Chinese underground banking methods, recognized informally as “fei qian” or “flying money,” have change into central to the operations of organized crime teams around the globe. Functioning past the attain of regulated banking channels, these shadow monetary methods facilitate the covert switch of billions of {dollars} throughout borders.
Expanding Criminal Reach Through Crypto and Casinos
A latest report by blockchain intelligence agency TRM Labs, Shadow Bankers [pdf], explains how these networks are more and more counting on cryptocurrency to hold out speedy and pseudonymous cross-border transfers for legal purchasers. Among these benefiting from these companies are Mexican drug cartels, Chinese Triad gangs, North Korean hackers, and Russian crime syndicates.
According to the report, Triad organizations corresponding to 14K and Sun Yee On have totally embraced the mix of underground banking and digital belongings to launder legal proceeds. Historically dominant in Hong Kong and Macau playing junkets, they’ve expanded their attain throughout Southeast Asia by way of each bodily and on-line casinos. Many of those venues function as laundering hubs, shifting funds derived from drug trafficking, human trafficking, and large-scale fraud.
The COVID-19 pandemic prompted additional adaptation, with Triads repurposing on line casino networks into cyber-scam compounds that conduct “pig-butchering” romance and funding frauds. The illicit earnings from these schemes, typically in cryptocurrency, are cycled by way of on line casino accounts, betting credit, and high-volume wagers. By mixing these funds with legit playing exercise, the cash finally emerges as declared winnings or enterprise income, successfully disguising its origins.
The UN Office on Drugs and Crime has noticed that such casino-based laundering now strikes cash “in much bigger and more untraceable ways than in the past,” making it more and more difficult for authorities to disrupt.
TRM Labs notes that Triad-linked operations continuously mix casino-based laundering with trade-based cash laundering, or TBML. Criminal money is used to buy high-value items, typically by way of entrance corporations, that are then exported and offered overseas to supply legitimate-looking earnings. Cryptocurrency is changing into a typical component at numerous phases of this course of, whether or not for paying suppliers or shopping for items, including additional anonymity to the transactions.
The Mirror Exchange Linking Cartels and Chinese Brokers
Mexican cartels, together with the Sinaloa Cartel, work with Chinese cash laundering organizations by way of what is called a mirror change system. In this association, a Chinese dealer purchases cartel-held U.S. money and pays the cartel’s contacts in Mexico with pesos drawn from funds already beneath their management in that nation.
The similar dealer then sells these U.S. {dollars} to rich Chinese purchasers in search of to maneuver cash overseas, amassing fee in yuan inside China. As a outcome, the {dollars} and yuan stay of their respective international locations, however the worth is transferred between events totally exterior the formal banking system.
Cryptocurrency has enhanced the velocity and secrecy of this technique. Cartel associates can convert bulk money into Bitcoin utilizing crypto ATMs or exchanges within the United States, sending it to wallets managed by Chinese networks. Those networks can then convert the cryptocurrency into fiat foreign money or use it to buy items for the cartel. The complete course of avoids cross-border financial institution wires and reduces the danger of interception.
The TRM Labs report additionally particulars how North Korea’s state-sponsored hackers, who’ve stolen billions in cryptocurrency by way of cyberattacks, depend on Chinese over-the-counter crypto brokers to money out their proceeds. In a 2023 U.S. indictment, North Korean banker Sim Hyon Sop and three brokers — Wu Huihui, Cheng Hung Man, and “Jammy Chen” — had been charged with laundering stolen belongings.
These brokers routed the hacked cryptocurrency by way of exchanges and shell corporations, changing it into U.S. {dollars} that had been then used to buy sanctioned items via Hong Kong-based entrance corporations. The laundering course of typically included mixers and cross-chain “bridges” to make the transaction path tougher to comply with earlier than remaining cash-out.
The report states, “In other cases, North Korean-linked wallets have sent funds to accounts on Russian-run exchanges and mixers, suggesting collaboration — or at least shared facilitators.”
TRM Labs has recognized a minimum of $85 million since 2021 despatched to wallets tied to Russian and Chinese entities engaged within the commerce of army and dual-use gear, creating what it describes as a sanctions evasion pipeline powered by cryptocurrency. Chinese corporations manufacturing army {hardware}, corresponding to drones and optical gear, have offered to Russia, with crypto used because the fee technique.
North Korea has equally used Chinese brokers to channel stolen cryptocurrency into purchases of sanctioned items. Russian darknet marketplaces and crypto exchanges have additionally facilitated laundering for each Chinese and North Korean actors. This relationship kinds an interconnected community by which North Korea gives stolen digital belongings, Chinese networks launder and settle the funds, and Russian actors provide platforms, cyber instruments, and marketplaces.
The report emphasizes that these underground monetary networks exploit regulatory gaps, technological blind spots, and worldwide jurisdictional divides. They function in areas with weak Know Your Customer guidelines, layer transactions by way of a number of accounts, and rely closely on mixers, privateness cash, and speedy blockchain transfers to obscure cash trails.
When enforcement actions do handle to disrupt an operator — corresponding to when Binance froze Wu Huihui’s accounts in 2022 — the networks adapt rapidly, shifting to new platforms or utilizing intermediaries to proceed operations.
TRM Labs concludes that countering these actions will require a mix of superior blockchain analytics, international cooperation, and progressive enforcement methods. The networks’ means to merge long-standing underground banking practices with trendy digital asset know-how makes them a persistent and extremely adaptable menace to the integrity of the worldwide monetary system.
