China's Shadow Network Funneling Cartel Cash Through U.S. Finance

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued an advisory and financial trend analysis highlighting the extensive role of Chinese money laundering networks (CMLNs) in facilitating illicit activities, particularly for Mexico-based drug cartels. According to FinCEN, CMLNs are professional money launderers who enable cartels to launder drug proceeds in the U.S., while simultaneously helping Chinese individuals and businesses circumvent China’s currency control laws. These networks, as detailed in the analysis, have been deeply involved in laundering over $312 billion in illicit transactions from 2020 to 2024, based on 137,153 Bank Secrecy Act (BSA) reports submitted by financial institutions. FinCEN Director Andrea Gacki emphasized that these networks are global and pervasive, operating under the radar of traditional financial oversight and enabling transnational criminal enterprises [1].

The advisory outlines how the structure of the CMLNs is driven by financial regulations in both the PRC and Mexico. Mexico’s currency restrictions limit cartels’ ability to deposit large sums of U.S. dollars into Mexican banks, while China’s stringent currency controls limit how much citizens can transfer abroad annually. U.S.-based CMLNs act as intermediaries, purchasing U.S. dollars from cartels and selling them to Chinese individuals or businesses to bypass these restrictions. This symbiotic relationship has facilitated large-scale money laundering operations, with proceeds from drug trafficking, fraud, and human trafficking flowing through the U.S. financial system [1].

Beyond drug-related activities, FinCEN’s financial trend analysis found that CMLNs are also involved in other forms of financial crime. Between 2020 and 2024, financial institutions filed 1,675 BSA reports related to human trafficking or smuggling activities. Additionally, 108 reports linked suspicious funds to healthcare fraud and elder abuse. The analysis also highlighted $766 million in suspicious activity tied to 83 adult and senior day care centers in New York. These findings underscore the broad and multifaceted nature of CMLN operations, which extend well beyond drug cartels [1].

A significant portion of the illicit activity facilitated by CMLNs involves real estate transactions. FinCEN reported 17,389 BSA filings related to suspicious real estate activity, totaling over $53.7 billion in transactions. CMLNs frequently use shell companies or money mules to purchase high-value properties in the U.S., often through complex and layered financial strategies. This method not only helps launder illicit proceeds but also potentially benefits Chinese investors seeking to invest in U.S. real estate. The real estate sector, therefore, appears to serve as a key channel for the integration of illicit funds into the legitimate economy [1].

To combat these threats, FinCEN has issued a set of red flags to help financial institutions detect and report suspicious activity linked to CMLNs. These indicators include the use of money mules who list occupations such as “student,” “housewife,” or “retired” during account opening, despite engaging in high-volume transactions inconsistent with such roles. Additionally, CMLNs may infiltrate financial institutions by recruiting employees or using counterfeit Chinese passports to facilitate account openings. The advisory emphasizes the importance of these red flags in identifying and disrupting CMLN operations [1].

While the advisory focuses on traditional money laundering through banks, a related development in the U.S. is the Treasury’s new regulatory initiative under the GENIUS Act, which targets illicit finance involving digital assets. The Treasury is seeking public input on the use of innovative tools such as APIs, artificial intelligence, and blockchain monitoring to detect illicit activity. Although the advisory does not directly address cryptocurrency, a separate report noted that $189 billion in illicit activity over five years was linked to crypto, compared to $312 billion in traditional channels. However, this underscores the broader challenge of addressing illicit finance in a rapidly evolving financial landscape [3].

Source:

[1] FinCEN Issues Advisory and Financial Trend Analysis on Chinese Money Laundering (https://www.fincen.gov/news/news-releases/fincen-issues-advisory-and-financial-trend-analysis-chinese-money-laundering)

[2] FinCEN Issues Advisory and Financial Trend Analysis on ... (https://home.treasury.gov/news/press-releases/sb0231)

[3] Money-launderers moved $312B through US banks from 2020-2024 (https://cointelegraph.com/news/money-launderers-moved-312b-through-us-banks-from-2020-2024)