Drug Cartels' New Weapon: Chinese Money Launderers

0:05One morning in Los Angeles County, a white Range Rover was cruising around, about to make several stops at local banks. The vehicle was being tracked by law enforcement agents. They set out to find the White Range Rover, which they see from the GPS trackers parked at this bank branch in Artesia, in the city of Artesia. That's our colleague Dylan Tokar. Shortly after they get there, they see a man named Jia Yong Yu get out of the vehicle. He's carrying a black backpack, and his first stop is at the ATM machine outside the bank. They can't really tell, but it seems like he deposits maybe a check there.

0:48He then walks into the bank and one of the task force officers is following, you know, behind, trying to look discreet. The agents were following the driver, Jiayong Yu, because they suspected he might be laundering money. They see Yu approach a teller and he just starts taking stacks of cash found with rubber bands out of his backpack and putting it on the counter. Then Yu left, but the agent stayed behind. They asked the bank teller if Yu deposited more than$10 ,000. Anything above that amount is supposed to get flagged by the bank. And she looks at them and she says, more like$100 ,000. By then, Yu was already on his way to another bank.

1:34Investigators allege that Yu is part of a new wave of sophisticated money launderers, all with ties to China, who are laundering money for powerful Mexican drug cartels and operating at such a scale and efficiency that it blows traditional money launderers out of the water.

1:53Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Monday, December 22nd.

2:06Coming up on the show, the story of Operation Fortune Runner, a years-long push to bring down a Chinese money laundering ring.

2:30Do you ever watch The Wire? I have watched The Wire. It's a little hard for me to watch because it's kind of, it's too close to home, you know? Julie Shemmett spent more than 30 years working for the Department of Justice. Over the decades, she developed an expertise on money laundering. She's seen it all, from corrupt Mexican banks to dirty money in Afghanistan. And Julie abides by an age-old mantra, follow the money. The money laundering side is a window into the larger organization. You know, if you want to pursue drug traffickers, you could be on the street following people around, watching them do deals, watching them pass drugs to people and picking up money.

3:17But it doesn't have any meaning until you actually start to see how the money that they are handling is getting to the people who actually own those drugs. You can swat bees, but you really want to find the hive. Exactly. For years, Mexican drug cartels have relied on money launderers from Latin America. But in recent years, there's been an explosion of new money laundering groups with ties to China. So many of these Chinese laundering groups have popped up that authorities have started referring to them by their acronym, CMLOs, Chinese Money Laundering Organizations. and they are cleaning up and taking tons of market share from their competitors.

4:07There's a few reasons why. The first has to do with a law in China. There's a rule that limits how much money Chinese citizens can transfer out of the country. The cap is equivalent to about$50 ,000. The goal is to keep money in the Chinese financial system. The Chinese government really began to enforce this rule in 2016. Still, there's a lot of people who want to get money out of China There are many, many, many Chinese nationals in the United States who need dollars They need dollars to function They need dollars to go to school They need dollars to buy real estate They need dollars to live And they may have resources in China Financial resources But those resources aren't really available to them And so it suddenly became imperative for people to find another way to move their money into the United States.

5:07A Wall Street Journal analysis last year estimated that more than$250 billion had left China in a 12-month period. One way Chinese people get money out is by turning to a shadowy network of money brokers. These brokers have bank accounts in both China and the U.S. and can secretly facilitate currency conversion. And for that service, they get a cut. As demand for that service picked up, Chinese money brokers began searching for new sources of U.S. cash. And that led them to one business that makes a lot of cash, drug trafficking. When a Chinese national in the United States gets money from a money broker from China, they pay a commission on it, and they pay a hefty commission on it.

5:56And this enables the Chinese underground banking organizations to charge less to the narcotics trafficking organizations for whom they are laundering those funds. Hmm. I see. So because they have this other side of the market that is a revenue stream for them, they can undercut their competitors when they're offering their services in a cartel. Exactly. Typically, the percentage was anywhere from 5 to 10 to even more. Mm-hmm. And the Chinese started charging 1 to 2 % to move money. Oh, wow. That's a big price cut. Yeah. The last case Julie worked on before she stepped down at the DOJ involved one of these Chinese money laundering networks.

6:51The investigation was known as Operation Fortune Runner, and it was centered on the group's alleged ringleader, a man called Sai Zhang. I think he would describe himself as a boss, and they give out the orders and tell people what to do. Go here, pick up this, bring it here. The whole system works because this one person is controlling, you know, pulling the strings. There's unfortunately only so much we can know about Zhang. Our colleague Dylan has been following the Fortune Runner case. What I was told about Zhang is that he came to the U.S. in 2009 on a student visa. He told law enforcement that he was enrolled for at least some time at the California State University in Northridge.

7:41We're not sure how long he was enrolled for. At some point, he got his green card, and he got into this money exchange business. Zhang is awaiting trial as a result of the Fortune Runner operation. He pleaded not guilty to money laundering and drug trafficking charges. His lawyer didn't respond to requests for comment. This account of Zhang's alleged scheme is based on Dylan's reporting, court documents, and conversations with people familiar with the Fortune Runner investigation. At a high level, Chinese money laundering operations like Zhang's work like this. When Chinese money laundering groups take all this dirty drug money from the cartels, they sell it to Chinese nationals who are looking to convert their Chinese yuan into U.S.

8:29cash. This is that money broker business we mentioned a minute ago. After that happens, laundering groups like Zhang's are left with a bunch of Chinese yuan, which they use to buy stuff in China and sell in Mexico. In other words, that narcotics money is used to buy those goods. And the goods are shipped to Mexico where they're sold for pesos and the pesos are turned back to the cartel. What kinds of goods do you see them buy in this trade-based system? Oh, you name it. I mean, luxury items in some cases, but also just jeans, garments of various kinds, electronics, whatever goods they could sell on the market in Mexico.

9:22That's where China's role in the global economy gives them such an edge, because there are so many businesses worldwide, including in Mexico, that are actually looking for Chinese currency and Chinese goods. So that Chinese broker can go to businesses in Mexico and say, I'll give you a good deal on some Chinese currency, which you can use to buy goods that you are importing into Mexico. So this gives Chinese money launderers their advantage. To really make this system work, though, you can't be shipping around hundreds of thousands of dollars in cash. You need to get that money into a bank. Money in the bank in the legitimate financial system is always more useful than, especially when you get into high values of cash.

10:10Like, it just becomes, it's kind of hard. You're always going to look a little suspicious just walking into any sort of business transaction with a bank of cash. Money launderers have always tried to sneak money into the banking system. But what makes groups like Zhang's different is how reckless they are. Usually, a money launderer would be careful not to exceed the bank's reporting limit of$10 ,000. But like you heard about at the start of this episode, not these guys. The way they're approaching the banks is they don't care whether the banks are going to flag the amount of money. they don't care.

10:42They're regularly depositing much more than$10 ,000. And basically, they know that the bank is flagging this, and they know that the bank could at some point shut down the account. But in their experience, the bank doesn't do that very fast. Banks are required to report suspicious activity. These reports are one of many tools the U.S. government has to combat money laundering. But Dylan says that banks can take a long time to file those reports. And Chinese money launderers have learned to take advantage of that slowness. So banks, you know, if they file a bunch of reports for an account, usually they'll shut it down after maybe like three suspicious activity reports or something like that.

11:24That could take them months to do that. It takes a while to file suspicious activity reports. But even when a bank does flag suspicious activity, there are so many reports that authorities usually don't look at it, and it rarely sparks an investigation. Dylan says the reports usually get thrown into a database that cops might check after they get a tip. These money launderers are using fake passports, they're opening new accounts, they're recruiting people from the street. So they're just operating with complete disregard for the U.S. anti-money laundering system. They just know that by the time it does anything, they'll have already moved millions of dollars through an account.

11:59It seems like this case sort of shows, at least from the banking standpoint, that the safeguards that have been put into the system actually don't really work that well? No, I don't think they do. And I think right now we're having a big push by the Trump administration. We had this push previously in other administrations to try to reform this system to some degree. But it's hard. It's hard to design a system that stops money laundering as it happens. For years, Zhang and his network allegedly exploited these vulnerabilities in the banking system. And over time, law enforcement began to take notice.

12:38They were aware of Zhang's activity going back years, from what I understand. I mean, they saw him play a major role in a prior investigation they had into a smaller drug trafficking ring in the L.A. County area. And that's when they realized just the sheer quantity of money that he was handling. And so that's when they decided, when they wrapped up that case that they would launch an investigation to Zhang specifically. How Julie and a team of investigators slowly built that case against Zhang is next.

13:29In cases that involve a vast criminal enterprise, such as money laundering, investigators have traditionally relied on a tried-and-true technique, wiretapping. But in the Fortune Runner case, wiretapping wasn't an option. That's because many Chinese money launderers rely on encrypted messaging apps like WeChat to do business. WeChat is based in China, and they do not cooperate with U.S. law enforcement. So unlike some other platforms, there is no way to get information about subscribers or traffic on WeChat or certainly the content of any WeChat messages. You can't get a wiretap on WeChat. You cannot.

14:15So if you can't do a wiretap, you've got to do some legwork. The main thing that they had to do to make this case was just primarily sitting in cars outside of suspects' residences. And then, you know, often for a long time until someone would come out of that residence with a bag of cash and then they would follow them all the way across L.A. and you're just trying to commit as many hours to that as you possibly can, hoping you're going to see something that helps you make the case. If Julie and her team wanted to break up Zhang's alleged scheme for good, she says they needed to draw a direct line between his business and the cartel's.

14:54The idea in following the couriers was to identify where they were getting this money. And if we could prove that they were getting it, from people who were trafficking in narcotics, then we had our proof that the dollars that were involved in these transactions were, in fact, drug trafficking proceeds. Then, in 2021, the investigators got a breakthrough when two money handlers were seen crossing the border.

15:29Typically, in these kinds of cases, we put an alert at Homeland Security so that if it appears that one of our targets might be leaving the country or coming back into the country, that we'll know about it. And when they hit the border coming from Mexico back into the United States, as happens at the border with every car that crosses, a picture was taken. That picture was forwarded to the agents who had listed their names for an alert. And we got the photograph. The photograph is grainy. It was in black and white, the kind of photo you can expect from security footage. It shows a car with one of Zhang's associates in a driver's seat.

16:25And next to him, in the passenger seat, there's another man, a money handler associated with one of the most powerful drug cartels in the world, the Sinaloa Cartel. Everybody was completely blown away because it was proof that at least the money laundering arm of the drug trafficking organization was in close contact with the Chinese underground banking network that we were investigating. Were you surprised to see these two people together? A little bit, yeah. We were. I mean, typically they stay separate. They only are together when there's a delivery. But in this situation, they had apparently gone to Mexico together and were coming back together.

17:24The grainy photo energized investigators. From there, the agents began collecting more evidence of how the cartel's drug trafficking fed into Zhang's banking network. They did not stint on their efforts. They spent thousands of hours in their cars watching these people and building up evidence for the indictment. It really was an incredible effort. Field agents saw Zhang's associates make trips to houses across the L.A. area and to banks, too. This brings us back to where we started the story, in the spring of 2023, when agents followed Jiayang Yu in that white Range Rover to a Chase Bank in Artesia.

18:09A week later, they were following Yu again and decided to detain him. This time, they have police officers waiting for him, police officers from Southgate Police Department. So they get Yu to consent to a search. They find bundles of cash in his backpack. Yu says it's about$100 ,000. they get a canine unit to come do a sniff test. So the dog alerts to the scent of narcotics so they're able to seize it legally. Yu eventually pleaded guilty to one count of conspiracy to operate an unlicensed money-remitting business. A lawyer for Yu declined to comment. A spokesman for JPMorgan Chase said, quote, our anti-money laundering monitoring program performed as intended in this case.

18:53As for Zhang, after years of piecing together his alleged money laundering operation, investigators decided in May of 2023 that they were ready to make their move. One of his lieutenants had gone to New York and was getting ready to board a plane to China. And so we asked the New York authorities to arrest that guy. And because of that, we were concerned that Sai Zhang might also be planning to leave the country. And so we determined that we better arrest him as well. By this point, the agents had a warrant for Zhang's arrest. And they had attached GPS trackers to cars he used. When they tracked him down, they saw him come out of a house carrying a white grocery bag.

19:50Later, they pulled him over for texting while driving and arrested him. One of the lead task force officers arrives on this, you know, the scene shortly after the arrest. He reads Zhang his Miranda rights. And Zhang sort of starts to, on his own accord, basically talk. Zhang tells the task force officer that's not drug money, he says, I know a lot of rich people, and I move a lot of money for rich people.

20:25Zhang has pleaded not guilty to money laundering and drug trafficking charges. His case is expected to go to trial next year. In total, 24 people have been indicted following the Fortune Runner investigation. Half of them pleaded guilty. The other 12 were either at large or headed to trial. So you have taken down a part of this operation. How big of a deal is that for the overall cartel and the drug trade? Does it make an actual dent or is it just sort of like whack-a-mole? Um, you know, I get asked that question a lot and it does make a dent and it's not exactly whack-a-mole because now they have to develop another network to distribute the funds that they're getting from the narcotics traffickers.

21:16And on top of that, they owe the money that they lost to the cartel and they have to make good on that. How much bigger do you think this goes? I mean, do you think that you took out a massive chunk of it or just the tip of the iceberg? I think it's the tip of the iceberg. I think there's a ton more going on.

21:42This is the challenge, I think, of being someone who, in law enforcement, who is up against the cartels. I mean, they're operating at such a huge scale, taking out this one money laundering group. But it was very clear talking to people close to the investigation that this was not the only way that Sinaloa was laundering its money in L.A. County area. I mean, they have multiple, multiple ways. I mean, they know that they need to spread this money out so that if one group gets taken down like this, they still have other ways and they're going to be fine. What do you think this will do to the rise of Chinese money laundering groups, though, and this whole two-sided market that Saizhong was able to allegedly take advantage of?

22:28Yeah, I mean, I would think that this might drive awareness among Chinese money brokers that they're under direct scrutiny by the U.S. government. And I think if you start to put pressure on them, they have to sort of accept that what I'm doing is clearly illegal and it's clearly a priority of the U.S. government to stamp it out, right? It's harder for them to avoid knowing that.

23:11That's all for today. Monday, December 22nd. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Justin Baer, Jason Douglas, Rebecca Fung, Patricia Kausman, Vipal Manga, and Brian Spiegel. This, by the way, is one of our last episodes of the year. Tomorrow we'll be back with a new episode of Camp Swamp Road. Get excited. And we've got a little treat for you next Monday. But until then, Merry Christmas, Happy Holidays, and thanks for listening. You