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Sinaloa Cartel accused of laundering $50 million with Chinese banking group in Los Angeles

LA-based Sinaloa cartel members charged in Chinese money laundering conspiracy
LA-based Sinaloa cartel members charged in Chinese money laundering conspiracy 01:04

The Sinaloa drug cartel is alleged to have worked with an underground Chinese money laundering group in Southern California to wash more than $50 million — transferring money made from drugs like fentanyl to wealthy Chinese nationals in need of U.S. cash.

The head of the U.S. Drug Enforcement Agency joined federal prosecutors and police from five cities across the region for a press conference Tuesday morning announcing the indictment of 24 people. As part of the massive bust, investigators seized about $5 million from the sales of narcotics, 302 pounds of cocaine, 3,000 Ecstasy pills, 92 pounds of meth and 44 pounds of psilocybin, or magic mushrooms, in addition to some ounces of ketamine, three semi-automatic rifles and eight semi-automatic handguns.

Five years of investigation led to the 10-count indictment charging members of El Chapo's drug cartel and an underground Chinese banking group it became "closely allied" with, U.S. Attorney for the Central District of California Martin Estrada told reporters.

Cash seized during an investigation into money laundering in Los Angeles by the Sinaloa cartel and an underground Chinese banking group. KCAL

"These two groups have discovered that they have mutual interests," Estrada said. 

Anne Milgram, administrator of the DEA, described the cartel as a "ruthless, violent global criminal enterprise that is responsible for killing Americans and devastating communities from coast to coast." 

"They do this for one reason -- money," Milgram said, adding that the Sinaloa cartel makes billions of dollars each year from illegal drug trafficking. "For the cartel's leaders to spend it, the money has to be cleaned. For years, the Sinaloa cartel relied on smuggling truckloads of cash to Mexico or using middlemen to launder that money through banks and businesses."

"This investigation shows that the Sinaloa cartel has entered into a new criminal partnership with Chinese nationals living in the United States who launder money for the cartels," she said.

Milgram said the cartel has heightened its profits by working with the other criminal organization, which helps wealthy Chinese nationals who are largely prohibited from transferring over $50,000 per year.

The DEA has traced the cartels' use of underground Chinese banking groups to launder money back to at least 2016, according to testimony before Congress last year by Channing Mavrellis, Global Financial Integrity's Illicit Trade Director. This is because China has strict economic policies that do not allow the free movement of cash in and out of the country.

"Those Chinese citizens seeking to exchange or transfer in excess of $50,000 frequently turn to informal means," Mavrellis testified.

Estrada explained how the criminal goals of both organizations led to the partnership.

Bundles of cash seized by federal investigators as part of a probe into money laundering in the Los Angeles area by the Sinaloa cartel. KCAL

"The cartels are desperate to get cash made from the sale of drugs in the United States back down to Mexico -- without having that cash seized by U.S. or Mexican authorities," Estrada said. "The Chinese money laundering groups, on the other hand, are in the business of helping wealthy Chinese nationals obtain cash in this country, and thereby, circumvent export controls in China on the movement of cash."

The lead defendant in the indictment is Edgar Joel Martinez-Reyes, a 45-year-old East Los Angeles man accused of working with other associates of the cartel to hide the source of the money, doing so through trade-based money laundering, buying cryptocurrency and "structuring" assets in such a way that avoids federal financial reporting requirements, according to prosecutors.

He allegedly met with Sinaloa cartel members in Mexico in January 2021 to make a deal with associates of the underground Chinese banking group. He and his co-conspirators allegedly delivered money made from selling drugs such as fentanyl and meth, often hundreds of thousands of dollars, to "money remitters" with the criminal Chinese enterprise.

These remitters would then deliver the U.S. cash directly to money exchange customers — typically wealthy Chinese nationals — or "wash" the money by using it to buy luxury goods and cars that were later shipped to China, according to prosecutors. They allegedly also would deposit the money back into the traditional banking system by making many small deposits into bank accounts for just this purpose, an effort to keep these banks from reporting large cash deposits to the government. 

Milgram said the money laundering operation also allegedly purchased chemicals used to manufacture drugs such as fentanyl. In recent months, the DEA has been investigating and making arrests in connection with the China-based chemical supply chain behind the making of fentanyl. She said one of the defendants in this case was arrested in China.

The DEA head said the partnership with an underground Chinese banking group has also led to increased profits for the cartel.

"These Chinese criminal money laundering networks can move money faster, cheaper and at a fraction of what is usually charged," Milgram said. "Chinese money laundering networks charge as little as 1 or 2 percent commission to launder drug money -- as compared to the 5 or 10 percent charged by traditional money launderers."

Reyes allegedly managed a group of money launderers in the greater Los Angeles area, and these couriers would pick up hundreds of thousands of dollars at a time. Milgram said these associates would pick up "10s, 20s, 50s and 100s wrapped in rubber bands from drug traffickers supplied by the Sinaloa cartel."

"These couriers would take that money, count it, package it and deposit it in bank accounts set up in their own names and in others' names, depositing small amounts over and over again to avoid the bank's reporting requirements," Milgram said.

In one instance, she said, one of the couriers made 24 small deposits into a Citibank atm back-to-back which added up to $16,000. Another courier allegedly deposited nearly $20,000 into another bank account through 15 back-to-back deposits into a Citibank atm, just a few days after the other 24 deposits.

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