U.S. law enforcement agencies have reported an increasing use of Chinese and Asian cryptocurrencies for money laundering proceeds obtained from drug trafficking in the U.S., Europe, and Australia. This has risen from the estimated U.S. $2 trillion of funds laundered worldwide, of which almost $60 billion is from drug sales in the U.S. only.
Most of these drugs are illicit and are sold on the darknet where many payments are made by use of virtual currencies. They often originate from Mexican dealers who market the drugs on dark web marketplaces.
Since 2010, U.S. law enforcement agencies have initiated various operations targeting drug traffickers, especially on the darknet, leading to the seizure of large amounts of illicit funds. However, such seizures have been reduced due to the use of other laundering tactics and due to changes in law operation budgets and interdictions.
Paul Knierim, who works with the Office of Global Enforcement of the U.S. Drug Enforcement Agency (DEA), points out that the participation of Asian money launderers has been prominent in some areas. This is because Asian launderers simplify the laundering process and facilitate obtaining items utilized in the drug manufacturing process.
Drug traffickers also prefer Chinese money launderers since they produce large amounts of both legal and illegal trade goods which are then imported. This makes it increasingly hard to pinpoint specific illegal activities.
The Chinese also work under a contract agreement as stated by Janice Ayala, of the U.S. Homeland Security. She further pointed out that this has led to a significant increase in money laundering using cryptocurrencies among the Chinese transnational criminal organizations (TCOs).
Over the counter (OTC) Bitcoin trading has also become popular among the Chinese, especially among those who want to convert their money to Bitcoin or those who want to move money through China’s borders. They engage in very risky Bitcoin trading in line with money laundering and the large-scale movement of funds outside China.
OTC brokers use Bitcoin wallet services that do not properly scrutinize their customers to prevent money laundering on the platforms. This makes it simpler for capital flight.
Both prominent drug cartels that operate locally and those that operate across international borders use this form of money laundering. The increasing lean towards the use of virtual currencies can be attributed to the growing acceptance of their use in legitimate businesses and organizations.
Cryptocurrencies also offer anonymity for users, and they are more straightforward to use than other money laundering methods, as was pointed out by the DEA. Bitcoin is the most popular of these currencies due to its long existence in the market and its greater worth as compared to other digital currencies.
This observation led to a congressional hearing on December 12 in the U.S. which further revealed that it has been increasingly strenuous to hunt down criminals involved in illicit drug sales since tracking the money the criminals make is difficult. Government officials agreed that this is increasing the threat posed by the drug cartels.
Professor Celine Realuyo of the Perry Center for Hemispheric Defense Studies of the U.S. National Defense University called to attention the growing concern due to the huge chunks of laundered money flowing through China and its banks. The DEA report of the 2017 National Drug Threat Assessment also stated that there was a tendency to use digital currencies by TCOs for the global transfer of funds obtained from criminal activities.
A crucial Chinese laundering system involves the use of the Chinese Underground Banking Systems (CUBS), whose brokers use agents to launder illicit funds and go around capital control. This channel is used more frequently since Chinese citizens can transfer their money to the U.S. as China forbids the transnational transfer of more than $50,000 annually.
Yaya Fanusie, who is with the Washington DC Center for Sanctions and Illicit Finance, has, however, reported that there has been no significant evidence that crypto channels are used for money laundering. He stated that the transparent nature of cryptos makes them unattractive to most drug cartels for laundering.
He further pointed out that cartels probably use crypto channels to obscure their monetary movements, especially when the movements are large. Digital currencies are very unstable, and cartels would rather use the more difficult method of employing unsuspected people with legitimate businesses through which they launder their money.
In respect to this, the Chinese government has agreed to deal with cartel crimes, money, laundering and other crimes such as corruption. They have also raised efforts towards disaster management, rescue operations, and for the fight against cybercrime.