When it comes to illicit money transfer activities, it rarely gets as colorful as “Human Head” and “Flying Money,” names given by Chinese organized crime to components of a money laundering scheme in which agents acting as unlicensed money transmitters recruited foreign gamblers at a Las Vegas casino, according to a settlement announced in September 2024 by the US Attorney’s Office in the Southern District of California.
Wynn Las Vegas agreed to forfeit over $130 million to settle criminal allegations it had conspired with the unlicensed money transmitting businesses to transfer funds worldwide.
Key to the scheme was a type of gambling known in Mandarin as ren tou (Human Head), designed to hide a gambler’s source of funding, and fei qian (Flying Money), a form of unlicensed money transfer designed to provide US dollars to persons unable to access cash in the US.
Barely a month after the settlement, TD Bank agreed to pay more than $3 billion, the largest penalty ever imposed under the US Bank Secrecy Act, for failing to block criminal organizations from laundering hundreds of millions of dollars. According to officials, the scheme facilitated the transfer of fentanyl sale proceeds to drug networks in Mexico and China.
The common thread is that Chinese money laundering organizations (“CMLOs”) have taken over money laundering for Mexican drug cartels; a disturbing trend that is often hard to detect and, I believe, has yet to be fully appreciated, notwithstanding recent enforcement actions.
Why is this happening? It starts with Beijing’s capital flight laws, which limit the amount of currency that can be taken out of the country. This hurts wealthy Chinese, in particular, causing them to find ways to circumvent the laws, including using the black market.
In the US, Chinese money brokers collect cash proceeds from the sales of narcotics – including fentanyl – from, say, a street gang in New York that owes payment to the Mexican drug cartel that supplied the drugs the gang sold. The currency is transferred to wealthy Chinese who want to spend money in the United States, to buy real estate, to pay tuition, or make investments. The transaction is finished when the Chinese pay, in China, for the cash they received, the proceeds are used to buy goods for export to Mexico or South America, and the brokers recoup their funds by selling those goods. The entire process is driven by rich Chinese who want dollars in the US.
Using schemes like Flying Money, which hides the source and flow of illegal proceeds, CMLOs have been successful because there are few restrictions on, or compliance programs that target, bank-to-bank transfers in China. In parallel, the move to intra-country transfers decreases the need for cross-border banking transactions that attract regulatory attention.
Unfortunately, thanks to crypto currencies and encrypted messaging networks like WeChat, the scheme is becoming more complex. CMLOs now offer services such as payment in crypto, which makes it even harder to identify transactions.
What can financial institutions and other businesses do to protect themselves from inadvertently participating in this trade?
Be proactive. Don’t wait for concerns to arise before taking preventative action. Double down on risk management and compliance. Conduct regular and thorough risk assessments to identify potential risks, both internal and external. Ensure training and awareness programs on this evolving threat. Where CMLOs are known to operate, US bank compliance efforts should focus on cash deposits and the issuance of cashier’s checks, as a substantial increase in the issuance of cashier’s checks is a hallmark of the new method. Now that CMLOs have adopted crypto, the crypto industry will need to scale up compliance to address the threat.
On an ongoing basis, it is essential that potentially exposed organizations conduct a thorough review of transaction records, to see if any are worth flagging as suspect or likely to invite enforcement scrutiny. Oftentimes, the transactions that could signal a risk exposure are not easily identifiable. It is essential to employ a scrupulous financial investigator or forensic accountancy expert, who will spot red flags that might otherwise be missed.
Most of all, it is important to understand that CMLOs do not pose a static risk. As their tactics evolve, so must the mindset and practices of US financial institutions. Now more than ever, having a team of experts on hand who can provide strategic advice on how to protect their assets, and reputations, in this increased risk environment is essential. From compliance through to risk monitoring, the investigator is an essential tool in an organization’s arsenal against CMLOs.
