Money Laundering and Drug Trafficking Insights

Chinese money launderers have partnered with Mexican drug cartels to efficiently launder the proceeds of the fentanyl trafficking. Law enforcement in this country has not got sufficient tools to tackle it. They're really on the rise as the dominant money laundering networks. These are franchise models, highly sophisticated, they could be stood up quickly and move a lot of value in a lot of different directions simultaneously. The scale and the scope of this is really quite extraordinary. We started bringing all the elements of the government together. Because it was a national security issue, it was a matter of life and death. In 2017 and 18, something significant happened. We didn't know why. We couldn't understand why. Suddenly, Chinese money brokers began to control the laundering of Mexican cartel. proceeds and they started to do it for one to two percent. Those were charges or broker fees that were unheard of. We believe that the Mexican cartels increased their bottom line, their net profits by three to five percent by simply partnering with Chinese moneylenders. In the 1990s, as China liberalized economically, as Chinese business started moving around the world, a system of Chinese underground banking, or money exchange system, developed in places where Chinese businesses were expanding, catering to businesses often operating with legal commodities in legal economies, but needing to move money, they would not be able to move through the Chinese banking system. And what these underground banks do is they transfer money according to something that's called mirror transfer. A person, let's say, on the one end of the network will arrive with a sack full of money in cash, deposit it at the underground bank, and then through this mirror transfer, another person will pick up the same amount of money from the other branch of the same underground banking network. The crucial thing about this is that... No money has actually been transferred. It's completely invisible to the authorities that might wish to crack down on it. This illicit money finances all kinds of things. It finances shopping sprees by Chinese consumers who want to buy luxury in Europe. It also finances, we have evidence, the international drugs trade. And is particularly germane when we think of the big crisis of fentanyl. That's currently affecting the United States. As we continue our coverage, the DEA reports fentanyl overdose, it is the leading cause of death among those under the age of 50. And they're warning communities that one pill can kill. The deadliest drug threat our country has ever faced. I cover law enforcement here in New York for the Financial Times, and in the course of meeting with a former DEA agent in a Manhattan skyscraper, halfway through our meeting he said, forget what you're working on now, I have a far bigger story that's being ignored. The fentanyl crisis that is probably the biggest killer of Americans under 50 is being fueled by Chinese money laundering and law enforcement in this country. has not got sufficient tools to tackle it. For decades, the drug cartels operating in the U.S. had developed a very sophisticated system for money laundering. They would put the cash on trucks, they would drive them across the border, they would find ways of sending the money to people in the U.S. who needed cash and would buy products with them, etc. But the DEA and enforcement agencies across America had a... The playbook for how to tackle this, all of that changed with the fentanyl crisis. When I first heard about this, a few people told me, you have to speak to this guy, Ray Donovan. He'd be one of the first to identify this problem. Suddenly, Chinese nationals were popping up everywhere in the surveillance of the fentanyl trade, to an extent that they hadn't been before. And he and his team realized something was going on here. My name is Raymond Donovan. I'm the former chief of operations for the Drug Enforcement Administration. So I grew up in an Irish neighborhood up in the Bronx. But then we moved to a neighborhood where it was all Puerto Rican. I saw drugs decimate parts of my family in the 70s, in particular heroin. I became an expert not only in the cartel, but really being able to exploit comms or communications. In the mid-90s, cocaine was just falling from the sky. My first year, we seized here in New York City 7,000 kilos of cocaine. When you're intercepting tens of thousands of kilos, you're really causing a lot of harm to the cartel. We were focused in primarily on tractor trailers coming from the west coast to the east coast. In 2012, I was assigned to the Special Ops Division. SOD is basically the hub for the world as well. as it relates to narcotics investigations and criminal networks. While at SOD, I developed a team. We collectively pursued Chapo Guzman. We never really focused in on Chinese organized crime. You know, our focus was on the Sinaloa cartel. Yeah, we're in Brooklyn, near to downtown Brooklyn. It's a warehouse area. It's an area that is known for receiving shipments of drugs coming in from Mexico or from other states across the United States. We started realizing that the Chinese organized crime was not only involved with supplying all the precursor chemicals to Mexican cartels for production of illicit narcotics, they were also really taking over the international money laundering aspect of the entire drug trafficking as we know it across the United States. Another fentanyl bust in the Bronx just blocks away from the daycare where a one-year-old boy died. We would see an organization that we identified through our investigation that was a fentanyl distribution network dropping off drug proceeds to a Chinese money launderer here in New York City. And then that launderer would then bring money through our investigation to an MSB or money service provider in Flushing, Queens. And from there, we would launch a different sort of investigation that became more about following the paper trail of how the money is leaving through these stores because they were fronts. Often you'll see a business that from the outside looking in, it looks like it's one business. But once you walk inside, there's multiple businesses within. And that's where you'll see that they'll have a money service provider set up to launder illicit drug proceeds on behalf of the criminal organizations. We had a saying, all roads lead back to flushing. The reason we said that is we identified command and control, leadership. All these things sort of centered back to flushing Queens. My name is Chris Urban. I'm a... managing director with Nardello & Co., which is a global investigations firm. Prior to Nardello, I spent 24 years with the DEA as a special agent. This is Mexico, this is the United States, and this is China. The currencies do not cross borders. The pesos, the dollars, the Chinese RMB. Think of billion-dollar pops of each currency in those countries. Let's look at the Mexican cartels. They produce fentanyl. They ship a large shipment of fentanyl. to New York to a drug distribution gang in New York. They then sell that fentanyl and then say they have a million dollars that they need to have laundered back to the Mexican drug cartel. They contact the cartel and say, we have a million dollars and we want to move back to you. They contact the Chinese money broker in Mexico. That Chinese money broker, via WeChat, contacts a Chinese broker in New York, saying a million dollars needs to be picked up. Mexican cartel contacts their drug distribution arm. and says this Chinese broker is going to pick up the million dollars. They arrange for that pickup. It's brought back to a stash location where they're collecting drug proceeds controlled by this Chinese money broker. Chinese money broker sees that the money is there, a million dollars. WeChat messages the Chinese money broker and says, I have the million dollars. At this point in time, those funds are released to the Mexican cartel. They've now been made whole. Their funds have been laundered for them. That million dollars now is sitting in a stash house controlled by Chinese money launderers. They then get on WeChat or a bulletin board. and advertise the sale of those US dollars within the United States. Once those dollars were put on WeChat, Chinese nationals, whether they be back in mainland China or within the United States, want to buy dollars. In this example, he's going to buy $100,000. This Chinese national has been introduced by this Chinese broker in mainland China by this Chinese broker. Before he actually gives them the funds, the transfer is made bank to bank. As soon as that's done, he provides the cashier's check or the funds. He now has the funds. He's done. He's made his money. He's invested in the U.S. In the beginning of this, we were trying to understand it. We were following these individuals, and they were picking up millions of dollars. They followed one of these Chinese couriers who had picked up money back to a block and lost him on surveillance, right? It was later at night, it was dark, there was some flushing queens, and they decided, let's get out, let's walk the block and determine if we can see where he went or where he was. As they were walking down the street, they heard what they thought to be money counters. So when they went closer to this building, on the first floor, they had had the window open just a little bit, and there were six to eight money counters being run and over $10 million in this stash location. That was the amount of money that they had to bring in, count, showed the flow of money because they were selling that money the next day to a Chinese buyer that wanted to invest in the United States. Now you can couple that around the world. You could say that in Africa, we noticed Chinese organized crime where there was a Chinese diaspora, right? And there was a Chinese infrastructure project and dramatic amounts of money. Chinese organized crime paralleled those efforts. The same thing is happening whether it be in Italy or throughout Europe. When you have larger narco proceeds that need to be laundered back to Colombia, Mexico, or somewhere else around the globe, Chinese money launderers are relied upon to do that on a much greater scale than they were in the past. They're very sophisticated, they're very professional, and they can get the job done quickly. There is a study that claims that only illegal deposits in tax havens by Italian mafia are worth about 3 billion euros. And they have a mountain of money that must be recycled and normalized, in quotation marks. The primary need of Andrangheta today is to recycle money. They do it in a thousand ways, through tax havens, using different mechanisms. My name is Michele Albanese, I'm a journalist, I live in Calabria, I deal with the black corona and the judiciary, and the dynamics of the port, predominantly. The port of Gioia Tauro is a port made at home by Andrangheta. Only with the cocaine that can be passed from Gioia Tauro we reach large amounts that amount to around 40-45 billion euros. It means two financials of the Italian state. The Ndrangheta, it was born in the province of Reggio Calabria and in particular in the mountains of Aspromonte. Aspromonte is one of the most geographically challenging areas of Calabria. It is a constellation of about 33 villages all around the same mountain area. The San Luca based clans are well versed in particularly important for the cocaine trade arriving at the Porto G. Atauro still today. Now we are entering the terminal of the container carrier. Here about 4 million containers are moved every year. There are moments in which even 150,000 containers can be destroyed. In the years, Nandrangheta has always shown an interest in strategic infrastructures like this one. I'm Lieutenant Colonel Danilo Persano, I'm the commander of the Group of the Finance Guard of Gioia Tauro. This is the door of the Mediterranean. We have seen a growth in kidnappings, it has gone from about 6 tons of cocaine in 2020, The road from South America to 17, 16 tons came in 2021, in 2022. In recent investigations, a capacity of these criminal organizations and Chinese subjects emerged to receive huge sums of money in Italy and to make them find them in the destination country indicated by the subjects committing the services without a physical transfer of the sums of money, therefore without the transfer of the financial flow being traced. This is a great criminal opportunity, because it avoids the traceability of the financial flow. And this is a new emergency, an emergency that introduces a different form of payment of drug trafficking shipments that we had not noticed in the past. An organization that is able to transfer millions and millions of euros from one place to another on the planet, obviously cannot be a low profile organization. It must be an organization that has economic capacity. Here we are in Piazza Vittorio, the place where various criminal organizations are organized. Here agreements are made and then, depending on the agreements made and the need for the quantum to move, the subjects are then directed to delivery centers and to the collection of hidden money. Further to the right we have another hidden collection centre that was involved in the investigations. I am Colonel Marco Sorrentino, I am the commander of the GICO, that is the Group of Investigation and Organized Crime of the Roma Economic and Financial Police. We were carrying out an international drug trafficking investigation. Following what we initially considered to be a drug delivery, this courier appeared at a commercial exercise at the bottom of the Terminal station. where he delivered what he brought to the next in a Zenet. In the following days we continue at this point to perform accommodation activities during this commercial exercise and we realize that only in the next day we record visibly the military who are there in occult accommodation, they record about twenty of the same type of delivery. We have been able to to rebuild financial movements towards China for 53 million euros and in a very tight period of time. The entire anti-recycling system is based on the idea that money moves. In the case of underground banking, money can not move. The entire control system The available data indicate that the outbonds towards China in 2012 were about 2.5 billion euros, and that instead in 2022, so after only 10 years, were in the order of a few tens of millions. Part of the explanation is represented by the expansion of underground banking circuits. This network of underground bankers is a network that from the Middle East reaches China, passing through Pakistan, and everything leaves you to think that this back of underground financial movements was also used for the purposes of financing terrorism. These are precise, well-determined serial conducts that give those who are involved in their work a sense of security, a sense of tempest in transactions. I am Colonel Francesco Ruiz, commander of the Roma Economic and Financial Police Nucleo, in the Finance Department. Illegal money can be invested in an undisturbed way in the international financial circuit. ...aggirando quelli che sono presidi antiriciclaggio previsti... The European Union and therefore one of the strategies that are adopted is a multitude of transfers from one country to another before arriving at destination. It is a sophisticated tool that certainly enjoys a high protection network and allows the storage of huge sums of money from the Italy towards China and Bichers. My name is Alessandra Cerredi, I am the Director-General of the District Attorney's Office of the District Attorney's Office of the Anti-Mafia of Milan. The greatest difficulties come from the fact that We cannot rebuild all the compensations, also because once we arrived in China, the traceability of the bank balance was cancelled. It is difficult to find collaboration between the Chinese authorities for traceability. But first up tonight, more students overdosing at a local high school. This time it's happening in Loudoun County. All believed to be fentanyl-laced pills. I like talking to the addicts, figuring out their story, figuring out how it was. They start telling you about how, you know, they were prescribed medicine, then they went to the heroin, all right, and got addicted to the heroin. And the heroin just wasn't, the high wasn't getting, they were taking more and more of the heroin. And then the fentanyl came on the market, and it was so much stronger. and that's all they wanted. The cartels, they see the opportunity to make money, and it's just like the street dealers around here. They see the opportunity to make the quick money, and they can make a lot of money real fast. I'm Deputy Will Sullivan with the Loudoun County Sheriff's Office. I'm assigned to the Tactical Support Unit. I also work with our Drug and Gang Unit, and I do traffic stops for them too. Fentanyl, it's blown up in this area. It's a really horrible... horrible drug, what it's done to people. We're getting more and more of it on the street now. You used to get just a little bit of it. Now you're getting a lot of it. It's taking over people's lives. They're making lots of money on this stuff. And the dealers push and push more and more. And you're getting bust now where you're getting thousands of pills at a time, lots and lots of money in cash. We're seeing the end result of what is an international major problem. My name is Mike Chapman. I'm the sheriff here in Loudoun County, Virginia. I've been the sheriff for just over 12 years, just got re-elected. Prior to that, I served 23 years with the Drug Enforcement Administration all over the globe. This is a photo of me sitting in a field of poppies over there. up there by the northwest area of Pakistan, the Deer District up there, not too far from, I don't believe, from the Khyber Pass. If you look back to 2020 or so, you had about 93,000 overdoses nationally, overdosed deaths nationally, okay? So you jump up a year, then it goes up to like 103,000 in 2021. 2022, it goes up to 106,000. And last year, it's 112,000. We're losing more people in a year to drug overdoses than we lost soldiers in Vietnam over a 10-year period, twice as many. So this is really significant. And this is something that we really have to take head on in every direction because it's so prevalent. And we really need to stop this. The problem with fentanyl is that, You can produce so much, and it takes so little to overdose. All you're talking about, a lot of pills that you can get across the border, and it doesn't take up much space, and it's so deadly, and it's easy to distribute. This story is about greed. They don't care about parents losing their kids. They don't care about kids losing their parents. They don't care about any of that. All they care about is this, and it's something that we've got to do everything we can to stop. The Select Committee will come to order. At the outset, I want to recognize that we are privileged to be joined today by families who have been directly impacted by the fentanyl crisis here in the United States. This hearing and the information that we are about to provide is for them and for those that they have lost. Mr. Donovan, you are recognized for your opening remarks. Good morning, Chairman Gallagher, Rankin member, Krishnamoorthy, and distinguished members of the committee. My name is Ray Donovan. I would like to thank you for giving me the opportunity to testify before you today on the pressing issue of the fentanyl crisis and China's role in feeding this emergency, striking Americans in areas of public health, law enforcement, and national security. Being as deadly as... Fentanyl was. We said enough's enough and we started bringing all the elements of the government together to really focus our energies and our efforts towards these groups because it was a national security issue. It was a matter of life and death. Project Sleeping Giant was our intent to put a big spotlight on Chinese organized crime and criminal groups that work hand-in-hand with Mexican cartels worldwide. So when Ray Donovan told me about this Operation Sleeping Giant that he had set into motion in around 2016, I started to research this operation and could find only a single reference to it in a budget document, in a federal budget document, anywhere really, which seems to suggest that the DEA wasn't taken as seriously as it might have been. There really wasn't enough of a link-up between the various arms of law enforcement, between... The Treasury, which is supposed to monitor cash transactions between the FBI, between the Department of Justice, these were not really as integrated as you might have hoped in the face of a completely new threat. I was a special agent in charge for the Special Ops Division. And Chris was coming into headquarters, and so what I did was I asked Chris to be in charge of what we call the counter-threat team. So as this threat was evolving, the insight was evolving, Project Sleeping Giant was created to gather whatever we could pull in that was judicially acquired or through our sources. We did that. We started to gather insight, and then we were able to provide insight to the field. How is your case in LA, a money launderer, connected to command and control in New York? How is this seizure that happened in Denver, how is that connected to command and control in New York? And it's amazing when you get agents in the room and we talk about these cases and we would have strategy meetings under the umbrella of Project Sleeping Giant. We have great human sources that we've recruited over decades. They started to provide information. We started to understand that there was this global network that was at scale that could move money with speed within a day, unheard of before. We want to talk about the Xixi Li investigation, and he pled guilty here recently in the Eastern District of Virginia. And he was an amazing money launderer. And he was the first one that we investigated and we took down his organization. He had a casino in Central America that he had established. He had strong triad links back in mainland China. He traveled there and he had a sophisticated network within the United States to pick up those funds. And Lee was one of those brokers that was at a very high level. So what it allowed us to do was gather that information, that intelligence, gather that evidence. We had an opportunity through the investigation to acquire ledgers and transactions and what he had been participating in. So it was what I would call a traditional takedown. We got the whole network. So I had the opportunity to sit in those debriefings. And I was floored by the scale that this was happening. The level of discipline, the level of sophistication, and you can imagine dozens of Xi Xilis operating in the United States, Mexico, Central and South America, establishing casinos, establishing front businesses, very difficult to do. Another component of the challenge, there's not very many Mandarin speakers in DEA. There's not very many Mandarin data scientists in DEA. The challenge of getting people with good Mandarin skills and Chinese cultural background is that security people are very reluctant when somebody comes in, and they do have good Chinese, but they also have an extensive network of relationships in China. My name is Dennis Wilder. I spent 36 years in the Central Intelligence Agency. I worked at the White House for George W. Bush as his special assistant and senior director for East Asia. The fentanyl issue has been an enormous domestic issue in the United States. And China's role in the sale of precursors... to drug dealers has been a big thorn in the side of U.S. politics. So the Biden administration for quite a while now has been trying to get the Chinese to restart our cooperation, which ended in 2019, on this topic. We have very quickly moved to a mode where the Ministry of Public Security in China and other organizations seem to be cooperating quite closely to begin to try and shut down the fentanyl flow from China. Mr. President, critical global challenges we face from climate change to counter-narcotics to artificial intelligence demand our joint efforts. Both the United States and China were seeking to put a floor underneath the threefold of the relationship, the level of tensions and hostilities. have been the greatest in decades. I am Vanda Fulbar-Brown, senior fellow at the Brookings Institution, where I direct Brookings' work on transnational threats such as illegal economies, organized crime, terrorism, civil war. The anti-money laundering element is now part of this counter-narcotics cooperation. The illicit side of the informal banking system, the underground banking system, grew in tandem with the regrowth of the Chinese triads in the 1980s and particularly 1990s. Just as China was liberalizing, opening up economically, criminal groups like the triads were growing and expanding their reach, first in Southeast Asia and into the Pacific countries of New Zealand and Australia, subsequently to other parts of the world. There have been whole books written. on organized crime in China historically. And this is not a new problem. The Kuomintang, the Nationalist Party, used them during the Civil War. The Communists used them during the Civil War and afterwards. Places like Hong Kong, we have seen the government using them to go after democracy protesters. In China today, there are many business people, entrepreneurs with large amounts of money, who are scared of the Chinese government. Xi Jinping, in recent times, has been cracking down on private entrepreneurs. People have disappeared in the business community without any information, not even put into the legal system in China, simply taken into custody. And so we see the business class in China looking to get some of their money out as an insurance policy. I'm sure you've heard the stories of Singapore, where a huge number of these business people are setting up bank accounts, offices. And there is a real question of how they're getting this money out of China, since there are strict controls on taking money out of China. And I think the answer is, of course, they're going through money laundering schemes and illegal activities to do this. We hear experts tell us that the movement of illicit Chinese money, of capital flight from China these days, is a virtual tidal wave. And there are very good reasons for that. The Chinese capital markets are in really bad shape. Chinese stock indices have been plunging. Chinese property values have been going down sharply. So there's all kinds of incentives for Chinese people to send their money abroad, either to invest in foreign assets or simply to buy stuff. In the past, we've looked at this issue and several hundred billion US dollars worth of capital flight has exited China and gone around the world. At the moment, it's quite possible that the amount of Chinese money leaving China exceeds even those very high levels. The National Crime Agency of the UK has actually given it a formal name. It's called Informal Value Transfer System, IVTS. And it really lies at the heart. of the movement of Chinese illicit money all over the world. This is more overt now as a service. Some of them are advertised on the internet. Some of them are advertised on social media. Crime as a service and laundering as a service has become a much bigger thing. I'm Sal Melke. I'm the head of illicit financing. The National Economic Crime Center, the National Economic Crime Center is part of the National Crime Agency. An underground banker might be sat in the center of, you know, dozens, maybe even hundreds of transactions, and that just shows how sophisticated they need to be in terms of their operations. They need to be a professionalized outfit, they need to be highly organized, they need to operate almost like a bank, you know, keep ledgers, understand the scale of the cash pools in various different jurisdictions, understand the liquidity available to them, and that's not easy. So to do that, that you need infrastructure and you need clever people, sophisticated people. You need lots of people. It's something that we're seeing as a growing threat to the UK and across the world. Since capital controls were imposed in China, it's become much harder for Chinese citizens to get money outside of China, to spend that money abroad. So for example, if you want to get a million pounds out of China, so you're transferring a million pounds worth of value from one country, in this case China, to the UK. So by exchanging that value, that pool of cash, that money needs to exist in a separate jurisdiction. So what underground bankers are doing is turning to organised criminals as a readily available source of cash and liquidity to be able to settle those remittances. So they are tied in with organised crime in the United Kingdom, who generate huge amounts of cash, usually from the drugs trade, and they're using that liquidity in that trade to settle the remittances, in this example, to allow that £1 million to be traded. transferred out of China and into the UK. Underground bankers will use a lot of methodologies to get that illicit cash into their hands and into the mainstream financial system. Money mules are a really common tactic and they can often be people that are unwitting or people that don't fully understand the criminality that they're involved in. What they'll do is advertise on social media and say, would you like some money? And all you need to do in exchange is let us use your bank account. What they'll also do is create more bank accounts outside of the mainstream. mainstream financial institutions and look towards electronic money institutes or challenger banks, where actually you can set up bank accounts far more quicker and the level of onboarding for those bank accounts are less rigorous. So you can do it on a mobile phone app. If you can get 10, 20, 100 people to work for your organisation, then you can smurf that money into the legitimate financial institutions. And that means breaking it down into smaller chunks that are hard to detect. They're undermining the banking system and they're exploiting the banking system. Financial institutions don't have the benefit of the intelligence that the federal government has. Maybe one day, the mafia with their money will be able to condition the economic and social choices of various countries, not only democratic, but above all totalitarian. And there are many in the world. And it continues to be an uphill battle. The money continues to float, the technology continues to advance. The criminal groups are more and more interconnected. They're not going to stop.

These are franchise models, highly sophisticated, they could be stood up quickly and move a lot of value in a lot of different directions simultaneously. The scale and the scope of this is really quite extraordinary. We started bringing all the elements of the government together.

Because it was a national security issue, it was a matter of life and death. In 2017 and 18, something significant happened. We didn't know why. We couldn't understand why. Suddenly, Chinese money brokers began to control the laundering of Mexican cartel.

proceeds and they started to do it for one to two percent. Those were charges or broker fees that were unheard of. We believe that the Mexican cartels increased their bottom line, their net profits by three to five percent by simply partnering with Chinese moneylenders. In the 1990s, as China liberalized economically, as Chinese business started moving around the world, a system of Chinese underground banking, or money exchange system, developed in places where Chinese businesses were expanding, catering to businesses often operating with legal commodities in legal economies, but needing to move money, they would not be able to move through the Chinese banking system.

And what these underground banks do is they transfer money according to something that's called mirror transfer. A person, let's say, on the one end of the network will arrive with a sack full of money in cash, deposit it at the underground bank, and then through this mirror transfer, another person will pick up the same amount of money from the other branch of the same underground banking network. The crucial thing about this is that...

No money has actually been transferred. It's completely invisible to the authorities that might wish to crack down on it. This illicit money finances all kinds of things.

It finances shopping sprees by Chinese consumers who want to buy luxury in Europe. It also finances, we have evidence, the international drugs trade. And is particularly germane when we think of the big crisis of fentanyl.

That's currently affecting the United States. As we continue our coverage, the DEA reports fentanyl overdose, it is the leading cause of death among those under the age of 50. And they're warning communities that one pill can kill. The deadliest drug threat our country has ever faced. I cover law enforcement here in New York for the Financial Times, and in the course of meeting with a former DEA agent in a Manhattan skyscraper, halfway through our meeting he said, forget what you're working on now, I have a far bigger story that's being ignored. The fentanyl crisis that is probably the biggest killer of Americans under 50 is being fueled by Chinese money laundering and law enforcement in this country.

has not got sufficient tools to tackle it. For decades, the drug cartels operating in the U.S. had developed a very sophisticated system for money laundering. They would put the cash on trucks, they would drive them across the border, they would find ways of sending the money to people in the U.S. who needed cash and would buy products with them, etc. But the DEA and enforcement agencies across America had a...

The playbook for how to tackle this, all of that changed with the fentanyl crisis. When I first heard about this, a few people told me, you have to speak to this guy, Ray Donovan. He'd be one of the first to identify this problem. Suddenly, Chinese nationals were popping up everywhere in the surveillance of the fentanyl trade, to an extent that they hadn't been before. And he and his team realized something was going on here.

My name is Raymond Donovan. I'm the former chief of operations for the Drug Enforcement Administration. So I grew up in an Irish neighborhood up in the Bronx. But then we moved to a neighborhood where it was all Puerto Rican. I saw drugs decimate parts of my family in the 70s, in particular heroin.

I became an expert not only in the cartel, but really being able to exploit comms or communications. In the mid-90s, cocaine was just falling from the sky. My first year, we seized here in New York City 7,000 kilos of cocaine. When you're intercepting tens of thousands of kilos, you're really causing a lot of harm to the cartel. We were focused in primarily on tractor trailers coming from the west coast to the east coast.

In 2012, I was assigned to the Special Ops Division. SOD is basically the hub for the world as well. as it relates to narcotics investigations and criminal networks. While at SOD, I developed a team. We collectively pursued Chapo Guzman.

We never really focused in on Chinese organized crime. You know, our focus was on the Sinaloa cartel. Yeah, we're in Brooklyn, near to downtown Brooklyn. It's a warehouse area. It's an area that is known for receiving shipments of drugs coming in from Mexico or from other states across the United States.

We started realizing that the Chinese organized crime was not only involved with supplying all the precursor chemicals to Mexican cartels for production of illicit narcotics, they were also really taking over the international money laundering aspect of the entire drug trafficking as we know it across the United States. Another fentanyl bust in the Bronx just blocks away from the daycare where a one-year-old boy died. We would see an organization that we identified through our investigation that was a fentanyl distribution network dropping off drug proceeds to a Chinese money launderer here in New York City.

And then that launderer would then bring money through our investigation to an MSB or money service provider in Flushing, Queens. And from there, we would launch a different sort of investigation that became more about following the paper trail of how the money is leaving through these stores because they were fronts. Often you'll see a business that from the outside looking in, it looks like it's one business.

But once you walk inside, there's multiple businesses within. And that's where you'll see that they'll have a money service provider set up to launder illicit drug proceeds on behalf of the criminal organizations. We had a saying, all roads lead back to flushing. The reason we said that is we identified command and control, leadership. All these things sort of centered back to flushing Queens.

My name is Chris Urban. I'm a... managing director with Nardello & Co., which is a global investigations firm.

Prior to Nardello, I spent 24 years with the DEA as a special agent. This is Mexico, this is the United States, and this is China. The currencies do not cross borders. The pesos, the dollars, the Chinese RMB. Think of billion-dollar pops of each currency in those countries.

Let's look at the Mexican cartels. They produce fentanyl. They ship a large shipment of fentanyl.

to New York to a drug distribution gang in New York. They then sell that fentanyl and then say they have a million dollars that they need to have laundered back to the Mexican drug cartel. They contact the cartel and say, we have a million dollars and we want to move back to you. They contact the Chinese money broker in Mexico.

That Chinese money broker, via WeChat, contacts a Chinese broker in New York, saying a million dollars needs to be picked up. Mexican cartel contacts their drug distribution arm. and says this Chinese broker is going to pick up the million dollars. They arrange for that pickup.

It's brought back to a stash location where they're collecting drug proceeds controlled by this Chinese money broker. Chinese money broker sees that the money is there, a million dollars. WeChat messages the Chinese money broker and says, I have the million dollars. At this point in time, those funds are released to the Mexican cartel.

They've now been made whole. Their funds have been laundered for them. That million dollars now is sitting in a stash house controlled by Chinese money launderers. They then get on WeChat or a bulletin board. and advertise the sale of those US dollars within the United States.

Once those dollars were put on WeChat, Chinese nationals, whether they be back in mainland China or within the United States, want to buy dollars. In this example, he's going to buy $100,000. This Chinese national has been introduced by this Chinese broker in mainland China by this Chinese broker.

Before he actually gives them the funds, the transfer is made bank to bank. As soon as that's done, he provides the cashier's check or the funds. He now has the funds. He's done. He's made his money.

He's invested in the U.S. In the beginning of this, we were trying to understand it. We were following these individuals, and they were picking up millions of dollars. They followed one of these Chinese couriers who had picked up money back to a block and lost him on surveillance, right?

It was later at night, it was dark, there was some flushing queens, and they decided, let's get out, let's walk the block and determine if we can see where he went or where he was. As they were walking down the street, they heard what they thought to be money counters. So when they went closer to this building, on the first floor, they had had the window open just a little bit, and there were six to eight money counters being run and over $10 million in this stash location. That was the amount of money that they had to bring in, count, showed the flow of money because they were selling that money the next day to a Chinese buyer that wanted to invest in the United States. Now you can couple that around the world.

You could say that in Africa, we noticed Chinese organized crime where there was a Chinese diaspora, right? And there was a Chinese infrastructure project and dramatic amounts of money. Chinese organized crime paralleled those efforts.

The same thing is happening whether it be in Italy or throughout Europe. When you have larger narco proceeds that need to be laundered back to Colombia, Mexico, or somewhere else around the globe, Chinese money launderers are relied upon to do that on a much greater scale than they were in the past. They're very sophisticated, they're very professional, and they can get the job done quickly. There is a study that claims that only illegal deposits in tax havens by Italian mafia are worth about 3 billion euros. And they have a mountain of money that must be recycled and normalized, in quotation marks.

The primary need of Andrangheta today is to recycle money. They do it in a thousand ways, through tax havens, using different mechanisms. My name is Michele Albanese, I'm a journalist, I live in Calabria, I deal with the black corona and the judiciary, and the dynamics of the port, predominantly.

The port of Gioia Tauro is a port made at home by Andrangheta. Only with the cocaine that can be passed from Gioia Tauro we reach large amounts that amount to around 40-45 billion euros. It means two financials of the Italian state.

The Ndrangheta, it was born in the province of Reggio Calabria and in particular in the mountains of Aspromonte. Aspromonte is one of the most geographically challenging areas of Calabria. It is a constellation of about 33 villages all around the same mountain area. The San Luca based clans are well versed in particularly important for the cocaine trade arriving at the Porto G. Atauro still today. Now we are entering the terminal of the container carrier.

Here about 4 million containers are moved every year. There are moments in which even 150,000 containers can be destroyed. In the years, Nandrangheta has always shown an interest in strategic infrastructures like this one. I'm Lieutenant Colonel Danilo Persano, I'm the commander of the Group of the Finance Guard of Gioia Tauro. This is the door of the Mediterranean.

We have seen a growth in kidnappings, it has gone from about 6 tons of cocaine in 2020, The road from South America to 17, 16 tons came in 2021, in 2022. In recent investigations, a capacity of these criminal organizations and Chinese subjects emerged to receive huge sums of money in Italy and to make them find them in the destination country indicated by the subjects committing the services without a physical transfer of the sums of money, therefore without the transfer of the financial flow being traced. This is a great criminal opportunity, because it avoids the traceability of the financial flow. And this is a new emergency, an emergency that introduces a different form of payment of drug trafficking shipments that we had not noticed in the past. An organization that is able to transfer millions and millions of euros from one place to another on the planet, obviously cannot be a low profile organization.

It must be an organization that has economic capacity. Here we are in Piazza Vittorio, the place where various criminal organizations are organized. Here agreements are made and then, depending on the agreements made and the need for the quantum to move, the subjects are then directed to delivery centers and to the collection of hidden money. Further to the right we have another hidden collection centre that was involved in the investigations. I am Colonel Marco Sorrentino, I am the commander of the GICO, that is the Group of Investigation and Organized Crime of the Roma Economic and Financial Police.

We were carrying out an international drug trafficking investigation. Following what we initially considered to be a drug delivery, this courier appeared at a commercial exercise at the bottom of the Terminal station. where he delivered what he brought to the next in a Zenet.

In the following days we continue at this point to perform accommodation activities during this commercial exercise and we realize that only in the next day we record visibly the military who are there in occult accommodation, they record about twenty of the same type of delivery. We have been able to to rebuild financial movements towards China for 53 million euros and in a very tight period of time. The entire anti-recycling system is based on the idea that money moves. In the case of underground banking, money can not move. The entire control system The available data indicate that the outbonds towards China in 2012 were about 2.5 billion euros, and that instead in 2022, so after only 10 years, were in the order of a few tens of millions.

Part of the explanation is represented by the expansion of underground banking circuits. This network of underground bankers is a network that from the Middle East reaches China, passing through Pakistan, and everything leaves you to think that this back of underground financial movements was also used for the purposes of financing terrorism. These are precise, well-determined serial conducts that give those who are involved in their work a sense of security, a sense of tempest in transactions.

I am Colonel Francesco Ruiz, commander of the Roma Economic and Financial Police Nucleo, in the Finance Department. Illegal money can be invested in an undisturbed way in the international financial circuit. ...aggirando quelli che sono presidi antiriciclaggio previsti...

The European Union and therefore one of the strategies that are adopted is a multitude of transfers from one country to another before arriving at destination. It is a sophisticated tool that certainly enjoys a high protection network and allows the storage of huge sums of money from the Italy towards China and Bichers. My name is Alessandra Cerredi, I am the Director-General of the District Attorney's Office of the District Attorney's Office of the Anti-Mafia of Milan. The greatest difficulties come from the fact that We cannot rebuild all the compensations, also because once we arrived in China, the traceability of the bank balance was cancelled. It is difficult to find collaboration between the Chinese authorities for traceability.

But first up tonight, more students overdosing at a local high school. This time it's happening in Loudoun County. All believed to be fentanyl-laced pills. I like talking to the addicts, figuring out their story, figuring out how it was. They start telling you about how, you know, they were prescribed medicine, then they went to the heroin, all right, and got addicted to the heroin.

And the heroin just wasn't, the high wasn't getting, they were taking more and more of the heroin. And then the fentanyl came on the market, and it was so much stronger. and that's all they wanted.

The cartels, they see the opportunity to make money, and it's just like the street dealers around here. They see the opportunity to make the quick money, and they can make a lot of money real fast. I'm Deputy Will Sullivan with the Loudoun County Sheriff's Office.

I'm assigned to the Tactical Support Unit. I also work with our Drug and Gang Unit, and I do traffic stops for them too. Fentanyl, it's blown up in this area. It's a really horrible... horrible drug, what it's done to people.

We're getting more and more of it on the street now. You used to get just a little bit of it. Now you're getting a lot of it. It's taking over people's lives.

They're making lots of money on this stuff. And the dealers push and push more and more. And you're getting bust now where you're getting thousands of pills at a time, lots and lots of money in cash. We're seeing the end result of what is an international major problem.

My name is Mike Chapman. I'm the sheriff here in Loudoun County, Virginia. I've been the sheriff for just over 12 years, just got re-elected. Prior to that, I served 23 years with the Drug Enforcement Administration all over the globe. This is a photo of me sitting in a field of poppies over there.

up there by the northwest area of Pakistan, the Deer District up there, not too far from, I don't believe, from the Khyber Pass. If you look back to 2020 or so, you had about 93,000 overdoses nationally, overdosed deaths nationally, okay? So you jump up a year, then it goes up to like 103,000 in 2021. 2022, it goes up to 106,000. And last year, it's 112,000. We're losing more people in a year to drug overdoses than we lost soldiers in Vietnam over a 10-year period, twice as many.

So this is really significant. And this is something that we really have to take head on in every direction because it's so prevalent. And we really need to stop this.

The problem with fentanyl is that, You can produce so much, and it takes so little to overdose. All you're talking about, a lot of pills that you can get across the border, and it doesn't take up much space, and it's so deadly, and it's easy to distribute. This story is about greed.

They don't care about parents losing their kids. They don't care about kids losing their parents. They don't care about any of that.

All they care about is this, and it's something that we've got to do everything we can to stop. The Select Committee will come to order. At the outset, I want to recognize that we are privileged to be joined today by families who have been directly impacted by the fentanyl crisis here in the United States. This hearing and the information that we are about to provide is for them and for those that they have lost.

Mr. Donovan, you are recognized for your opening remarks. Good morning, Chairman Gallagher, Rankin member, Krishnamoorthy, and distinguished members of the committee. My name is Ray Donovan.

I would like to thank you for giving me the opportunity to testify before you today on the pressing issue of the fentanyl crisis and China's role in feeding this emergency, striking Americans in areas of public health, law enforcement, and national security. Being as deadly as... Fentanyl was. We said enough's enough and we started bringing all the elements of the government together to really focus our energies and our efforts towards these groups because it was a national security issue. It was a matter of life and death.

Project Sleeping Giant was our intent to put a big spotlight on Chinese organized crime and criminal groups that work hand-in-hand with Mexican cartels worldwide. So when Ray Donovan told me about this Operation Sleeping Giant that he had set into motion in around 2016, I started to research this operation and could find only a single reference to it in a budget document, in a federal budget document, anywhere really, which seems to suggest that the DEA wasn't taken as seriously as it might have been. There really wasn't enough of a link-up between the various arms of law enforcement, between...

The Treasury, which is supposed to monitor cash transactions between the FBI, between the Department of Justice, these were not really as integrated as you might have hoped in the face of a completely new threat. I was a special agent in charge for the Special Ops Division. And Chris was coming into headquarters, and so what I did was I asked Chris to be in charge of what we call the counter-threat team.

So as this threat was evolving, the insight was evolving, Project Sleeping Giant was created to gather whatever we could pull in that was judicially acquired or through our sources. We did that. We started to gather insight, and then we were able to provide insight to the field.

How is your case in LA, a money launderer, connected to command and control in New York? How is this seizure that happened in Denver, how is that connected to command and control in New York? And it's amazing when you get agents in the room and we talk about these cases and we would have strategy meetings under the umbrella of Project Sleeping Giant.

We have great human sources that we've recruited over decades. They started to provide information. We started to understand that there was this global network that was at scale that could move money with speed within a day, unheard of before. We want to talk about the Xixi Li investigation, and he pled guilty here recently in the Eastern District of Virginia. And he was an amazing money launderer.

And he was the first one that we investigated and we took down his organization. He had a casino in Central America that he had established. He had strong triad links back in mainland China.

He traveled there and he had a sophisticated network within the United States to pick up those funds. And Lee was one of those brokers that was at a very high level. So what it allowed us to do was gather that information, that intelligence, gather that evidence. We had an opportunity through the investigation to acquire ledgers and transactions and what he had been participating in. So it was what I would call a traditional takedown.

We got the whole network. So I had the opportunity to sit in those debriefings. And I was floored by the scale that this was happening. The level of discipline, the level of sophistication, and you can imagine dozens of Xi Xilis operating in the United States, Mexico, Central and South America, establishing casinos, establishing front businesses, very difficult to do. Another component of the challenge, there's not very many Mandarin speakers in DEA.

There's not very many Mandarin data scientists in DEA. The challenge of getting people with good Mandarin skills and Chinese cultural background is that security people are very reluctant when somebody comes in, and they do have good Chinese, but they also have an extensive network of relationships in China. My name is Dennis Wilder.

I spent 36 years in the Central Intelligence Agency. I worked at the White House for George W. Bush as his special assistant and senior director for East Asia. The fentanyl issue has been an enormous domestic issue in the United States. And China's role in the sale of precursors... to drug dealers has been a big thorn in the side of U.S. politics.

So the Biden administration for quite a while now has been trying to get the Chinese to restart our cooperation, which ended in 2019, on this topic. We have very quickly moved to a mode where the Ministry of Public Security in China and other organizations seem to be cooperating quite closely to begin to try and shut down the fentanyl flow from China. Mr. President, critical global challenges we face from climate change to counter-narcotics to artificial intelligence demand our joint efforts. Both the United States and China were seeking to put a floor underneath the threefold of the relationship, the level of tensions and hostilities.

have been the greatest in decades. I am Vanda Fulbar-Brown, senior fellow at the Brookings Institution, where I direct Brookings' work on transnational threats such as illegal economies, organized crime, terrorism, civil war. The anti-money laundering element is now part of this counter-narcotics cooperation.

The illicit side of the informal banking system, the underground banking system, grew in tandem with the regrowth of the Chinese triads in the 1980s and particularly 1990s. Just as China was liberalizing, opening up economically, criminal groups like the triads were growing and expanding their reach, first in Southeast Asia and into the Pacific countries of New Zealand and Australia, subsequently to other parts of the world. There have been whole books written. on organized crime in China historically. And this is not a new problem.

The Kuomintang, the Nationalist Party, used them during the Civil War. The Communists used them during the Civil War and afterwards. Places like Hong Kong, we have seen the government using them to go after democracy protesters.

In China today, there are many business people, entrepreneurs with large amounts of money, who are scared of the Chinese government. Xi Jinping, in recent times, has been cracking down on private entrepreneurs. People have disappeared in the business community without any information, not even put into the legal system in China, simply taken into custody. And so we see the business class in China looking to get some of their money out as an insurance policy.

I'm sure you've heard the stories of Singapore, where a huge number of these business people are setting up bank accounts, offices. And there is a real question of how they're getting this money out of China, since there are strict controls on taking money out of China. And I think the answer is, of course, they're going through money laundering schemes and illegal activities to do this.

We hear experts tell us that the movement of illicit Chinese money, of capital flight from China these days, is a virtual tidal wave. And there are very good reasons for that. The Chinese capital markets are in really bad shape. Chinese stock indices have been plunging.

Chinese property values have been going down sharply. So there's all kinds of incentives for Chinese people to send their money abroad, either to invest in foreign assets or simply to buy stuff. In the past, we've looked at this issue and several hundred billion US dollars worth of capital flight has exited China and gone around the world.

At the moment, it's quite possible that the amount of Chinese money leaving China exceeds even those very high levels. The National Crime Agency of the UK has actually given it a formal name. It's called Informal Value Transfer System, IVTS. And it really lies at the heart. of the movement of Chinese illicit money all over the world.

This is more overt now as a service. Some of them are advertised on the internet. Some of them are advertised on social media. Crime as a service and laundering as a service has become a much bigger thing. I'm Sal Melke.

I'm the head of illicit financing. The National Economic Crime Center, the National Economic Crime Center is part of the National Crime Agency. An underground banker might be sat in the center of, you know, dozens, maybe even hundreds of transactions, and that just shows how sophisticated they need to be in terms of their operations.

They need to be a professionalized outfit, they need to be highly organized, they need to operate almost like a bank, you know, keep ledgers, understand the scale of the cash pools in various different jurisdictions, understand the liquidity available to them, and that's not easy. So to do that, that you need infrastructure and you need clever people, sophisticated people. You need lots of people. It's something that we're seeing as a growing threat to the UK and across the world. Since capital controls were imposed in China, it's become much harder for Chinese citizens to get money outside of China, to spend that money abroad.

So for example, if you want to get a million pounds out of China, so you're transferring a million pounds worth of value from one country, in this case China, to the UK. So by exchanging that value, that pool of cash, that money needs to exist in a separate jurisdiction. So what underground bankers are doing is turning to organised criminals as a readily available source of cash and liquidity to be able to settle those remittances. So they are tied in with organised crime in the United Kingdom, who generate huge amounts of cash, usually from the drugs trade, and they're using that liquidity in that trade to settle the remittances, in this example, to allow that £1 million to be traded.

transferred out of China and into the UK. Underground bankers will use a lot of methodologies to get that illicit cash into their hands and into the mainstream financial system. Money mules are a really common tactic and they can often be people that are unwitting or people that don't fully understand the criminality that they're involved in. What they'll do is advertise on social media and say, would you like some money?

And all you need to do in exchange is let us use your bank account. What they'll also do is create more bank accounts outside of the mainstream. mainstream financial institutions and look towards electronic money institutes or challenger banks, where actually you can set up bank accounts far more quicker and the level of onboarding for those bank accounts are less rigorous.

So you can do it on a mobile phone app. If you can get 10, 20, 100 people to work for your organisation, then you can smurf that money into the legitimate financial institutions. And that means breaking it down into smaller chunks that are hard to detect.

They're undermining the banking system and they're exploiting the banking system. Financial institutions don't have the benefit of the intelligence that the federal government has. Maybe one day, the mafia with their money will be able to condition the economic and social choices of various countries, not only democratic, but above all totalitarian. And there are many in the world.

And it continues to be an uphill battle. The money continues to float, the technology continues to advance. The criminal groups are more and more interconnected.

They're not going to stop.

Transcript for:Money Laundering and Drug Trafficking Insights

Transcript for:
Money Laundering and Drug Trafficking Insights