The white gift bag with a cheery “Happy Birthday” printed on the side didn’t have a present in it. It had $226,000 in cash that the Sinaloa drug cartel needed laundered, authorities allege.
The U.S. Department of Justice on Tuesday announced a multi-count indictment that charged more than a dozen Los Angeles members of the Mexican Sinaloa drug cartel and Chinese currency brokers with conspiring to launder drug money for years. The lead defendant, Edgar Joel Martinez-Reyes, 45, is a resident of East Los Angeles. The investigation so far has yielded $5 million in cash, more than 300 pounds of cocaine, 92 pounds of methamphetamine, 3,000 pills of Ecstasy, and 44 pounds of magic mushrooms. According to the indictment, the list of defendants includes Peiji “Dr. P” Tong, Sai “Tommy” Zhang, Chengwu “Ocean” He, Raul “Batman” Contreras, Jiaxuan “Edward” He, Diego Acosta Ovalle, and others.
The first 20 defendants will be arraigned in the next few weeks and if convicted on all charges, each faces a minimum of 10 years in prison or a maximum penalty of life in prison.
“Relentless greed, the pursuit of money, is what drives the Mexican drug cartels that are responsible for the worst drug crisis in American history,” said DEA Administrator Anne Milgram in a statement. “This DEA investigation uncovered a partnership between Sinaloa Cartel associates and a Chinese criminal syndicate operating in Los Angeles and China to launder drug money.”
The DOJ said the cartel, based in the Sinaloa state of Mexico, has been behind the surging infusion of fentanyl in the U.S. in the past eight years, which drums up hordes of cash. In order to get the money to Mexico, cartel members turned to Chinese money exchanges in the U.S., authorities said. To set it up, Martinez-Reyes and “Dr. P” Tong allegedly went to Mexico roughly four years ago to sign contracts to launder the cartel’s drug profits in exchange for a commission fee.
After the agreement was made, drug dealers laden with cash delivered it to currency brokers for laundering purposes. To disguise the cash, the defendants used gift bags, reusable shopping sacks, backpacks, a box of Fruity Pebbles, and other items to conceal the money, authorities said.
Prosecutors said the couriers bought crypto, or deposited the money into bank accounts in small, structured doses. The indictment states that the cryptocurrency could easily be transferred to accounts held by the Sinaloa Cartel. Other methods of laundering the gains included buying precious metal and gems and taking them to Mexico for sale.
The indictment outlines a complex scheme involving Chinese money exchanges. The currency exchanges that work with the cartels also assist rich Chinese nationals who invest in China and want to transfer their money to the U.S. but are barred by the Chinese government, the DOJ said. Rules in China prohibit people from moving more than $50,000 per year out of the country.
To get around the restrictions, Chinese residents tap brokers who sell U.S. dollars, authorities said. The brokers give the China-based residents bank account details in China with instructions to deposit Chinese currency into an account. Once the account holder confirms the deposit, an equivalent amount of U.S. dollars is given to the U.S. broker. The brokers take cash from the cartels and charge a percentage-based commission fee of about 0.5% to 2% of the total amount to disguise the drug money. (Traditional money launderers charge much higher rates than the Chinese launderers, authorities said, ranging from 5% to 10% or more.)
“Drug traffickers increasingly have partnered with Chinese underground money exchanges to take advantage of the large demand for U.S. dollars from Chinese nationals,” said the DOJ.
The brokers either delivered the U.S. dollars directly to customers or bought property, luxury goods, and cars that they shipped to China, the indictment states. Money transferred in China was used to buy items for businesses in Mexico like consumer goods or chemicals used to make more narcotics, authorities said.
“This case is a prime example of Chinese money launderers working hand in hand with drug traffickers to try to legitimize profits generated by drug activities,” said Guy Ficco, chief of the IRS Criminal Investigation.
