Chinese Dominate US Money Laundering Business with Three-Nation Scheme
By Tom Kagy | 28 Feb, 2025

Tens of billions of dollars from Mexican drug cartels are used to help Chinese evade tight foreign currency controls.

Of course the Americans who spend $150 billion a year on illegal drugs like cocaine, heroin, marijuana, methamphetamines and fentanyl (according to a recent Rand Corporation study) don't worry about what happens to that money.

Those 37 million or so American recreational drug users might be surprised to learn that they're helping Chinese citizens evade Beijing's strict $50,000 annual limit on buying foreign currency.  (That's not good for China but not a bad thing for the US which gets the benefit of more Chinese investment.)

They might be equally surprised to learn that their money is used by drug cartels to import Chinese products into Mexico.  Of course some of that is for ingredients that go into making fentanyl, but most of that goes toward ordinary goods like appliances, phones, clothing and the like sold in Mexico for legitimate pesos.

This three-nation drug-money-based trade is made possible by enterprising Chinese who have created what amounts to an underground international banking system.  Its clients are both drug cartels who need to turn their billions in American cash into legitimate Mexican pesos and wealthy Chinese wanting to move a big chunk of their assets to the US.

This ingenious money flow begins when Mexican drug cartels hire mules, mostly Americans, to carry small shipments across the border.  A typical shipment might be packets of powder weighting a few pounds hidden inside suitcases, false floors or gas tanks.  A 5-pound bag of meth would fetch about $35,000 on the street while fentanyl of the same weight would sell for about $75,000.

The Border Patrol can only inspect a small percentage of cars without adding too much to the monster traffic jams at a typical crossing.  But the feds are equipped with sophisticated equipment that can scan cars and detect unusual densities, even in gas tanks.  If a mule is one of the unlucky few, he'll have his car impounded and spend time in a Club Fed.

Mexican drug cartels assume that about 1 - 2% of shipments will be intercepted, a small cost of doing their highly lucrative business.  To get a sense of the futility of trying to interdict the flow of illegal drugs, consider that the biggest bust in 2023 was a car carrying about 54 pounds of fentanyl and 32 pounds of meth in packets stuffed into the gas tank.  The street value of that bust was about $1 million.  Each year only about $1.5 billion worth of illegal drug shipments are intercepted, according to the Border Patrol.  That's only about 1% of the Mexican drugs that make it onto US streets.

Most of the other 99% of the $150 billion in illegal drug proceeds must be turned into legitimate pesos that can be used to buy Mexican mansions for wives and mistresses, private schools for their kids, and generous donations to politicians and officials.

In the old days the druglords turned to Columbian money launderers who, according to a recent WSJ article, charged 7% commission.  More recently Chinese private bankers aka money launderers drove them out of business by charging as little as 1 - 1.5%.  They could do that because those drug dollars are used to earn far bigger commissions from Chinese citizens willing to pay handsomely to turn their yuan wealth into dollars located in the US.

Chinese clients deposit yuan into a legitimate bank account in China controlled by the US-based Chinese private banker.  The banker would then deposit dollars into a US account created for the client or simply provide a packet of cash.  The commission on that service would be multiples of the commission paid by drug cartels.

The yuan is moved to accounts controlled by drug cartels who then use it to buy products to be exported to Mexico to be sold for legitimate pesos.

This booming business illustrates the futility of laws making drugs illegal, not to mention the fact that 12.5% of Americans use illegal drugs at least once a week and perhaps 200,000 Americans die each year from overdosing on illegal drugs.  These laws in effect create franchises that earn tens of billions of dollars in annual untaxed profits.  Legalizing all drugs would not only take away untaxed profits but also allow strict quality control to reduce drug deaths.