"Chinese Money Laundering Networks Outpace Crypto in U.S. Illicit Finance"

Between January 2020 and December 2024, U.S. financial institutions processed approximately $312 billion in suspicious transactions linked to Chinese money laundering networks (CMLNs), as revealed in a U.S. Treasury Department report [1]. The report, published by the Financial Crimes Enforcement Network (FinCEN), analyzed over 137,153 Bank Secrecy Act (BSA) filings from financial institutions, highlighting the scale and complexity of these operations. The networks are said to facilitate illicit financial flows for Mexico-based drug cartels, allowing them to launder drug proceeds while circumventing currency control laws in both the PRC and Mexico [2]. These networks operate through a mutualistic relationship where cartels sell U.S. dollars to CMLNs, who in turn provide them to Chinese individuals seeking to bypass foreign exchange restrictions [3].

The operations are not limited to drug-related money laundering. Financial institutions have also reported suspicious activity tied to human trafficking, elder abuse, and healthcare fraud. A total of 1,675 BSA filings indicated potential human trafficking or smuggling activities, while 108 reports involved suspicious gaming activity and elder abuse. Additionally, 43 BSA reports identified suspicious transactions totaling $766 million linked to 83 adult and senior day care centers in New York [1]. The report also noted that CMLNs are heavily involved in real estate transactions, with 17,389 BSA filings totaling over $53.7 billion in suspicious real estate activity. These networks often use shell companies and money mules to acquire high-value properties, leveraging U.S. real estate as a vehicle for laundering illicit gains [4].

CMLNs are described as global and pervasive, operating through trade-based money laundering, money mule schemes, and mirror transactions. They also recruit employees within financial institutions to act as complicit insiders or infiltrate systems to further their operations. In some cases, these networks have been known to use counterfeit Chinese passports to facilitate account openings and financial activity. The complexity of these networks underscores the challenges faced by financial institutions and regulators in tracking and reporting such activity [1]. FinCEN has identified several red flags to assist in detecting CMLN activity, including unexplained wealth held by individuals with occupations that typically do not involve large financial transactions, such as students, housewives, or retirees [5].

The report has reignited debates about the role of cryptocurrencies in money laundering. While pro-banking politicians such as Senator Elizabeth Warren have continued to emphasize the need for stricter crypto regulations, recent data suggest that illicit activity involving crypto remains a small fraction of the broader financial landscape. According to the United Nations Office on Drugs and Crime, global money laundering amounts to more than $2 trillion annually. In comparison, illicit crypto activity totaled about $189 billion over the past five years, representing less than 1% of the overall crypto volume [4]. Angela Ang, head of policy and strategic partnerships at TRM Labs, noted that while illicit activity exists in crypto, it is often more visible due to the transparency of blockchain data, which can distort public perception [5].

Critics argue that the traditional financial system remains a more significant conduit for illicit money flows. Chengyi Ong, head of APAC policy at Chainalysis, emphasized that the size and opacity of the fiat system allow the majority of illicit value to be moved through conventional channels. He added that while crypto transactions are more traceable, they are not inherently more criminal. The findings from FinCEN highlight the need for a more nuanced understanding of money laundering, one that does not disproportionately single out cryptocurrencies while overlooking the scale of illicit activity occurring within the established financial infrastructure [4].

Source:

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

[3] US banks are urged to monitor for Chinese money laundering networks (https://apnews.com/article/treasury-money-laundering-china-fentanyl-mexican-cartels-0be1e832a9f09e1316dfaa0aa5ea8517)

[4] US banks moved $312B in dirty money, but critics still blame crypto (https://cointelegraph.com/news/money-launderers-moved-312b-through-us-banks-from-2020-2024)

[5] US banks moved $312B in dirty money, but critics still blame crypto (https://in.tradingview.com/news/cointelegraph:5ff91f9a2094b:0-us-banks-moved-312b-in-dirty-money-but-critics-still-blame-crypto/)