A new report has revealed a concerning partnership between Mexican drug cartels, including the notorious Sinaloa Cartel formerly led by Joaquin “El Chapo” Guzmán, and Chinese money laundering networks operating within the United States.
This collaboration is allegedly funneling hundreds of millions of dollars in drug proceeds through major American banks and ultimately into the hands of Chinese nationals residing in the U.S.
According to the Wall Street Journal’s report published Wednesday, the scheme originates in Mexico, where cartels generate vast profits from the sale of illicit drugs within the United States.
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Chinese nationals then travel to Mexico to collect substantial amounts of cash directly from cartel operatives. These individuals subsequently deposit the funds into a network of accounts held at prominent U.S. banks.
These funds are then sold to wealthy Chinese clients in exchange for Chinese yuan. These clients, often facing restrictions on moving large sums of money out of China or subject to sanctions, utilize this illicit channel to access funds in the United States for purposes such as purchasing property or paying for educational expenses.
The money laundering groups further facilitate the process by purchasing low-cost goods from China, shipping them to Mexico, and selling them under the guise of legitimate trade. The resulting proceeds, now in Mexican pesos, are then returned to the drug cartels, completing the cycle.
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WSJ highlights the increasing prominence of Chinese laundering groups in the U.S. in recent years, attributing this growth partly to financial regulations imposed by the Chinese government. Beijing’s restrictions on foreign currency outflows, coupled with sanctions on some wealthy individuals, create a strong incentive to circumvent legal financial channels.
The report further notes that Chinese operatives within the U.S. frequently establish numerous bank accounts using fraudulent passports and communicate with their Mexican counterparts via encrypted Chinese messaging platforms. These operatives typically take a commission of 1-2% on each transaction.
The Journal’s investigation uncovered instances where individuals entering the U.S. on student visas were allegedly involved in these activities. One specific case described the surveillance of a Range Rover collecting bags of cash from multiple Los Angeles residences linked to a Chinese launderer seen crossing the U.S.-Mexico border with a known Sinaloa associate. This vehicle reportedly delivered the cash to a Chinese high school student in another part of the city, who admitted to receiving over $60,000 in cash when questioned by law enforcement. Drug-sniffing dogs reportedly detected narcotics residue on the currency.
This alleged partnership has already drawn the attention of law enforcement. On June 18, 2024, the Department of Justice (DOJ) announced the arrest of Sinaloa Cartel associates based in Los Angeles alongside Chinese bankers in connection with a drug money laundering plot destined for Mexico. These arrests, along with actions taken by Mexican and Chinese authorities, followed the DOJ’s extensive investigation, dubbed “Operation Fortune Runner.”
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In a press release at the time, the DOJ emphasized the Sinaloa Cartel’s significant role in the influx of fentanyl into the United States and the associated violence. The agency stated that the cartel’s drug trafficking activities generate substantial amounts of U.S. currency within the country that must be repatriated to Mexico.
Concerns about the connection between Mexican cartels and Chinese entities extend beyond money laundering. In May 2023, a senior Department of Homeland Security (DHS) official informed the Senate that Mexican drug cartels were utilizing Chinese chemicals and equipment to manufacture fentanyl-laced pills for smuggling into the United States.
Matthew Millhollin, the assistant director of DHS’ Homeland Security Investigations (HSI), testified that “As Mexican cartels have taken over fentanyl production and operate on an industrial scale, they are procuring precursor chemicals from China and synthesizing these chemicals in Mexico to produce fentanyl.”
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Vanda Felbab-Brown, a senior fellow at the Brookings Institution, echoed these concerns in a 2022 op-ed, noting the increasing entanglement of Chinese actors and markets in Mexico’s illegal economies, including drug and wildlife trafficking and money laundering. She highlighted China as the primary source of precursor chemicals for major Mexican criminal groups like the Sinaloa Cartel and Cartel Jalisco Nueva Generación (CJNG) in their fentanyl and methamphetamine production.
The revelations from the Wall Street Journal’s report underscore the complex and evolving nature of transnational criminal networks and the challenges faced by law enforcement in disrupting these sophisticated operations that span continents and financial systems.
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