Understanding the federal indictment alleging alliance between Sinaloa Cartel and money launderers linked to Chinese underground banking

The U.S. Department of Justice announced a superseding indictment June 18 of Los Angeles-based associates of Mexico’s Sinaloa drug cartel with alleged links to Chinese underground banking.

During the conspiracy, more than $50 million in drug proceeds flowed between the Sinaloa Cartel associates and Chinese underground money exchanges.

But what are the broader implications of this case?

“Drug traffickers generate immense amounts of cash through their illicit operations. This case is a prime example of Chinese money launderers working hand in hand with drug traffickers to try to legitimize profits generated by drug activities,” said Chief Guy Ficco, IRS Criminal Investigation.

“We have made it a priority to identify, disrupt, and dismantle any money launderers working with drug cartels and we are committed to our partnerships with federal, state, and local law enforcement agencies to combat drug cartels and those who assist them in laundering drug proceeds,” he said.

Our IRS Criminal Investigation Los Angeles Field Office partnered with the Drug Enforcement Administration, South Gate Police Department, Downey Police Department, Glendora Police Department, Fullerton Police Department, and El Monte Police Department?on this multi-year investigation, dubbed “Operation Fortune Runner.” The United States Marshals Service and Federal Bureau of Investigation (FBI) provided valuable assistance.

"Drug cartels such as the Sinaloa cartel flood our streets with drugs for one purpose: to profit off the poisoning of Americans. IRS CI will work tirelessly to track down those who help launder those profits." - said Special Agent in Charge Tyler Hatcher, Los Angeles Field Office.

Background

The Sinaloa Cartel is largely responsible for the massive influx of fentanyl into the United States over the past approximately eight years, and for the accompanying violence and deaths that have afflicted communities on both sides of the border. The cartel’s activities generate enormous sums of U.S. currency in the United States that belong to the cartel in Mexico. Profits from the drug trade must be repatriated to Mexico for use by the cartel.

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.

Many wealthy Chinese nationals who live, work, or invest in China wish to transfer assets to the United States for various reasons 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.

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 sellers of U.S. currency in the United States obtain dollars in a variety of ways. Some of them accept cash from individuals engaged in criminal activity that generates large amounts of bulk currency, including drug trafficking. These U.S. currency brokers charge a percentage commission as a fee to the owner of the criminal proceeds to conceal the nature and source of the funds—typically far less for their services than their competitors. Drug traffickers increasingly have partnered with Chinese underground money exchanges to take advantage of the large demand for U.S. dollars from Chinese nationals.

The funds that are transferred in 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 illegal drugs, such as precursor chemicals, including fentanyl.

The case above announced by the Justice Department is part of an Organized Crime Drug Enforcement Task Forces (OCDETF) operation. OCDETF identifies, disrupts, and dismantles the highest-level criminal organizations that threaten the United States using a prosecutor-led, intelligence-driven, multiagency approach.

Follow IRS Criminal Investigation Los Angeles Field Office for updates on this case and our latest enforcement actions out of Los Angeles.