In a recent documentary, Dirty Money, Cartels, and Underground Banks, British daily Financial Times highlighted the exponential growth of Chinese money laundering operations worldwide, including in Latin America. Despite commission rates above average, according to experts, the financial services that Chinese networks offer are increasingly attracting criminal organizations in the region that need to launder the proceeds of their illicit activities quickly and globally.
This is a genuine Chinese underground banking system that allows so-called mirror transfers, similar to the traditional Middle Eastern Hawala. In other words, the money moves from one border to another without physically moving, thanks to the ties of trust and cooperation among the various intermediaries in the worldwide network, who advance the money without the need to physically receive it.
“Chinese migrant communities are governed by the concept of guanxi, which regulates relationships and networks and is based on trust. This is one of the reasons why it is very difficult for outsiders, including undercover law enforcement agencies, to penetrate and block these networks,” John Cassara, a former CIA officer and former U.S. Treasury Department special agent, told Diálogo. In addition, Western police generally do not understand China’s culture, language, financial models, and way of doing business. “Latin American criminal organizations know this and it’s one of the reasons they work with the Chinese,” Cassara says.
According to the Financial Times documentary, everyone benefits from this clandestine banking system: the European mafias that pay Latin American drug traffickers, who, in turn, using the same network, launder drug profits. In addition, Chinese intermediaries often sell the money collected from drug traffickers to Chinese businessmen who need it abroad, even in Latin America.
Among the first Chinese operators convicted of money laundering in 2021 by U.S. authorities are Xianbing Gan, who lived in Guadalajara, Mexico, and Xizhi Li, a casino owner in Guatemala. Both laundered tens of millions of dollars for Mexican cartels. But there are thousands of Chinese middlemen still operating illegally in Latin America. Earlier this year, a money laundering network of Albanian drug kingpin Dritan Gjika was uncovered between Ecuador and Spain in which Chinese nationals also operated. In September, a network of Chinese shell companies laundering money from online gambling run by Brazilian criminal networks was dismantled in Brazil. The main one, the First Capital Command (PCC), according to the Brazilian Federal Police, uses illegal Chinese banks located in the commercial district of Brás, in São Paulo, one of the main places of Chinese trade.
“Among the various money laundering methods used by the Chinese is that of mixing illicit proceeds with those from legitimate activities and introducing them into the financial system. In this case, Chinese organized crime thrives on the large community of small Chinese businesses that accept ‘tainted money’ in exchange for percentages of its value, percentages that Chinese organized crime in turn charges to Latin American drug traffickers. It’s a win-win business,” Cassara says.
Cryptocurrencies
Although cryptocurrencies are not considered among the top three modes of money laundering by the Financial Action Task Force (FATF), the intergovernmental institution that develops policies to combat money laundering and terrorist financing, Chinese groups are also growing in this sector.
According to the Brazilian investigative journalism platform Revista Piauí, in 2021 a money laundering network led by Chinese national Jiamin Zhang was discovered in the Latin American country, which also laundered millions of reais from Brazilian drug traffickers through cryptocurrencies. The scheme helped São Paulo merchants, “who needed to pay for goods bought in China, and drug traffickers who wanted to receive payments in Brazil for cocaine supplied in Europe,” Revista Piauí reported.
“Cryptocurrencies are popular among money launderers because they are very efficient, hide or obfuscate the money trail and make it difficult, though not impossible, for authorities to trace the real ownership of funds,” Cassara says. According to the expert, “Chinese money launderers abroad are attracted to cryptocurrencies because they like to diversify and because they are an effective platform for connecting to both underground banking networks and traditional financial services.” Added to this is the fact that cryptocurrencies have international reach and can be used by the entire Chinese diaspora. They are also the preferred payment method on the dark web for all kinds of illicit activities.
In May, in Argentina, authorities discovered a network run by the Chinese mafia that swindled ordinary citizens with fake cryptocurrency investments and laundered $105 million, daily La Nación reported. At least 53 virtual wallets were involved in the criminal scheme. “Chinese illegal financial activities include scams very common in the investment sector. But scammers also pose as government agencies, companies, organizations of all kinds, even dating services where the victim is lured into making continuous payments in cryptocurrencies,” Cassara says.
Corruption
In a July investigation, Ecuadorian journalistic consortium Código Vidrio-Vistazo (CVV) found that, in the capital Quito, a travel agency called Andywei Travel operated out of a hotel owned by China Road and Bridge Corporation (CRBC). CRBC, as a contractor for the Ecuadorian State, has been investigated for corruption in infrastructure projects due to alleged bribery and overpricing. According to a CVV reporter, Arturo Torres, “Andywei Travel was not a travel agency. It was all a sham. The Chinese companies that participated in contracts with the Ecuadorian State have used Andywei Travel to channel millions of dollars from the tenders, allowing them to keep the money inside the country.” CVV’s hypothesis is that some of this money was used to bribe Ecuadorian officials in exchange for Chinese participation in investments in Ecuador.
“Corruption is ingrained in communist China. Unfortunately, through the Belt and Road Initiative (BRI) and other Chinese initiatives abroad, political, military, espionage, diplomatic, commercial, the Chinese Communist Party (CCP) also exports corruption which is the great facilitator of money laundering. Chinese corruption greases many of the BRI deals and, even outside the BRI, Chinese corruption is so notorious that the World Bank has banned China from bidding on some international development projects,” says Cassara.
Many Chinese investments in natural resources in exchange for large-scale infrastructure have been accompanied by corrupt practices. It is the so-called “Angola model” because it is widespread in Africa and Latin America. In Bolivia, for example, in 2022, China Harbour Engineering Company Ltd. paid a $2.7 million bribe to obtain a $95 million contract for the expansion of the Sucre-Yamparáez Highway.
In the last decade, similar bribery schemes involving Chinese companies have been reported in Venezuela, where Chinese companies paid hundreds of millions of dollars in bribes to Venezuelan officials to secure contracts that often times were never completed.
In September, the Brazilian Court of Audit declared LiuGong, a Chinese construction equipment manufacturer, ineligible to operate in Brazil for five years for submitting false documents to rig a contract worth $11.64 million from the National Department of Works against Drought (Dnocs).
“I think what China is doing in Latin America is modern imperialism disguised in the language of development aid smeared with corruption,” says Cassara. This scenario, combined with China’s other illicit financial operations, is an obstacle to the region’s economic growth and a danger to its security.
