The Treasury Department warned last week that Chinese money-laundering networks are moving billions of dollars through U.S. financial institutions for Mexican drug cartels, helping enable the flow of deadly fentanyl into the United States.
The Financial Crimes Enforcement Network (FinCEN)’s advisory and Financial Trend Analysis detail the “vital role” that the Chinese networks now play for groups including the Sinaloa Cartel and Cartel de Jalisco Nueva Generación (CJNG), both of which the U.S. designated as Foreign Terrorist Organizations earlier this year.
“Chinese money-laundering networks are global and pervasive and must be dismantled,” FinCEN Director Andrea Gacki said in a news release. She urged banks to flag customers suspected of laundering cartel funds.
Here’s what to know.
Beyond narcotics, CMLNs move funds related to human trafficking, fraud, illegal marijuana cultivation and tax evasion, Treasury said. And their price, efficiency and global reach have reshaped international money-laundering routes.
Zoom in: For cartels that generate billions in cash, the challenge is turning dirty money clean. The laundering process often starts with bulk cash that is deposited into U.S. banks by “money mules,” individuals recruited to open accounts and move funds. These accounts, frequently tied to Chinese nationals, shell companies or front companies, add layers of complexity to mask the money’s origins.
But six days after that Georgia filing, Zhang’s case drew international attention for a different reason: Mexico’s president confirmed that Zhang had escaped through a hole in the wall of a house where Mexico’s National Guard was holding him pending extradition to the U.S.
Interpol has since issued a Red Notice for his location and arrest.
The Financial Crimes Enforcement Network (FinCEN)’s advisory and Financial Trend Analysis detail the “vital role” that the Chinese networks now play for groups including the Sinaloa Cartel and Cartel de Jalisco Nueva Generación (CJNG), both of which the U.S. designated as Foreign Terrorist Organizations earlier this year.
“Chinese money-laundering networks are global and pervasive and must be dismantled,” FinCEN Director Andrea Gacki said in a news release. She urged banks to flag customers suspected of laundering cartel funds.
Here’s what to know.
How these networks work
Big picture: China’s strict $50,000 annual cap on foreign currency exchanges leave a huge demand for U.S. dollars that official channels can’t meet. Chinese money-laundering networks (CMLNs) profit primarily from selling their laundered cash to Chinese citizens at high rates, which allows them to undercut other operations on the rates they can offer to transnational criminal organizations.Beyond narcotics, CMLNs move funds related to human trafficking, fraud, illegal marijuana cultivation and tax evasion, Treasury said. And their price, efficiency and global reach have reshaped international money-laundering routes.
Zoom in: For cartels that generate billions in cash, the challenge is turning dirty money clean. The laundering process often starts with bulk cash that is deposited into U.S. banks by “money mules,” individuals recruited to open accounts and move funds. These accounts, frequently tied to Chinese nationals, shell companies or front companies, add layers of complexity to mask the money’s origins.
- Treasury noted that such networks “appear to have increasingly recruited Chinese students studying at U.S. universities,” many of whom “may not understand that their actions are illegal.”
- A case closed in New York in 2024 exposed a CMLN that used elderly Chinese immigrants as money mules across 23 states. That operation processed more than $28 million in drug trafficking proceeds connected to the Sinaloa Cartel and CJNG, authorities said.
In practice
A July 5 complaint filed in Georgia offered a window into the scale and sophistication of these networks. The case targeted Chinese national Zhi Dong Zhang, 38, who authorities say led a criminal organization that directed drug-trafficking and money-laundering operations between the U.S. and Mexico. Investigators linked Zhang’s organization to about $20 million in laundered funds between 2020 and 2021.But six days after that Georgia filing, Zhang’s case drew international attention for a different reason: Mexico’s president confirmed that Zhang had escaped through a hole in the wall of a house where Mexico’s National Guard was holding him pending extradition to the U.S.
Interpol has since issued a Red Notice for his location and arrest.
Zhi Dong Zhang, in a mugshot photograph. (DOJ)
The case: According to a news release by Mexican law enforcement, Zhang had illegally trafficked more than $150 million in drug proceeds across the United States, Central America, South America, China and Japan. Mexico-based media called Zhang a “key operator” of the Sinaloa Cartel and CJNG.
Zhang allegedly laundered drug proceeds by collecting bulk cash, funneling it into shell company accounts, layering transactions across banks and disguising the money as legitimate international trade revenue.
According to the complaint:
Zhang allegedly laundered drug proceeds by collecting bulk cash, funneling it into shell company accounts, layering transactions across banks and disguising the money as legitimate international trade revenue.
According to the complaint:
- Zhang set up several stash houses around the U.S., including in suburban Atlanta and Los Angeles.
- Associates picked up cash directly from traffickers.
- To avoid suspicion, associates broke down the cash into smaller amounts for deposit into bank accounts in Atlanta and other U.S. cities.
- Investigators identified about 150 shell companies and 170 bank accounts they said were linked to Zhang's network. Many companies listed fake addresses and had no real business activity.
This two-bedroom apartment in an Atlanta suburb is a registered address for one of Zhang’s shell companies along with at least two other on-paper firms. (Google Street View)
Red flags to watch for
The Zhang network’s alleged tactics illustrate the type of warning signs that Treasury is pressing banks to monitor as it seeks to curb these networks.
Per FinCEN’s advisory, possible indicators of CMLN activity include:
- an account holder, especially a Chinese national, who reports their occupation as “student,” “housewife,” “laborer” or “retired” but who engages in large volumes of transactions inconsistent with their reported income.
- an account holder who engages in unusual transactions involving cashier’s checks, such as large regular deposits or purchasing cashier’s checks made payable to a real estate company.
- an account that receives “numerous transfers or deposits, and has a significant number of withdrawals or transfers, none of which appear to be related to routine payroll, living expenses, or customer’s stated expected activity.”
Soundbite: FinCEN’s advisory and analysis, Gacki said, “support Treasury’s continuing efforts, alongside our law enforcement and international partners, to bankrupt transnational criminal organizations and their enablers.”
Dive deeper: Join experts from Wilmer Hale and Kharon for a webinar Sept. 10 on the U.S. government’s new cartels enforcement framework and best practices for identifying exposure.
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