In the government’s latest effort to combat money laundering and the financing of terrorism, FinCEN recently issued an advisory and a Financial Trend Analysis (FTA) on Chinese Money Laundering Networks (CMLNs), calling them “one of the most significant money laundering threat actors facing the U.S. financial system.”
The advisory urged financial institutions to be vigilant, warning that Mexico-based drug cartels use CMLNs to launder billions of dollars in proceeds from fentanyl trafficking and other crimes, including fraud, human smuggling, and human trafficking. To help financial institutions detect CMLN activity, the advisory described the types of transactions typically used to launder cartel funds and provided a list of potential red flags to look for in customer transactions.
Money laundering allows illicit money from drug trading, human trafficking, and the financing of terrorism to flow into the American banking system, enabling illegal activity to thrive and threatening the integrity of the US financial system. To combat money laundering, the Bank Secrecy Act (BSA), passed in 1970, requires financial institutions to maintain strong anti-money laundering (AML) programs and report suspicious activity to the government. AML compliance programs are overseen by multiple federal agencies, including the US Department of the Treasury and its bureau, the Financial Crimes Enforcement Network (FinCEN).
FinCEN Analysis of BSA Reports Uncovered Pervasive Money Laundering by Mexican and Chinese Networks
The FTA analyzed 137,153 reports filed by financial institutions under the BSA and found approximately $312 billion in suspicious transactions from suspected CMLNs. Restrictive financial laws in Mexico and China drive the flow of illegal money into the United States. According to the FTA, Mexico generally limits cash deposits of US dollars to $4,000 per month, while Chinese laws prohibit citizens from converting over $50,000 (RMB) per year to other currencies. This leaves Mexican drug cartels with substantial amounts of cash they cannot launder through Mexican banks, while CMLNs have a strong demand for US dollars they can sell to Chinese citizens outside of Chinese currency controls. The two groups have formed a mutually beneficial relationship, allowing drug cartels to launder their illegal proceeds while providing CMLNs with access to an almost unlimited supply of US dollars.
CMLNs launder far more than just proceeds from drug trades. FinCEN found that of the dataset analyzed, 1,675 BSA reports indicated potentially suspicious activity involving human trafficking or smuggling, and 43 BSA reports involved potentially suspicious activity at 83 adult day care centers. FinCEN also identified 108 BSA reports involving funds potentially associated with healthcare fraud, elder abuse, and suspicious gaming activity, and identified 17,389 BSA reports associated with more than $53.7 billion in suspicious activity related to the US real estate market.
“These networks launder proceeds for Mexico-based drug cartels and are involved in other significant, underground money movement schemes within the United States and around the world. FinCEN’s Advisory and Financial Trend Analysis support Treasury’s continuing efforts…to bankrupt transnational criminal organizations and their enablers,” said FinCEN Director Andrea Gacki.
Recent Media Reports and Criminal Prosecutions Highlight the Vulnerabilities of U.S. Banks
Recently, CMLN activity has increased. In a series of articles (here, here, here), the Wall Street Journal described the tactics money-launderers use to launder drug profits. One example led to indictments of 24 individuals in 2024, involving more than $50 million in fentanyl drug proceeds that prosecutors say Chinese brokers laundered for associates of Mexico’s Sinaloa drug cartel.
In May 2024, the Wall Street Journal reported that the federal government’s investigation into the partnership between drug cartels and CMLNs led to the discovery of massive AML failures at TD Bank, N.A., the tenth largest bank in the United States. In October 2024, TD Bank pleaded guilty to violations of the BSA and conspiracy to commit money laundering and agreed to pay more than $3 billion in penalties and forfeitures, including a record $1.3 billion penalty assessed by FinCEN.
Whistleblower Programs Can Be Key Enforcement Tools
Whistleblowers with inside knowledge of illicit financial activity or failures to monitor for illegal financial transactions can be instrumental in discovering and reporting the types of violations the FTA addressed. Currently, two whistleblower programs, the AML Whistleblower Program and the Department of Justice Corporate Whistleblower Awards Pilot Program, allow insiders to report violations of the BSA and money laundering schemes.
FinCEN oversees the AML whistleblower program which provides for financial rewards to whistleblowers who provide original, timely, and credible information about violations of the BSA and compliance with AML and countering the financing of terrorism regulations. Eligible FinCEN whistleblowers may receive a reward of between 10 and 30% of the total monetary sanctions over $1 million that are collected as a result of an enforcement action.
The Criminal Division of DOJ manages the Corporate Whistleblower Awards Pilot Program, which rewards whistleblowers for providing information about criminal violations committed by financial institutions, including schemes involving money laundering, anti-money laundering compliance violations, registration of money transmitting businesses, and fraud. Whistleblowers may be eligible to receive a percentage of forfeited assets if their original information leads to a successful forfeiture.
The FinCEN and DOJ whistleblower programs are key tools for upholding the integrity of the financial industry and curbing money laundering. The whistleblower attorneys at Phillips & Cohen understand the complex nature of FinCEN and AML requirements and will fight to protect your rights. Contact Phillips & Cohen for a confidential review of your potential case.