On April 26, 2023, GFI’s Illicit Trade Director Channing Mavrellis testified before the House Subcommittee on Health Care and Financial Services at the hearing titled “China in Our Backyard: How Chinese Money Laundering Organizations Enrich the Cartels.”
Click here to see a webcast of the hearing “China in Our Backyard“.
In the last few years, reporting has increased on the involvement of Chinese money laundering organizations (CMLOs) with the laundering of narcotics proceeds in the Western Hemisphere. However, this is not a new phenomenon, having been documented by the Drug Enforcement Administration since at least 2016.
More importantly, the drivers behind the involvement of CMLOs are solidly linked to other countries’ domestic policies, not U.S. immigration or border policies. Specifically, China’s economic policy in regards to foreign exchange controls prevents money from freely moving into or out of the country unless it abides by strict rules. Those Chinese citizens seeking to exchange or transfer in excess of $50,000 frequently turn to informal means.
Additionally, Mexico adopted a stricter AML/CFT policy in 2010 by placing stringent restrictions on the deposit of U.S. dollars into Mexican bank accounts, and Colombia has taken steps to develop “one of Latin America’s most rigorous AML regimes.”
CMLOs and transnational criminal organizations (TCOs) operating in the U.S. have a symbiotic relationship. TCOs face the age-old problem of laundering and repatriating the proceeds of crime from one jurisdiction to another without being detected as well as moving from one currency to another. This is particularly difficult with large volumes of cash proceeds, which is common for drug trafficking organizations (DTOs). On the other hand, CMLOs are looking to access large volumes of U.S. currency via informal means. They each have what the other wants.
While other professional MLOs profit from the purchase of criminal proceeds, CMLOs’ primary objective is to gain access to U.S. dollars outside of formal channels in order to evade China’s currency controls. CMLOs frequently employ money laundering mechanisms that are unique to the Chinese context, specifically flying money (also known as fei ch’ien) and the Chinese underground banking system (CUBS).
- Study the role of Chinese professional money laundering networks.
- Target the individuals, entities, and countries facilitating financial crimes and money laundering by applying economic and other targeted financial sanctions as well as exploring policies to hold accountable countries that fail to sufficiently investigate financial crimes.
- Continue to make combatting corruption a high priority in the U.S. national security strategy.
- Provide sufficient resources to FinCEN to ensure that it can appropriately take on existing as well as emerging challenges from financial crime risks.