Latin American illicit drug business

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The growth of fentanyl money laundering

According to Felbab-Brown’s testimony small and middle level actors in China’s chemical and pharmaceutical industries are at the forefront of supplying Mexico’s criminal cartels with fentanyl precursors. China’s own criminal groups such as the triads are less directly involved. However, she and other analysts point to the emergence of a sophisticated money-laundering network around the fentanyl business, including product barter.

According to reporting by The Underworld Podcast, a network of Chinese businesses and communities in the US is now playing an important role in laundering fentanyl profits. In one case the owner of a Chinese restaurant in New York was receiving millions of dollars in cash from illicit drug sales. The money was ‘cleaned’ when he deposited it at the subsidiaries of Chinese banks in New York claiming it was revenue from the legitimate restaurant business. After taking a handling commission, the Chinese restaurant owner would then arrange for the money to be paid to Mexican bank subsidiaries, ultimately finding its way back to the Mexican cartels. An advantage of this procedure was that no US banks or financial institutions were directly involved, reducing the probability of stringent KYC (know your customer) scrutiny. Many Chinese expatriate communities also use informal money-transfer systems which can conceal drug-money flows.

In general, money laundering and other operations to stop the authorities detecting illicit fentanyl-related financial flows have become much more sophisticated than in the past. They now include trade-based laundering and barter, covering protected wildlife products, seafoods, timber, real estate, cryptocurrencies, and casinos and gambling. An example of how gambling can be used for money laundering is where bulk cash – the proceeds of drug sales - is brought to a casino in Vancouver, and ‘lost’ by the cartel-linked gambler. Meanwhile, his money laundering associate in Macao, China, coincidentally ‘wins’ an equivalent amount of money which can then be used to pay Chinese exporters of precursor chemicals.  

By using barter, criminal groups can also reduce the net size of the financial flows needed to settle accounts between them, thereby making them less likely to attract suspicion. There is evidence that through front companies the Sinaloa cartel is seeking to control a large share of the fishing industry, and that Chinese precursor networks are prepared to take part-payment for their chemicals in abalone, jellyfish, and lobster. Payments in kind have also been made using the swim bladder of the rare and protected Mexican totoaba fish, highly valued in China because of its presumed health and aphrodisiac qualities. These tactics are important in a context where the overall value of drug-related transactions is very high. The UNODC for example has estimated Mexico’s illicit drug-export revenues to have been somewhere between US$6bn and US$21bn a year in 2010-2018.

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