US authorities have warned banks that Mexico-based drug cartels may be moving vast sums through Chinese trade-based money laundering schemes, following an analysis of billions of dollars in suspicious transfers.
In an advisory issued to the US financial sector, the Financial Crimes Enforcement Network (FinCEN) says Chinese criminal networks “pose a significant threat to the US financial system” and that it expects banks to be vigilant in detecting their use.
The enforcement agency says the need for Mexican cartels to launder proceeds of fentanyl, cocaine and methamphetamine, and for some Chinese citizens to evade controls on US dollars, has created a “mutualistic relationship” built around professional money laundering groups.
FinCEN says these networks have been found to use drug sale proceeds to purchase electronics and luxury goods in the US, which are then exported to counterparties in Mexico, China, Hong Kong and the UAE for resale.
The funds are ultimately returned to the cartels, with the networks taking a fee for arranging and executing the transactions.
The advisory also warns that some networks have sought to use individuals to infiltrate financial institutions and assist in these operations. It cites a 2022 conviction against New York-based Da Ying Sze, who was found to have bribed staff at financial institutions not to report his activity.
“Chinese money laundering networks are global and pervasive, and they must be dismantled,” says FinCEN director Andrea Gacki.
“These networks launder proceeds for Mexico-based drug cartels and are involved in other significant, underground money movement schemes within the United States and around the world.”
The warning follows an analysis of more than 135,000 suspicious activity reports filed by lenders under the Bank Secrecy Act between January 2020 and December 2024, equivalent to more than US$300bn in activity.
Trade-based money laundering was cited in 512 reports, totalling nearly US$10bn in financial flows, and FinCEN says it identified multiple other cases where trade was involved but not explicitly mentioned in banks’ reports.
In a case cited from 2024, the advisory alleges that Mexico’s Sinaloa cartel moved more than US$50mn in drug proceeds through Chinese money laundering groups.
The groups used the funds to purchase luxury goods and cars that were shipped to China, with a California-based money transmission business used to transfer funds, it says. The case resulted in a federal indictment from the US Department of Justice.
FinCEN urges banks to examine cases where Chinese-owned US companies receive funds for exporting goods but do not appear to buy inventory.
It singles out small businesses that receive funds from Mexico, China, Hong Kong or the UAE but do not have any known link to these countries.
The agency also warns of businesses that sell electronics or luxury goods and have a level of income that does not appear to match the scale of its operations.
Washington, DC-based lawyer Jason Prince, a partner at Akin and former chief counsel to the Office of Foreign Assets Control, says the advisory emphasises that banks “can’t just look at the financial transactions in isolation”.
“You have to also consider the trade components, and how that is potentially factoring into money laundering schemes,” he tells GTR.
“So part of what this advisory is saying is that financial institutions should be taking a holistic approach, looking at all the red flags identified in the advisory and into their compliance programmes, and the error would be to look myopically and focus only on one aspect.
“The scale and sophistication of these Chinese money laundering networks and their cooperation with the drug cartels has reached a point where it demands that sort of holistic view.”
Trade-based money laundering has become a growing area of focus for US authorities over the last five years, in part following a 2020 report by the Government Accountability Office warning the volumes of illicit funds moved through trade is “large and growing”.
Historically, warnings have generally focused on open account transactions, where banks have limited oversight of the underlying goods being moved. However, experts have warned documentary trade finance can be “ideal for layering”, where illicit funds are co-mingled with legitimate business.
Trade misinvoicing remains the most widely used technique, according to think tank Global Financial Integrity.
For Akin’s Prince, the focus on drug trafficking cartels and Chinese money laundering groups reflects that the Trump administration “has clearly decided to make combatting drug cartels a top priority, and is taking an all-of-government approach”, spanning financial services, sanctions and even military activity.
“It takes a lot of time and resources for a relatively small organisation like FinCEN to put out these reports, so when they do, it’s going to be reflective of the administration’s priorities,” he says.
“Clearly the suspicious activity reports are pointing towards this particular issue, and it dovetails perfectly with the administration’s focus on cartels and their ties to China, be it through the money laundering networks or through the producers of fentanyl precursors.”
