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Sinaloa Cartel Money Laundering in Los Angeles Part 1: Chinese Money Brokers
Thursday, June 27, 2024 13:35
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“Socalj” for Borderland Beat
Part 1 of a Series Looking into Money Laundering Operations Out of Southern California tied to the Sinaloa Cartel.
Each week Borderland Beat will analyze and investigate links between legitimate businesses and fronts as well as underground money transfers including crypto and black market peso exchange systems. Southern California has long been one of the key territories of the Sinaloa Cartel not only for drug distribution, but for laundering and funneling back the profits back to Mexico and elsewhere to fund further operations.
Part 1 Chinese Money Brokers
Last week, the Justice Department announced a 10-count superseding indictment charging Los Angeles-based associates of the Sinaloa drug cartel for conspiring with money-laundering groups linked to Chinese underground banking in order to launder drug trafficking proceeds.
More than $50 million in illegal funds flowed between the Sinaloa Cartel associates and Chinese underground money exchanges as part of this network. The Chinese government cooperated with the DOJ’s investigation to make arrests.
Chinese Underground Money Exchanges
Not too long ago, Mexican cartels used to load stacks of cash in trucks to transport them back to Mexico. The costs of the old ways of transferring cash back to Mexico included losses due to theft, the cost of bribing border officials, and regular seizures of cash shipments by US law enforcement. But with this latest investigation, federal authorities said they confirmed that the Sinaloa Cartel “entered into a new criminal partnership.”
There has been an explosion of illegal money exchange businesses run primarily by Chinese nationals in the United States, that are able to accept enormous amounts of United States currency from their drug trafficking customers.
“These Chinese criminal money laundering networks can move money faster, cheaper, and at a fraction of what is usually charged,” DEA Administrator Anne Milgram said. Milgran added the Chinese networks charged far less commission to the cartel than traditional money launderers.
Due to the efficiency and methods of their systems, these exchanges can complete the money laundering cycle for an extremely small fee of between 0.5% to 2% of the amount being transferred. Traditional money laundering methods, in contrast, typically carried much higher rates of 5% to 10% or more.
Chinese underground money exchanges in the United States assist the Sinaloa and other cartels to move their profits from the United States to Mexico by providing a ready market for U.S. currency in the United States. The cost of doing business in the drug trafficking world has become increasingly more global and the need to have money readily available in multiple locations to cover costs of personnel, housing, transportation, acquiring businesses/goods and bribing officials can all be paid for prior to the leaders of the Sinaloa Cartel, Los Chapitos and El Mayo, seeing their cuts of the drug sales.
The mutual challenges of drug cartels and wealthy Chinese looking to invest abroad brought about the solution of partnering to launder illegal proceeds. The added benefit of precursor chemicals, pill presses and other materials being sold in China allows for easier purchasing using local renminbi currency.
Many wealthy Chinese nationals who live, work, or invest in China wish to transfer assets to the United States for various reasons including investing and purchasing property but are barred by the Chinese government’s capital flight restrictions from transferring the equivalent of more than $50,000 per year out of China.
These individuals seek informal alternatives to the conventional banking system to move their funds.
This money laundering cycle begins with the drug distribution organizations contacting the Chinese money launderers to pickup bulk cash from the sales of narcotics such as fentanyl, methamphetamine, and cocaine to U.S. drug addicts by local organized criminal groups and individuals.
Once they have confirmed that the drug-related cash has exchanged hands in the United States, the Chinese operators releases equivalent funds (minus a small fee) to the drug trafficking group in a previously agreed manner. This is the simplified overview of the operation.
To transfer money to the United States, the China-based investor contacts an individual who has U.S. dollars available to sell in the United States. The seller of U.S. dollars provides identifying information for a bank account in China with instructions for the investor to deposit Chinese currency (renminbi) in that account.
Once the owner of the account sees the deposit, an equivalent amount of U.S. dollars is released to the buyer in the United States.
The dollars don’t leave the US, pesos don’t leave Mexico, and renminbi does not leave China. Encrypted communications allow all of this to happen instantly.
This method is similar to, but a more advanced modernized version of the Hawala system utilized throughout India, Africa, the Middle East and other countries to transfer money outside of legal banking systems. Often, physical cash never leaves its country of origin. Rather, it is accredited to the owner of the money who can recoup the same amount in their local currency through the network trusted money brokers.
The funds that are transferred within China are then used to pay for goods purchased by businesses and organizations in Mexico or elsewhere such as consumer goods or items needed to aid the drug trafficking organization to manufacture the illegal drugs, such as precursor chemicals for fentanyl and methamphetamine.
Operation Fortune Runner
The main defendant of ‘Operation Fortune Runner,’ recently charged by US authorities is Edgar Joel Martinez-Reyes, a 45 year old man based in East Los Angeles. They accuse him and a network of others using various methods to hide the source of the cartel’s money including trade-based money laundering (more on this method in Part 2 of this series), structuring, purchasing crypto currency and underground money exchange methods.
A January 2021 photo of Martinez-Reyes and Tong entering the US after their meeting with Sinaloa Cartel members in Mexico.
In January 2021, Martinez-Reyes and Peiji Tong, also known as “PJ” traveled to Mexico to meet with Sinaloa Cartel members to strike a deal with money remitters with links to Chinese underground banking to launder drug trafficking proceeds in the United States. After the deal was struck, the Sinaloa Cartel, through their connections and associates, distributed cocaine, methamphetamine, and other narcotics, generating U.S. dollars as drug proceeds.
Sinaloa Cartel operatives would notify of the approximate amount of drug trafficking proceeds to be picked up and the location where the proceeds were to be picked up and supply a code, sometimes a telephone number or serial number from one of the dollars to be used to identify the couriers to one another.
Martinez-Reyes and other conspirators allegedly then delivered the currency, frequently in large amounts of hundreds of thousands of U.S. dollars in cash to other members of the Chinese underground money exchange and remitting organizations to be laundered for a fee. The remitting organizations possessed large amounts of U.S. currency and could help wealthy Chinese nationals evade China’s currency controls.
The money remitters allegedly disposed of the drug proceeds by either delivering United States currency directly to their money exchange customers or by purchasing real estate or personal property, including luxury goods and cars to be shipped to China.
Additionally, the remitters also moved illicit drug proceeds through cryptocurrency transactions. They also allegedly used a variety of traditional methods to place the funds into the traditional banking system such as purchasing cashier’s checks, or structuring, that is, depositing small amounts at a time into bank accounts opened for this purpose to avoid banks from reporting large cash deposits to the U.S. government.
In motels and parking lots across the country, authorities witnessed cartel members drop off bags of cash to Chinese nationals who are normally not criminals, but rather students, retail workers or taxi drivers recruited to secure the money. In some cases they are not aware of their connection to drug traffickers.
The first few noted money pickups occurred in early 2020. One of the Chinese money laundering defendants, Chengwu-He delivered an unknown amount of drug trafficking proceeds in cash at the Bicycle Casino in Bell Gardens, California. It was learned he possessed over $55,000 in cash on that day. A female drug proceeds courier delivered $34,000 to several defendants in September 2020 in Arcadia.
In January 2021, days after the main defendants traveled to Mexico to solidify the money laundering deals with cartel members; their operations ramped up. On January 26, one of the defendants Zambrano connected to Martinez-Reyes, prepped for a delivery by changing the license plates on his black 2014 Mercedes Benz to attempt to skirt surveillance.
Zambrano, Belandria-Contreras and Martinez-Reyes met in Downey, California. Zambrando then got into a 2010 silver Infititi owned by Martinez-Reyes and drove to 7914 Florence Ave. Downey, California to pickup a large white bag containing U.S. currency before delivering it back to Martinez-Reyes. Belandria-Contreras delivered a large leather backpack containting U.S. currency to the defendant. On the same day, Zambrano then picked up a second white bag of currency and delivered it to Martinez-Reyes.
These cash transfers then made their way into the Chinese money laundering network that same day when Tong instructed Jiaxuan He via coded text messaging, to pickup around $226,000 at the same Downey complex.
Martinez-Reyes gave Jiaxuan He a large white Happy Birthday bag with $226,600.
In the following months, various cash pickups and deliveries were noted including a $183,030 pickup in South Gate, California.
On May 27, 2021, in Pasadena, California, Daniel Gonzalez, also known as Rafel Arocho, while possessing 46 wrapped bundles containing $598,110, attempted to evade a DEA Task Force Officer, listed only by his initials ‘S.G.’
Gonzalez crashed his 2013 Lexus ES350 into the DEA Agent’s car after S.G. attempted to take him into custody. He was charged with assault with a deadly weapon (his car) and intentionally or forcibly injuring, intimidating, and interfering with the agent’s official federal duties in an attempt to obstruct the investigation.
It is interesting to note that on the announcements made last week, Daniel Gonzalez is listed as a Fugitive.
Upscale Money Stash House
As the network of money laundering began to expand, rather than coordinating pickups at the office complex and a strip mall in Downey, the group began to use a newer home at 11108 Freer Street in Temple City, California, operated by Chengwu-He, for a collection point and for counting the currency. On April 21, 2021 Martinez-Reyes and Contreras delivered a Fruity Pebbles cereal box with $59,980 to the residence. On July 12, Contreras was seen picking up a large duffel bag in Anaheim and delivering it to the money stash house.
Multiple additional pickups and deliveries to the home were made throughout the summer of 2021. Other defendants in the case made pickups and delivers or large amounts of cash including $99,350 to be delivered to Mexico; $379,660 picked up in the Los Angeles area and $205,330 in Pomona California.
Cryptocurrency Purchases
In early 2022, authorities learned the network had expanded into purchasing cryptocurrency. Martinez-Reyes delivered approximately $124,800 to a co-conspirator for this purpose. An unknown sum was delivered in May 2022 for the same purpose of purchasing cryptocurrency.
As authorities began expanding their investigation into the money laundering networks they observed defendants Zhao and Ye picking up plastic bags containing large sums of U.S. currency including $111,340 and $60,000 as well as other unknown amounts.
In May 2023, multiple drops of $100,000 and $50,000 were made between the Chinese money brokers.
Structuring
One of the federal restrictions put in place to combat large sums of illegal currency being deposited into banks and other financial institutions requires any transaction of over $10,000 to file a CTR report within two weeks of the transaction. To avoid this, money launderers began utilizing “smurfs” or various underlings to make multiple deposits under the reporting threshold to avoid scrutiny and reporting to federal authorities.
This method, called structuring, has also been outlawed but can be much harder to track. If the person who deposits or withdraws the currency does not want a CTR to be filed, they might try to evade that filing by either purchasing cashier’s checks with the currency under the mistaken belief that such purchases need not be reported, or structuring their deposits by making repeated deposits into one account under the $10,000 reporting threshold, or making multiple deposits, each below $10,000 in value, at different times, at different bank locations, or into different accounts.
Authorities surveilled where they documented multiple large transactions by the conspirators into multiple accounts all under the $10,000 reporting threshold and within minutes of each other. A clear sign of structuring.
On January 27, 2021, at Citibank ATMs in Downey and Long Beach, California, Belandria-Contreras structured cash deposits into his bank accounts by conducting 24 separate transactions, in just over an hours time, depositing $15,960 of drug trafficking proceeds. Given the date of these transactions, it is possible that this was part of the fee collected by Martinez-Reyes for collecting and transferring the money to the underground banking network.
Two days later, on January 29, 2021, at a Citibank ATM in Long Beach, California, Zambrano structured cash deposits into his bank account by conducting 15 separate transactions to deposit a total of $19,900.
Yu, was bolder in his deposits, possibly believing that the source of his deposits were already cleaned or could be justified deposited nearly $100,000 in cash at a Chase Bank teller in Artesia. He also deposited a cashier’s check of an unknown amount into the ATM at the same Chase bank.
Part 2 of the ‘Sinaloa Cartel Money Laundering in Los Angeles’ series will look into recent cases of Trade Based Money Laundering and Black Market Peso Exchanges.
These methods of money laundering often include the purchasing of goods or other valuable items that are later traded or sold in Mexico in order to recoup the illegal funds and can also include illegal investments in legitimate businesses.
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