Chinese Money Launderer Gets 14 Year Sentence; US Says 'Money Brokers' Like Him Dominate the Cartel Cash Sector

"Anonymous" for Borderland Beat

Xianbing Gan, 51, from China. The U.S. government said that Gan had moved anywhere from $25 million to $65 million in illicit drug proceeds from 2016 to the time of his arrest. They were only able to prove $534,206 in court.

Xianbing Gan, a Chinese man who laundered drug proceeds for Mexican drug cartels, was sentenced to 14 years in prison yesterday in Chicago, Illinois.

Prosecutors say that Gan began this scheme in 2018 when he ordered someone to pick up US$534,206 in drug money in Chicago and have those funds deposited in various bank accounts in China. The money was ultimately intended for drug traffickers in Mexico. Gan was unaware that one of the money couriers was a US undercover law enforcement agent.

Investigators said that Gan was living in Guadalajara, Jalisco, and was laundering money for various cartels. He was arrested in November 2018 when he landed at the Los Angeles International Airport during a layover flight between Hong Kong and Mexico. He has been in US custody ever since.

His arrest and trial garnered few headlines and little public fascination reserved for drug kingpins that US federal prosecutors said Gan served. Still, US officials said that Chinese "money brokers" like Gan represent one of the biggest threats in their drug on wars. They said that the Chinese have displaced Mexican and Colombian money men, who have long dominated the trade, by upending their ways to launder money.

Virtually unheard of a decade ago, these Chinese players are moving vast sums quickly and quietly, authorities said. Their expertise: routing cartel drug profits from the United States to China then on to Mexico with a few clicks of a burner phone and Chinese banking apps – and without the bulky cash ever crossing borders. The launderers pay small Chinese-owned businesses in the United States and Mexico to help them move the funds.

Most contact with the banking system happens in China, a veritable black hole for U.S. and Mexican authorities.

Gan, who declined to testify in court, pleaded not guilty in December 2020 to three counts of money laundering, one count of conspiracy to launder money and one count of operating an unlicensed money transmitting business. He was acquitted on the conspiracy charge.

His lawyers, in a September sentencing plea document, said Gan was not the mastermind of the operation, rather a seafood exporter who was duped into letting his bank account in China be used to launder money by another Mexico-based Chinese national named Pan Haiping.

The U.S. government said that Gan had moved anywhere from $25 million to $65 million in illicit drug proceeds from 2016 to the time of his arrest. They were only able to prove $534,206 in court.

Undated picture of Xianbing Gan (source: Reuters)

Burner Phones and Dollar Bills

Key to cracking the case was Lim Seok Pheng, a New York-based member of the ring who became a cooperating witness for the U.S. government following her May 2018 arrest on suspicion of money laundering.

A Singapore national, Lim said at Gan’s trial that she once peddled footwear and had first met Gan in China where he ran a shoe factory before he relocated to Guadalajara in 2011. Lim testified that Gan recruited her to join the illicit operation in 2016 and that she became lovers with the other alleged ringleader, Pan Haiping.

Following her arrest at New York’s John F. Kennedy International Airport, Lim agreed to wear a recording device to help authorities gather evidence against Gan and the other alleged conspirators. She also brought undercover Homeland Security Investigations agents into the operation as money couriers on three separate cash pick-ups in Chicago that led to Gan’s conviction, according to the trial testimony of Lim and the agents.

The only thing tougher than moving illegal drugs across borders is getting the profits back to Mexico’s cartels, U.S. officials said. Cash is heavy, and transporting it exposes traffickers to lots of risk. Putting it into the banking system is perilous, too. The U.S. and Mexican financial systems have been geared to detect dirty money.

Prosecutors told the court that Gan and his accomplices sidestepped these obstacles by first moving the U.S. cash offshore to China, then on to Mexico. Lim was a linchpin connecting both sides of the Pacific. In her November 2019 plea agreement, Lim admitted to laundering, with Gan and Pan Haiping, about $48 million in drug cash between 2016 and September 2017. She took a 0.5% commission, the agreement said.

Lim testified at Gan’s trial that she had two jobs. The first was collecting drug money in U.S. cities such as Chicago and New York from cartel contacts, typically anywhere from $150,000 to $1 million at a time. She would wait in a public place, armed with a burner phone, a code name and the serial number of an authentic $1 bill. Mexican cartels would pass on her details to their dealer contacts, who would call Lim’s burner phone and use the code name to identify themselves. At the rendezvous point, Lim would give them the $1 bill with the corresponding serial number as a “receipt” to verify the handoff had taken place, Lim said at trial.

Lim’s other job was recruiting businesses in the Chinese diaspora to help them make that cash disappear, Lim and prosecutors said.

Most of them money is laundered in the Chinese Underground Banking system, a form of informal value transfer system (IVTS), commonplace within the Chinese community abroad.

Some U.S.-based Chinese merchants have long engaged in off-the-books currency “swaps” to avoid hefty bank fees. Such transactions are illegal in the United States, American authorities said, if they are used by companies routinely to skirt the formal banking system or to operate an unauthorized money transfer business. In some cases these informal, hawala-style transactions are used to help wealthy Chinese move money clandestinely out of China, in violation of that nation’s currency controls.

The operation run by Gan and Pan Haiping grew to include at least three Chinese merchants in New York, who were paid commissions to participate, Lim told the court. The names of the Chinese merchants were not revealed at Gan’s trial, and it’s unclear if they knew of Lim’s links to drug trafficking.

Prosecutors at trial presented testimony, evidence and graphics showing how the transactions worked. At their simplest, authorities said, that process worked as follows: Lim would arrive at one of the merchants with, say, $150,000 in cartel cash. With the businessperson observing, she would open a currency converter app on her smartphone to obtain the exchange rate between the U.S. dollar and the Chinese yuan. She would also hand over the details of a bank account in China given to her by Gan.

In what’s known as a “mirror transaction,” the Chinese businessperson would take possession of the $150,000 in U.S. currency while simultaneously transferring the equivalent in Chinese yuan from their own account in China to the bank account number provided by Gan.

The result was that a foreign transfer of funds had been made without involving a U.S financial institution - or the accompanying digital fingerprints. The Chinese business had effectively used yuan from its China-based bank account to purchase cash dollars now on hand in the United States; it earned a commission for its trouble while avoiding bank fees and U.S. government scrutiny.

Meanwhile, Gan had converted U.S. drug dollars into Chinese currency now sitting in a Chinese bank. The only contact with the financial system – a domestic transfer between two accounts in China – would be unlikely to raise red flags with Chinese banking authorities unaware of the money’s provenance.

The crime ring used various Chinese banks for the operations, including the Bank of China, according to WhatsApp messages exchanged between Gan and Pan Haiping. The messages were extracted from Gan’s iPhone by Homeland Security Investigations agents after his arrest, and key excerpts were read out aloud by prosecutors at trial, according to court transcripts.

To get the money from China to Mexico, Gan performed the same sort of mirror transactions, only this time with the help of Chinese businesses who had access to pesos in Mexico. This leg of the journey was described by the two U.S. sources familiar with the investigation and is outlined in court documents.

U.S. prosecutors said the laundered money was delivered to Pan Haiping’s Mexican drug cartel clients.

Example of a typical Chinese money broker network (source: RegTech Consulting)

Chinese Dominate Money Laundering Business

Money brokers like Gan and Pan Haiping are growing in number among the large Chinese diasporas in the United States, Europe and Latin America, according to three DEA officials.

Demand for their services is being driven by affluent Chinese looking to evade China’s currency controls and move wealth abroad. Beijing limits the amount of money its citizens can transfer out of China to the equivalent of $50,000 U.S. dollars annually.

Latin American cartels, flush with dollars and euros from drug sales, are uniquely placed to satisfy the Chinese appetite for hard currencies. Some Chinese expatriates located in drug-producing countries such as Mexico, Colombia and Peru are the intermediaries bridging these disparate sets of people

"When there is need by the cartels for cash to be laundered, and there is demand for cash from the Chinese, you have a perfect marriage made in heaven," an investigator said.

The insidious Chinese presence in the drug trafficking arena has been growing for years. It now dominates the global money laundering business and chemical production—both critical services to cartel operations in Mexico, Colombia, and beyond.

In a report shared by Borderland Beat last year, the US Drug Enforcement Administration (DEA) explained that traditional money laundering organizations charged around 8 percent for laundering bulk cash, but Chinese networks overtook the industry by undercutting the competition and charging commissions as low as 1 percent, or even nothing.

“It’s a brilliant business idea,” Maltz said. “They set up very sophisticated, complex, trade-based money laundering schemes where hundreds of millions of dollars are picked up and used to buy consumer goods in China. And then the consumer goods are shipped into Central America, South America, all over the region in Latin America, to launder the proceeds for the drug traffickers in Mexico as well.”

Chinese nationals in the United States also operate a popular scheme, known as the Chinese Underground Banking System, which works not only to launder money for the cartels, but to help Chinese nationals living in the United States access massive amounts of cash, according to the DEA.

Chinese buyers transfer money from their Chinese bank account to the broker’s bank account in China. After the transfer, the U.S. cash from the drug sales would be directly released to the Chinese people in the United States. To complete the cycle, the brokers would export Chinese goods such as electronics and clothing to the cartel in Mexico, which would be sold for pesos.

Other laundering channels identified by the DEA include trade-based money-laundering (the over- or underpricing of goods, falsified bills of lading and customs declarations, and counterfeit import/export contracts); securities transactions (stocks, bonds, commodities, and precious metals); real estate transactions; casino-related transactions; and wire transfers via both formal and underground banking systems.

Chinese money brokers have also managed to avoid choosing sides in Mexico’s cartel wars, even coordinating money contracts with both the Sinaloa and Jalisco New Generation cartels (CJNG) on the same day, according to a second senior DEA agent, who spoke on condition of anonymity.

Sources: USDOJ (1); (2); ChicagoCBS; Reuters; Borderland Beat archives