Rahul Gupta, Director of the Office of National Drug Control Policy, Statement for Hearing on Countering Illicit Fentanyl Trafficking, Foreign Relations Committee United States Senate Wednesday, February 15, 2023. Questions and answers period, U.S. Senate Foreign Relations Committee hearing Countering Illicit Fentanyl Trafficking, February 15, 2023. For further details, see various hearings of the Commission of Inquiry into Money Laundering in British Columbia,. They have become the principal buyers of finished fentanyl from China and India as well as fentanyl precursors and pre-precursors from both countries. Fish and Wildlife Service, Office of Law Enforcement, Law Enforcement at a Glance, Fiscal Year 2022, October 28, 2022. Similarly, some Chinese actors smuggling fentanyl are also involved in wildlife trade and trafficking. But it took place when Beijing was still hoping that an improvement in U.S.-China relations was possible and saw counternarcotics cooperation as a mechanism to obtain it. Your email address will not be published. Terrestrial and marine species, as well as timber, illegally harvested in Mexico for Chinese markets increasingly threaten Mexicos biodiversity, that accounts for some 12 percent of the worlds biodiversity. Various U.S. lawmakers have proposed designated Mexican criminal groups as Foreign Terrorist Organizations (FTO). Designating Mexican cartels as Foreign Terrorist Organizations (FTOs) would enable intelligence gathering and strike options for the United States military, such as against some fentanyl labs in Mexico. Chinese actors have come to play an increasing role in laundering money for Mexican cartels, including the principal distributors of fentanyl to the United States the Sinaloa Cartel and Cartel . This takeover of the fisheries by Mexican criminal groups puts Chinese traders further into direct contact with them and alters the relationship patterns. Vanda Felbab-Browns interviews with U.S. and international law enforcement officials, by virtual platforms and in Mexico City, October, November, and December 2021. Importantly, to effectively counter the fentanyl-smuggling actors, the United States should expand and smarten up its own measures against criminal actors, including by: Synthetic opioids are the source of the deadliest and unabating U.S. drug epidemic ever. Preventing far greater damage to Mexicos biodiversity from illegal harvesting and poaching and wildlife and timber trafficking requires urgent attention in Mexico with far more dedicated and potent resources, as well as meaningful international cooperation, to identify and dismantle smuggling networks and retail markets. Highlighting that it does not have any fentanyl abuse problem and thus that its regulatory actions are motivated purely to help the United States, China rejects Washingtons claims and blames the opioid epidemic solely on Americas internal failings. And Washington should continue requesting that China take down websites that sell synthetic opioids illegally to Americans or to Mexican criminal groups. I am a senior fellow at the Brookings Institution where I direct The Initiative on Nonstate Armed Actors and co-direct the Africa Security Initiative. Through money laundering, the criminal transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source. The United States emphasized the public health and anti-money-laundering elements of the agreement, as the Mexican government sought. After years of intense U.S. diplomacy, Chinese President Xi Jinping announced at the December 2018 G-20 summit that China would place the entire class of synthetic opioids on a regulatory schedule.4 According to former and current U.S. Government officials and international drug policy and China experts, the U.S. request that China schedule an entire class of drugs that had precipitated the announcement was a significant ask within the U.S.-China bilateral relationship.5 China had to pass new laws to be able to do so.6, The United States is the only other major country that has controlled the entire class of fentanyl drugs in the U.S. case, only on a temporary basis, a decision that the U.S. Congress has yet to make permanent.7. In addition to studying Chinas and Mexicos role in various illegal economies over the past two decades, I have been directing over the past three years a new Brookings workstream on Chinas role in illegal economies and Chinese criminal groups around the world. After getting hold of illegally acquired funds through theft, bribery, and corruption, financial criminals move the cash from its source. But even in the banking sector, such post-September 11 know-your-customer, due-diligence policies, and reams of reports of suspicious activities, had limited impact while generating problematic side-effects.54 In comparison with banking, the global chemical industry is far larger and more fragmented, comprised of hundreds of thousands of firms and millions of facilities, including not merely producers but also many brokers. Placement sneakily introduces "dirty money" into the legitimate financial system. Nor is there high likelihood that any time soon China would allow the U.S. or other countries greater visibility into its banking and financial systems, since it will continue to seek to obfuscate the many problems of both. Working with other international partners, the United States could encourage China to start moving more seriously against Chinese drug trafficking networks in Southeast Asia and the Pacific. There is little prospect that in the absence of significant warming of the overall U.S.-China bilateral relationship, China would significantly intensify its anti-drug cooperation with the United States. Rather, countering poaching and wildlife trafficking from Mexico and illegal logging and mining in places where the Mexican cartels have a reach, acting against illegal fishing off Mexico and around Latin America and elsewhere, and shutting down wildlife trafficking networks into China are increasingly an important element of countering Mexican and Chinese drug-trafficking groups and reducing the flow of fentanyl to the United States. Chinese criminal groups cultivate political capital with Chinese authorities and government officials abroad by also promoting Chinas political, strategic, and economic interests. Nonetheless, such indictments, particularly if the indicted individuals are linked to the Chinese government or the CCP, may not stimulate China to engage in more extensive counternarcotics cooperation with the United States. Through a series of transactions and bookkeeping tricks, layering conceals the source of the money. As the relationship between the two countries deteriorated, Chinas willingness to cooperate with the United States declined. The inspections of legal cargo heading to the United States could take place close to production and loading site in Mexico. The Commission on Combatting Illicit Opioid Trafficking stressed that targeted supply reduction and the enforcement of current laws and regulations are essential to disrupting the availability of chemicals needed to manufacture synthetic opioids.51 The Commission also highlighted how improved oversight of large chemical and pharmaceutical sectors and enhanced investigations of vendors or importers in key foreign countries can help disrupt the flow.52 The Reports supply-side control recommendations include reducing online advertising; encouraging enhanced anti-money laundering efforts in China and Mexico; enhanced interdiction efforts; increased international scheduling of at least synthetic drug precursors that are only used for illicit purposes and enhanced control of precursor flows through collaboration with China and international counternarcotics organizations.53. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. Powerful Chinese industry actors may thus be incentivized to promote stricter regulatory standards and their enforcement within China. And there is the possibility that Chinese fishing flotillas or individual vessels operating around the Americas and elsewhere in the world may carry spy equipment collection intelligence for China. Money laundering is the process of transforming criminal funds into legal properties. Whereas 10 to 15 years half ago, Chinese traders in legal wildlife commodities and illegal wildlife products dealt directly with local hunters, poachers, and fishermen, increasingly Mexican organized crime groups forcibly inserted themselves as middlemen, dictating that producers need to sell to them and that they themselves will sell to the Chinese traders and traffickers who move the product from Mexicos borders to China. But Chinese authorities have not moved against the indicted individuals who remain at large. Chinese actors have come to play an increasing role in laundering money for Mexican cartels, including the principal distributors of fentanyl to the United States the Sinaloa Cartel and Cartel Jalisco Nueva Generacin (CJNG). And they charge extortion fees to seafood exporters. The United States should continue to engage China bilaterally and multilaterally to adopt more robust anti-money laundering standards in its banking and financial systems and trading practices. Under optimal circumstances, U.S.-Mexico law enforcement cooperation would be robust enough to make legal border crossings fast and efficient. Your email address will not be published. Hutchins Roundup: Climate-induced losses, Russian oil price cap, and more, Addressing urgent challenges for the healthcare supply chain, Spurred by federal legislation, new industrial investments are reaching a wide swath of the country, Subcommittee on National Security, Illicit Finance, and International Financial Institutions on March 23, 2023, for the , Urban violence, resilience and security: Governance responses in the Global South, Organized crime and illicit trade: How to respond to this strategic challenge in old and new domains, China-linked wildlife poaching and trafficking in Mexico, China and synthetic drugs control: Fentanyl, methamphetamines, and precursors, China and synthetic drugs: Geopolitics trumps counternarcotics cooperation. Meanwhile, the number of available targets in Mexico would be limited. Strobe Talbott Center for Security, Strategy, and Technology. U.S.-China counternarcotics cooperation remains fraught, and from the U.S. perspective deeply inadequate. Review of the elements of money laundering - Arenstein & Gallagher The Framework reiterates multiple dimensions of counternarcotics cooperation, including law enforcement. They are also increasingly taking over legal economies in Mexico, including logging, fisheries, and various agricultural products such as avocados, citrus, and corn in parts of Mexico. The Chinese Government has not been keen to formalize either China-Mexico or China-Mexico-United States cooperation against wildlife trafficking, preferring informal case-by-case cooperation. making the money available to the criminal from what seem to be legitimate sources) In reality money laundering cases may not have all three stages, some stages could be combined, or several stages repeat several times. But even though China placed the entire class of fentanyl-type drugs and two key precursors under a controlled regulatory regime in May 2019, it remains the principal (if indirect) source of U.S. fentanyl. These cookies will be stored in your browser only with your consent. This testimony draws extensively on two detailed reports I published last year: Chinas Role in the Smuggling of Synthetic Drugs and Precursors and Chinas Role in Poaching and Wildlife Trafficking in Mexico.. Informally, Chinese Government officials have long become accustomed to unofficially extending the umbrella of party protection and government authority to actors who operate in both legal and illegal enterprises as well as to outright criminal groups.11 The frequent appointments of former party officials to business boards could facilitate monitoring and oversight, but frequently enables this unofficial protection and facilitates corruption. Vanda Felbab-Browns interview with an international drug policy official, by virtual platform, November 2021. Just like with China, Mexicos cooperation with U.S. counternarcotics efforts is profoundly hollowed out. U.S. Department of State, Summary of the Action Plan for U.S.-Mexico Bicentennial Framework for Security, Public Health, and Safe Communities: A Fact Sheet, January 31, 2022. Key Elements Of Money Laundering - Financial Crime Academy designating wildlife trafficking as a predicate offense for wiretap authorization. Then contact Chambers Law Firm at 714-760-4088 to request a free legal consultation. Chinas enforcement of precursor and fentanyl analog controls is also complicated by the challenge of systemic corruption in China and the incentive structures within which Chinese officials operate. See, for example, Chinese Foreign Ministry Spokesperson: The US should look for causes of the abuse of fentanyl from within, Embassy of the Peoples Republic of China in the United States of America, December 16, 2021, See for example Roderic Broadhurst and Peng Wang, After the Bo Xilai Trial: Does Corruption Threaten Chinas Future?, Vanda Felbab-Browns interviews with two international experts on China and two former law enforcement officials who were posted in China, by virtual platforms, December 2021. Michael R. Glass, Taylor B. Seybolt, Phil Williams Enrique Desmond Arias, Roberto Briceo-Leon, Jon Coaffee, Savannah Cox, Daniel E. Esser, Vanda Felbab-Brown, Michael R. Glass, Kim Gounder, Brij Maharaj, Eduardo Moncada, Daniel Nez, Taylor B. Seybolt, Phil Williams. Incentivizing better cooperation from the Chinese and Mexican criminal governments is important. However, you may visit "Cookie Settings" to provide a controlled consent. See also Iza Ding and Michael Thompson-Brussar, The Anti-Bureaucratic Ghost in Chinas Bureaucratic Machine,, Vanda Felbab-Browns interviews with two international experts on China and two former law enforcement officials who were posted in China, by virtual platforms, December 2021, Peng Wang and Xia Yang, Bureaucratic Slack in China: The Anti-corruption Campaign and the Decline of Patronage Networks in Developing Local Economies,. With respect to prominent Chinese pharmaceutical and chemical industry officials, the United States can develop packages of leverage, such as denying them visas if their companies fail to adopt global standards of preventing diversion. Money laundering involves disguising financial assets so they can be used without detection of the illegal activity that produced them. For background, see Vanda Felbab-Brown and Alejandro Castillo, Restore US-Mexico seafood trade & save the vaquita, Mexico Today, May 7, 2021. Required fields are marked. Mexican criminal groups source fentanyl, fentanyl precursors, and increasingly pre-precursors from China, and then traffic finished fentanyl from Mexico to the United States. There is no doubt that Mexicos law enforcement cooperation with the United States has dramatically weakened and is troublingly inadequate. Large amounts of illegal cash are inefficient and dangerous to deal with. Michael R. Pompeo, Designation of P.R.C. It has also been weakened by Xis post-2012 anti-corruption drives.12 Even so, a seemingly very dominant and all-powerful state is riddled with bureaucratic slack, enforcement inefficiencies, and a proclivity to seek legal and bureaucratic loopholes. The extent of counternarcotics cooperation or its absence remains determined by the state of the U.S.-China overall geopolitical relationship, which has deteriorated over the past decade and shows few prospects for improvement. The enforcement of precursor and fentanyl analog controls is also complicated by with the challenge of systemic corruption in China and the incentive structures within which Chinese officials operate. The DEA appropriately enjoys strong capacities, currently maintaining a force of 4000 agents.58 In contrast, the number of USFWS special agents has for years hovered at a mere and insufficient 220.59 For years, this inadequate number has not increased even though poaching, illegal logging, and mining, and trafficking in natural resource commodities have grown enormously over the past three decades, continue expanding, and increasingly involve Mexican drug cartels as well as Chinese criminal networks. Estimating the number of SEZs in the Mekong region is difficult because of the lack of data and different typologies of economic zones. The Heinrich Bll Stiftung and Land Watch Thai estimate that there are at least 74 special economic zones at various stages of development in the Mekong region, and that if various different kinds of economic zones are included (e.g., industrial zones, industrial estates and parks, coastal economic zones, cross-border special zones, etc. For example, when the overharvesting of sea cucumber in Yucatn, Mexico for markets in China tapered off as a result of the sea cucumber population crash, Mexican organized crime groups that operate in Yucatn started bringing to their seafood collection hubs fish illegally caught in Costa Rica and elsewhere in Latin America.35 Yucatn is also an important hub for cocaine trafficking. Since the Barack Obama administration, the United States has devoted significant diplomatic capital to get China to tighten its regulations vis--vis fentanyl-class drugs and to more diligently enforce these regulations. Importantly, the United States has significant opportunities rapidly to strengthen and smarten up its own measures against Chinese and Mexican criminal actors participating in fentanyl and other drug trafficking while simultaneously also enhancing U.S. measures to counter wildlife trafficking and protect public health and global biodiversity. The 3 Elements That Must Be Proven in a Money Laundering Case There may also be a growing involvement of Chinese fishing ships in facilitating drug trafficking. The connections between the illegal drug trade and the timber and wildlife trade and trafficking from Mexico to China are all the more significant as poaching and wildlife trafficking in Mexico is increasing and Mexican drug cartels are expanding their role in crimes against nature. There have long been suspicions about the extent to which Latin American fishing fleets are also engaged in the smuggling of drugs such as cocaine to the United States.36 The penetration of legal fisheries by Mexican cartels further facilitates their drug smuggling enterprise. But despite this significant U.S. concession, Mexicos counternarcotics cooperation remained limited. Packages of leverage, including indictment portfolios, could also be developed against Mexican national security and law enforcement officials and politicians who undermine and sabotage rule of law cooperation with the United States. China has maintained this posture even as the presence of Chinese criminal actors in Mexico, including in money laundering and illicit value transfers (which increasingly feature barter of wildlife products for synthetic drug precursors) are expanding rapidly. To give you a few examples of different definitions of money laundering, the German Criminal Code keeps it relatively simple and describes money laundering asconcealing unlawfully acquired assets., The Financial Action Task Force describes money launderingas the processing of [] criminal proceeds to disguise their illegal origin.. Money Laundering: An Abridged Overview Related Law - CRS Reports I submit that to attempt to induce better cooperation from China, the United States should: To attempt to induce better cooperation from Mexico, the United States also has new Policy tools to explore. Its mission is to conduct high-quality, independent research and, based on that research, to provide innovative, practical recommendations for policymakers and the public. To avoid transaction reporting requirements under state or federal law. Key elements to the BSA's AML framework, which are codified in Titles 12 (Banks and Banking) and 31 (Money and Finance) of the U.S. Code, include requirements for customer identification, recordkeeping, reporting, and compliance programs intended to identify and prevent money laundering. incentivize international partners to act seriously against Chinese drug trafficking and criminal networks. Many of the Chinese smuggling networks are connected in complex ways to legal Chinese businesses. These crimes that build the basis for. Below I offer some policy implications and recommendations on how the United States can attempt to induce China and Mexico to better cooperate with U.S. counternarcotics and law enforcement objectives. Expanding the intelligence-gathering aperture and mandating and resourcing a whole-of-government approach in support of U.S. law enforcement will save U.S. lives currently decimated by fentanyl overdoses. I also provide suggestions for what law enforcement and policy measures the United States can undertake independently, and even if Mexico and China continue to reject robust cooperation. Other money laundering and value transfers between Mexican and Chinese criminal networks include trade-based laundering, value transfer utilizing wildlife products, such as protected and unprotected marine products and timber, real estate, cryptocurrencies, casinos, and bulk cash. To detect and prevent this activity, most financial institutions now have anti-money-laundering (AML) policies in place. Like many criminal groups around the world, the triads use legal businesses as fronts for their illegal operations and money-laundering, and they plug into the infrastructure and transportation networks of legal businesses. Many fentanyl-trafficking networks are not narrowly specialized in fentanyl or drugs only. These raids ended the openly-visible and blatant sales of illegal wildlife commodities. Illegal fishing accounts for a staggering proportion of Mexicos fish production, but even the legitimate fishing and export industry provides a means to channel illegally-caught marine products to China. criminals from laundering their illicitly derived profits. Since 1999, drug overdoses have killed over 1 million Americans,1 a lethality rate that has increased significantly since 2012 when synthetic opioids from China began supplying the U.S. demand for illicit opioids. The trafficking of fentanyl and its precursors is conducted by a wide panoply of Chinese criminal actors, from small family-based and specialized groups to businesses that also conduct highly diverse legal trade with organized crime groups. In the case of fentanyl and its precursors, Chinese triads mafia-like organized crime groups do not dominate drug production and trafficking. Binance's French unit is under investigation by local authorities for the "illegal" provision of digital asset services and "acts of aggravated money laundering," the Paris public prosecutor's . With the threat of Mexicos unilateral withdrawal from the Merida Initiative, the United States government worked hard to negotiate a new security framework with Mexico The U.S.-Mexico Bicentennial Framework for Security, Public Health, and Safe Communities49 in the fall of 2021. It varies according to relevant organizations and standard-setting bodies, which are covered later. The prosecutor must prove that you took part in either initiation or concluding one of these transactions. A single, first offense can result in as much as a year in jail. Since 2020, Chinas cooperation with U.S. counternarcotics efforts, never high, declined substantially. But it does not appear that China has sustained efforts to counter the now-more hidden illegal retail and has mounted raids against clandestine sales. Money laundering may not involve all three stages, or some of them may be combined or repeated multiple times. The 3 Elements That Must Be Proven in a Money Laundering Case In its simplest form, money laundering involves transferring money that was obtained in a criminal activity into legitimate channels for the purpose of disguising the fact that it was obtained legally. Wildlife trafficking from Mexico to China receives little international attention, but it is growing, compounding the threats to Mexican biodiversity posed by preexisting poaching for other markets, including the United States. Money laundering facilitates a broad range of serious underlying criminal offenses and ultimately threatens the integrity of the financial system. To be in compliance with the material support laws, the United States and other entities must guarantee that none of their financial or material assistance is leaking out, including through coerced extortion, to those designated as FTOs. U.S. punitive measures, such as sanctions and drug indictments, are unlikely to change that. However, note that the prosecutor has a relatively low bar of proof they must meet. In 2021, the number of fatalities was 106,699;2 and in 2022, it is estimated at 107,477.3 Most of the deaths are due to fentanyl, consumed on its own or mixed into fake prescription pills, heroin, and increasingly methamphetamine and cocaine. The March 2023 crisis in U.S.-Mexico law enforcement cooperation is merely the visible tip of the iceberg of how Mexico has eviscerated counternarcotics and law enforcement cooperation with the United States since 2019 and particularly since 2020 when U.S. law enforcement activities in Mexico became shackled and undermined by Mexican Government actions after the U.S. arrest of former Mexican Secretary of Defense Gen. Salvador Cienfuegos. See Estimating Illicit Financial Flows Resulting from Drug Trafficking and Other Transnational Organized Crimes: Research Report, (Vienna: United Nations Office on Drugs and Crime, October 2011); Beau Kilmer, Jonathan P. Caulkins, Brittany M. Bond, and Peter Reuter, Reducing Drug Trafficking Revenues and Violence in Mexico: Would Legalizing Marijuana in California Help? (Santa Monica, Calif.: RAND Corporation, 2010); and Gabriel Stargardter, Mexicos Drug Cartels, Now Hooked on Fuel, Cripple the Countrys Refineries, Reuters, January 24, 2018, Drazen Jorgic, Special report: Burner phones and banking apps.. However, this clear pattern of behavior is not centrally organized, systemically endorsed, or openly tolerated behavior. What are the 3 STAGES of Money Laundering? | ComplyAdvantage This report provides an overview of the elements of federal criminal money laundering statutes and the sanctions imposed for their violation. A successful anti-money laundering programme comprises of the following four elements: Development of internal policies, controls, and procedures Internal policies, controls and procedures need to be established to: Protect the financial institution against ML/TF and therefore protect the entity's brand and reputation. Moreover, these types of public-private partnerships are not common in China and could pose difficulties both for the government and industries. We can then offer our best legal advice on how you can proceed. The National Drug Intelligence Center of the U.S. Department of Justice estimated in 2008 that Mexican and Colombian drug trafficking groups earned between $18 billion and $39 billion a year from wholesale drug sales.20 In 2010, the U.S. Department of Homeland Security (DHS) estimated bulk cash smuggling to Mexico at between $19 billion and $29 billion annually.21 Other estimates from the United Nations Office on Drugs and Crime, research organizations, and news media have assessed Mexicos drug export revenues to have been in the range of $6 billion to $21 billion a year between 2010 and 2018.22, Although it is not clear what percentage of the cartels illicit profits is laundered through Chinese money transfer networks, U.S. officials fear that the effectiveness of the Chinese networks money laundering is such that it is even displacing established Mexican and Colombian money launderers and putting the flows of cartel money even more out of reach of U.S. law enforcement.23 Chinese operators heavily tax Chinese citizens eager to get money out of China, and are thus able to tax the drug cartels lightly and undercut other money launderers.24 In some cases, a particular Chinese money laundering network managed to get itself hired by both the Sinaloa Cartel and the CJNG; in other cases, they worked exclusively with just one of them.25.