Chinese companies have dominated almost every legal industry they have entered, from steel to ships, batteries and electric vehicles. They drive down costs and prices and cause great consternation in rich countries that are seeing their own manufacturing industries shrink. Now, Chinese underground organizations are taking over one of the world’s largest illicit industries: The international money laundering networks that facilitate crimes ranging from drug smuggling to cryptocurrency theft by North Korean hackers.
Since money launderers do not publish quarterly reports, it is difficult to know exactly the extent of their activity. The U.S. Treasury Department estimates that about $154 billion in illicit profits — primarily from the sale of illegal drugs in the United States by Mexico-based cartels — transit through China annually. This suggests that Chinese networks launder most of the money spent on illicit drugs in the United Statesa sum that, according to the Bureau of Economic Analysis (BEA), which conducted the most recent and reliable study, was estimated at $153 billion in 2017. “Chinese money laundering networks are global and pervasive,” wrote Andrea Gacki, director of the Treasury Department’s Financial Crimes Enforcement Network, in a note published in August urging banks to remain vigilant.
Like many other Chinese industries expanding into new markets, its money launderers have displaced their competitors by cutting costs and innovating. Older money laundering services have been unable to compete with the efficiency, reach and low fees of these Chinese networks. In the past, Mexican drug traffickers often used the black market of peso exchanges, laundering dollars by paying for goods exported from the United States to Mexico, which were then sold for pesos. Because these networks were linked to cartels, anyone involved faced “a constant risk of violence, theft and police intervention,” according to Chris Urben, a former US DEA agent. Previously, bleachers charged a 7-10% fee. But the new networks charge only 1-2%, resulting in “they basically took power in a bloodless coup,” says Mr. Urben.
They can also operate on a large scale. In February, Hackers in North Korea stole nearly $1.5 billion in largest cryptocurrency theft in history. They managed to launder almost $100 million a day, according to TRM, a research firm, probably with the help of Chinese underground bankers who divided the illicit money into multiple smaller transactions, mixing them with legitimate funds and different cryptocurrencies.
The success of Chinese money laundering networks is due to a combination of technological innovation, China’s trade surpluses and, above all, its strict capital controls, which limit outflows from the country to a maximum equivalent to $50,000 annually. This combination has led to a three-way trade that allows drug traffickers to obtain illicit dollars from the United States (or British pounds sterling), Chinese citizens to withdraw yuan from China, and recycle the profits into pesos or virtually any other currency that the drug cartels desire.
To understand how this works, let’s start with the most common and sophisticated method these networks use to launder money: the mirror transaction. Its operation is deceptively simple. The first step involves a drug cartel moving cocaine or another narcotic to the United States, where it is sold for dollars. Let’s now imagine a wealthy mother from Shanghai who wants to buy an apartment for her son, who is studying in New York. She contacts an online broker who connects her with someone selling US dollars. The mother transfers yuan to a bank account in China controlled by the intermediary. Almost instantly, the intermediary arranges for the US dollar equivalent (less a small fee) to appear in a US account to which the mother has access. The deposit for the apartment is ready. In this second step, the money never crosses international borders.
In the third step, the intermediary, who can operate virtually anywhere in the world where a Chinese diaspora exists, must reimburse the drug cartel in the currency it demands. Part of the yuan in China could be used to buy precursor chemicals used in the manufacture of fentanyl, a synthetic opioid, in Mexico. Or, they could be used to purchase legitimate Chinese products that are exported to Mexico or any other country whose currency is required. There is no paper trail connecting the various parallel transactions. The only evidence is found in messaging applications like WhatsApp and Telegram. However, US law enforcement authorities lack access to these applications because they are end-to-end encrypted: police cannot tap them the way they used to tap phone lines. “We are operating as if we have gone back to the Stone Age,” says Mr. Urben.
Previous money laundering networks, such as those established in the 1980s by Colombian cartels, were dismantled through extraditions, asset seizures, and cooperation between the United States and Colombia. However, Chinese networks could prove much more difficult to dismantle. While they are typically run by people with ties to China, they operate in many more jurisdictions, serve wealthy clients alongside criminals, and exist in the gaps between incompatible financial systems. Furthermore, given that they also supply various underground industries, the sums involved are staggering. In Southeast Asia alone, Online scams run by Chinese gangs generate the equivalent of about $500 billion in profits annually. Some of this money is reinvested in the industry, but much of it requires laundering.
In addition to the three-way mirror transaction described above, underground banks have numerous ways to hide illicit funds. Money is sometimes moved through fake invoices and phantom shipments, in addition to actual exports. It is also laundered through casinos. In the early 2000s, wealthy Chinese paid yuan to middlemen known as “junkets,” who organized gambling trips to Macau. Upon arrival, these customers found casino chips waiting for them. After placing a few small bets, they could collect their “winnings” in Hong Kong dollars and deposit the funds in Hong Kong banks or transfer them overseas.
Money launderers often combine various techniques. One case illustrates the magnitude of the money laundering infrastructure that criminals have built. In October, U.S. prosecutors filed an indictment against Chen Zhi, a Cambodian businessman who founded Prince Group, ostensibly a real estate development and financial services conglomerate. However, according to prosecutors, it was also one of the largest criminal empires in Asia, for which it is accused of money laundering and electronic fraud. Mr Chen, who held Cambodian, Vanuatu, Cypriot and Saint Lucian citizenship, was born in Fujian, a province in southeastern China where some of the world’s most notorious money launderers and cybercriminals come from. Following an anti-corruption crackdown in 2012, many of these criminals fled abroad, mainly to Southeast Asian countries such as Cambodia, Myanmar and the Philippines.
Already in 2018, Prince Group allegedly stole billions of dollars through online scams that generated $30 million a day. By 2020, Mr. Chen had accumulated 127,271 bitcoins (worth $15 billion when they were seized last month). To launder that money, he used sophisticated money laundering networks: cryptocurrency mining operations that were among the largest in the world, online gambling platforms, shell companies and professional laundering services that mixed illicit funds with legitimate ones, according to the indictment. Prince Group and Mr. Chen deny any wrongdoing.
This way of combining seemingly legitimate businesses with money laundering operations is widely used in Chinese underground banking systems. Huione Guarantee, a Chinese-language online marketplace, was created around 2021 for the buying and selling of property, cars, and other goods and services. It managed billions of dollars a year, according to Elliptic, a blockchain analytics firm that has tracked Huione’s growth. But in addition to its legitimate activity, it allegedly functioned as a one-stop platform for criminals: a kind of Facebook Marketplace for fraud. (Huione and his affiliates have denied any wrongdoing.)
In October, the Treasury Department blocked Huione Group, its parent company, from accessing the US banking system, accusing it of being a key hub for laundering money from cyberattacks carried out by the Democratic People’s Republic of Korea. It also laundered money for criminals involved in online financial scams known as “butcher scams,” in which fraudsters gain the trust of victims before stealing their money. The Treasury estimates that it moved at least $4 billion in illicit profits between August 2021 and January 2025.
Not all transactions are virtual, especially when money laundering networks need to reintroduce cash into the legal banking system. To do this, they often recruit money mules: unsuspecting teenagers or poor people who are used by criminals to open bank accounts and move money without revealing their own identities. In 2022, Daniel (not his real name), a young Singaporean, was working as a dishwasher. A friend asked him if he wanted to earn $600 (double his monthly salary) by opening some bank accounts in Singapore. Within weeks, I was receiving bank statements with transactions worth hundreds of thousands of dollars. Daniel says he knows five people who were also recruited as money mules. He was one of the lucky ones. Some of his friends ended up in jail.
Similar techniques are used elsewhere. The British Treasury said in a recent report to Parliament that Chinese criminal banking networks use Chinese students as money mules and cash couriers. Sometimes, corrupt bank employees open accounts with false addresses. In one case, Bank of America claimed to have “discovered illegal activity through its monitoring systems, fired employees, and cooperated with authorities, who managed to prosecute those involved.”
Although countries such as the United States and Great Britain are taking action against these networks and are successfully prosecuting some, it is a constant struggle. Dismantling them definitively requires close cooperation with China, which is currently in short supply..
© 2025, The Economist Newspaper Limited. All rights reserved.
