've recruited over decades. They started to provide information.

We started to understand that there was this global network that was at scale that could move money with speed, within a day, unheard of before. We want to talk about the Zhishi Li investigation. And he pled guilty here recently in Eastern District of Virginia. And he was an amazing money launderer.

He was the first one that we investigated. And we took down his organisation. He had a casino in Central America that he had established. He had strong triad links back in mainland China. He travelled there. And he had a sophisticated network within the United States to pick up those funds.

And Li was one of those brokers that was at a very high level. So what it allowed us to do was gather that information, that intelligence, gather that evidence. We had an opportunity through the investigation to acquire ledgers and transactions and what he had been participating in. So it was what I would call a traditional takedown.

We got the whole network. And I had the opportunity to sit-in those debriefings. And I was floored by the scale that this was happening, the level of discipline, the level of sophistication. And you can imagine dozens of Zhishi Li's operating in the United States, Mexico, Central and South America, establishing casinos, establishing front businesses, very difficult to do.

Another component of the challenge, there's not very many Mandarin speakers in DEA. There's not very many Mandarin data scientists in DEA.

DENNIS WILDER: The challenge of getting people with good Mandarin skills and Chinese cultural background is that security people are very reluctant when somebody comes in and they do have good Chinese, but they also have an extensive network of relationships in China.

My name is Dennis Wilder. I spent 36 years in the Central Intelligence Agency. I worked at the White House for George W. Bush as his special assistant and Senior Director for East Asia.

The fentanyl issue has been an enormous domestic issue in the United States. And China's role in the sale of precursors to drug dealers has been a big thorn in the side of US politics. So the Biden administration for quite a while now has been trying to get the Chinese to restart our cooperation, which ended in 2019, on this topic.

We have very quickly moved to a mode, where the Ministry of Public Security in China and other organisations seem to be cooperating quite closely to begin to try and shut down the fentanyl flow from China.

JOE BIDEN: The present critical global challenges we face from climate change, to counter narcotics, to artificial intelligence demand our joint efforts.

VANDA FELBAB-BROWN: Both the United States and China were seeking to put a floor underneath the freefall of the relationship. The level of tensions and hostilities have been the greatest in decades. I am Vanda Felbab-Brown, Senior Fellow at The Brookings Institution, where I direct Brookings work on transnational threats such as illegal economies, organised crime, terrorism, civil war.

The anti-money laundering element is now part of this counternarcotics operation. The illicit side of the informal banking system, of the underground banking system, grew in tandem with the regrowth of the Chinese triads in the 1980s, and particularly in the 1990s. Just as China was liberalising, opening up economically, criminal groups like the triads were growing and expanding their reach, first in southeast Asia then into the Pacific countries of New Zealand and Australia, subsequently to other parts of the world.

DENNIS WILDER: There have been whole books written on organised crime in China historically. And this is not a new problem. The Guomindang, the nationalist party, used them during the civil war. The communists used them during the civil war and afterwards. Places like Hong Kong we have seen the government using them to go after democracy protesters.

In China today, there are many business people, entrepreneurs with large amounts of money who are scared of the Chinese government. Xi Jinping in recent times has been cracking down on private entrepreneurs. People have disappeared in the business community without any information, not even put into the legal system in China, simply taken into custody.

And so we see the business class in China looking to get some of their money out as an insurance policy. I'm sure you've heard the stories of Singapore, where a huge number of these business people are setting up bank accounts, offices. And there is a real question of how they're getting this money out of China, since there are strict controls on taking money out of China. And I think the answer is, of course, they're going through money laundering schemes and illegal activities to do this.

JAMES KYNGE: We hear experts tell us that the movement of illicit Chinese money of capital flight from China these days is a virtual tidal wave. And there are very good reasons for that. The Chinese capital markets are in really bad shape. Chinese stock indices have been plunging. Chinese property values have been going down sharply.

So there's all kinds of incentives for Chinese people to send their money abroad, either to invest in foreign assets or simply to buy stock. In the past, we've looked at this issue and several hundred billion US dollars worth of capital flight has exited China and gone around the world. At the moment, it's quite possible that the amount of Chinese money leaving China exceeds even those very high levels.

The National Crime Agency of the UK has actually given it a formal name. It's called Informal Value Transfer System, IVTS. And it really lies at the heart of the movement of Chinese illicit money all over the world.

SAL MELKI: This is more overt now as a service. Some of them are advertised on the internet. Some of them are advertised on social media. Crime as a service and laundering as a service has become a much bigger thing.

I'm Sal Melki. I'm the head of Illicit Finance in the National Economic Crime Centre. The National Economic Crime Centre is part of the National Crime Agency. An underground banker might be sat in the Centre of dozens, maybe even hundreds of transactions. And that just shows how sophisticated they need to be in terms of their operations.

So they need to be a professionalised outfit. They need to be highly organised. They need to operate almost like a bank, keep ledgers, understand the scale of the cash pools in various different jurisdictions, understand the liquidity available to them. And that's not easy. So to do that, you need infrastructure. And you need clever people, sophisticated people. And you need lots of people. It's something that we're seeing as a growing threat to the UK and across the world.

Since capital controls were imposed in China, it's become much harder for Chinese citizens to get money outside of China, to spend that money abroad. So, for example, if you want to get a million pounds out of China, so you're transferring a million pounds worth of value from one country, in this case China, to the UK.

So by exchanging that value, that pool of cash, that money needs to exist in a separate jurisdiction. So what underground bankers are doing is turning to organised criminals as a readily available source of cash and liquidity to be able to settle those remittances. So they are tied in with organised crime in the United Kingdom, who generate huge amounts of cash usually from the drugs trade.

And they're using that liquidity and that trade to settle the remittances, in this example, to allow that one million pounds to be transferred out of China and into the UK. Underground bankers will use a lot of methodologies to get that illicit cash into their hands and into the mainstream financial system.

Money mules are a really common tactic. And they can often be people that are unwitting or people that don't fully understand the criminality that they're involved in. What they'll do is advertise on social media and say, would you like some money? And all you need to do in exchange is let us use your bank account.

What they'll also do is create more bank accounts outside of the mainstream financial institutions and look towards electronic money institutes or challenger banks, where actually you can set up bank accounts far more quicker. And the level of onboarding for those bank accounts are less rigorous. So you can do it on a mobile phone app.

You can get 10, 20, 100 people to work for your organisation. Then you can smurf that money into the legitimate financial institutions. And that means breaking it down into smaller chunks that are hard to detect.

CHRIS URBEN: They're undermining the banking system. And they're exploiting the banking system. Financial institutions don't have the benefit of the intelligence that the federal government has.

GIOVANNI MELILLO: [SPEAKING ITALIAN]

MICHELE ALBANESE: [SPEAKING ITALIAN]

RAYMOND DONOVAN: I do think about it often. I gave it everything I had. I left it all out in the field. It's an uphill battle. And it continues to be an uphill battle. The money continues to flow. The technology continues to advance. The criminal groups are more and more interconnected. They're not going to stop.

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