What you need to know
A US Border Patrol chief says Mexican cartels have boosted their reliance on Chinese crypto money laundering networks.
By Elizabeth Gail
A recent Senate Judiciary Subcommittee hearing on Border Security and Immigration has revealed that Mexican drug cartels are now more than ever relying on Chinese cryptocurrency money laundering networks.
The Chinese-Mexican crypto money-laundering relationship stems from years of cooperation enabling narcos in the North American nation to obtain precursor chemicals used to process drugs such as methamphetamine.
China is a major supplier of controlled substances such as ephedrine and pseudoephedrine which are vital ingredients in the production of methamphetamine (meth). The East Asian nation is also a major exporter of fentanyl, a synthetic opioid that is about 50 to 100 times more powerful than morphine.
It is medically used as a pain reliever in extreme cases and approved for individuals suffering from painful conditions such as cancer. Fentanyl is now used to lace drugs such as cocaine and heroin to make them more potent.
Mexican cartels are opting to partner with the Chinese due to their vast money laundering networks, which have been propagated by the country’s stringent money transfer limits to foreign markets. Dubbed the Chinese Underground Banking Systems (CUBS), they are made up of an intricate network of money and cryptocurrency brokers who move currencies in and of the economy while sidestepping the country’s banking system.
They traditionally fulfilled the emergent need by affluent Chinese citizens to circumvent the government’s US$50,000 yearly external funds transfer limit. It is not only the Mexicans, but Australian and European drug traffickers who are now relying on the Chinese to launder their illegal proceeds.
Chinese underground banks are estimated to have over 10,000 clients and believed to launder over US$100 billion every year. According to statistics released by the United States Office on Drugs and Crime, about US$2 trillion is laundered on the global market annually.
The director of the U.S. Department of Homeland Security’s Investigations Joint Task Force, Janice Ayala, has publicly stated that Chinese transnational operations are responsible for the recent crypto money-laundering spike.
Chinese networks have been able to push laundered funds through the country’s banking systems, which is then sent back to Mexican shell companies operated by drug cartels. Their crypto money-laundering, financial maneuvers are apparently to blame for the steady decline of cash seizures related to drug dealing activities in Mexico and the United States.
Bitcoin has been observed to be the cryptocurrency of choice for transnational criminal organizations (TCOs) because it is widely accepted in the broader market and can readily be traded on over-the-counter markets, and exchanges with lax know your customer and anti-money-laundering policies.
Chinese brokers involved in money laundering primarily help clients transfer assets from China and enable cash to bitcoin transactions. They also sell bitcoin for cash obtained through illicit means.
That said, however, cryptocurrencies are still not the ideal money laundering facility due to the vicissitudes of the market. They are, however, among the many ways that criminals use to launder money.
Crooks, however, view cryptocurrencies as a safer mode of storing currency holdings and transacting. Privacy coins such as Dash, Monero and Zcash offer feature-rich options that help users maintain anonymity making them an ideal choice for individuals looking to avoid scrutiny.
Cash seizures on the decline
In the past, Mexican drug cartels faced enormous cash seizures. In 2007, for example, hundreds of millions of dollars were seized in one of the properties belonging to Chinese-Mexican businessman, Zhenli Ye Gon, following a money laundering investigation.
He was soon after arrested for allegedly contributing to the Mexican drug trade. This was after being found to have improperly imported four containers of pseudoephedrine and ephedrine. Pseudoephedrine is a major precursor chemical used in the processing of meth. The raid on his home led to the seizure of about US$205 million in cash.
The money, which was mostly in US$100 bills, weighed about two tons and in various other denominations including Hong Kong dollars and Mexican pesos. It became the biggest money seizure in the history of narco-trafficking and so today, cryptocurrencies have offered drug smuggling networks a sanctuary away from such situations and inconveniences.
Right now, U.S. border customs cash seizures related to Mexican narco-trafficking operations are at an all-time low. In 2011 for example, the Arizona ports authority recorded seizures amounting to about US$12 million. 2016 figures stood at US$960,000, an over 90 percent drop.
Silk Road’s contribution to the current situation
The infamous Silk Road online marketplace pioneered the cryptocurrencies and black market connection. It enabled drug dealers, and sellers of other illegal paraphernalia to carry out trade in anonymity by supporting transactions made primarily in bitcoin.
Named after the ancient trade routes that connected the Eastern and Western hemispheres, it was launched on February 2011 by Ross Ulbricht, who went by the moniker, Dread Pirate Roberts.
The website was shut down by agents from the Federal Bureau of Investigations on October 2013 and Ulbricht arrested. It, however, became a blueprint for future crypto money laundering and black-market websites on the darknet. Numerous variations of the network have been built over the years.
AlphaBay Market is one example. Launched in December 2014, it was shut down in 2017 following a joint effort by law enforcement agencies in Thailand, the United States, and Canada. Its founder, Alexandre Cazes, a Canadian national, died in Thailand three days after he was arrested. He was suspected of having committed suicide.
The News Lens has been authorized to republish this article. It was originally published at CoinCentral.com here.
TNL Editor: Nick Aspinwall (@Nick1Aspinwall)
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