Chinese crypto channels are increasingly being used to launder money by Mexican drug cartels, causing worries among law enforcement agencies in the U.S.
According to federal U.S. officials, Mexico has collaborated with China to use a channel referred to as Chinese Underground Banking Systems (CUBS). The brokers in CUBS can bypass China’s banking system that has set a yearly limitation of $50,000 for funds individuals can transfer out of the country.
In order to help the Chinese nationals that were interested in moving amounts that are higher than the $50,000 per year, money brokers turned to using Bitcoins.
Wanting to avoid detection and leaving any traces behind, the Bitcoin trades are handled over the counter.
Even though Bitcoin is used to launder money because it offers some benefits, it can be done to a certain extent because the transactions are transparent, viewable on the respective blockchain.
This is the reason why other cryptocurrencies such as Monero, Zcash and Dash are gaining popularity, because they are less traceable when compared with Bitcoin.
The Collaboration Between Mexico & China
The link between the two countries is made possible from a drug trade partnership created years ago. This partnership enabled North American drug dealers to get a hold of chemicals used in the process of making hard drugs.
China supplies chemicals such as ephedrine and pseudoephedrine, both chemicals utilized to make methamphetamine.
China also exports fentanyl, a synthetic opioid significantly stronger than morphine and heroin. Drug dealers often add fentanyl to drugs like heroin and cocaine to increase potency.
In November, the Drug Enforcement Administration (DEA) released a report [PDF] recording an eight-year decline in the amount of money seized through U.S. law enforcement officials.
U.S. border customs cash seizures in Mexican drug operations are lower than ever. In 2011, Arizona authorities recorded seizures amounting to about $12 million; but in 2016, the figures dropped over 90 percent, standing at $960,000. It shows that new and more cautious methods are used in ordered to transfer cash gained through smuggling.
Other than Mexican drug dealers, European and Australian dealers are also relying on Chinese sources to launder their illegal profits.
The issue attracted a lot of attention at a U.S. congressional hearing into Mexican drug cartels and border security, with several government officials speaking about the challenges of securing the borders and the difficulties in tracking illicit money.
The cryptocurrency operations are only a tiny percentage of the estimated $2 trillion in global money laundering, including the drug trade.