China, Inc. Is the World's Biggest Money-Laundering Threat

Hypocrisy – thy name is communist China.


During the Cold War, Chinese communists taunted the U.S.A. with cries of imperialism. Our large multinational corporations were denounced for greedily exploiting the Third World.  Our capitalist system was mocked as corrupt and criminal.  The Maoist version of communism was held up to the world as the panacea.


My, have times changed. China’s incredible economic growth is to be admired. But with the growth comes the concurrent effects of transnational Chinese criminal activity.  Much of the proceeds that fuel the Chinese colossus are tainted and disguised.   

Money-laundering is hiding the proceeds of any form of illicit activity.  By measuring dirty money, one measures crime.  Today’s China is demonstrably the world’s biggest money-laundering threat.  The corollary is that China, Inc. is arguably the world’s largest criminal enterprise.

The following are just a few examples of how this affects you:

The DEA stated that China is by far the most significant manufacturer of illicit designer synthetic drugs fueling the opioid epidemic that is devouring our heartland.  Chinese counterfeit consumer goods are pouring into the country.  Is your recent purchase on Amazon the genuine article you thought you paid for, or a Chinese knock-off?  Shocked by high housing prices? Skyrocketing home costs in cities such as New York, San Diego, and Seattle are fueled in large part by the massive influx of laundered Chinese capital.

The rest of the world is also beginning to understand the collective costs we pay looking the other way regarding Chinese criminal activity and money-laundering. 

A former Canadian ambassador to China said, “China is the number one exporter of hot money in the world.”  The reasons are both quantitative and qualitative.

China’s GDP totaled $11.2 trillion in 2016, second only to the United States.  Similar to the United States, such a large economy provides enormous opportunities for money-laundering and other forms of economic crimes. The occasional illicit transaction gets lost in the overwhelming volume of licit activity. 

The United States has its own money-laundering challenges; but in comparison to China, it benefits from a much stricter regulatory environment and adherence to the rule of law. 

While there are many predicate offenses or “specified unlawful activities” to charge money-laundering, the best known is narcotics trafficking.  The U.S. leads the world in illegal narcotics consumption.  But China is struggling with its own trafficking issues.  China’s prosperity has turned recreational drug use into more than an $80 billion annual domestic business.

Yet the scourge of international narcotics trafficking is dwarfed by the monetary value of counterfeiting and intellectual property rights violations – also predicate offenses for money-laundering.  Approximately $460 billion of counterfeit goods were produced last year. Most of it is Made in China or facilitated by China, Inc.  This includes everything from knock-off Gucci bags, Rolex watches, Marlboro cigarettes, pirated Disney movies, to Nike shoes. 

The sale of counterfeit goods is not a “victimless crime.”  Law enforcement knows that trafficking in these consumer goods are high profit and invite the involvement of organized crime and even terrorist financiers.

The worst manifestation of this type of greed is Chinese-manufactured and distributed counterfeit medicines, safety air bags, brake linings, and aircraft spare parts.  Most of these dangerous products are routed to the developing world.  Some also enter U.S. supply chains, including those used by the U.S. military.

Increasingly, the worldwide trade in counterfeit goods is facilitated online.  Chinese websites that peddle counterfeit goods are widespread and used to order Chinese counterfeit products, including counterfeit tax stamps, packaging, and holograms to fit the local market. 

The most pervasive form of Chinese money-laundering comes from “trade-misinvoicing” or trade-based money-laundering. Global Financial Integrity estimates the Chinese economy hemorrhaged $3.79 trillion in illicit financial outflows from 2000 through 2011 – with trends accelerating today.  These funds represent the proceeds of crime, corruption, and tax evasion.  For example, a simple but effective means of moving money/value out of China is by importing goods at overvalued prices or exporting goods at undervalued prices.

The Black Market Peso Exchange (BMPE) is one of the largest money-laundering methodologies in the Western Hemisphere and responsible for laundering billions of dollars of drug proceeds every year.  It is commonly used by both Colombian and Mexican drug cartels.

In the BMPE, drug proceeds, purchased by black market dealers, are used to purchase trade items such as electronics, garments, and toys.  Twenty years ago, most of the goods were purchased from U.S. companies.  Drug money was used to purchase tractors, refrigerators, and cigarettes.  Product, in turn, was sent by the black market dealers to Colombia. American manufacturers were accused of “willful blindness.”  They did not ask questions about the source of the money.

Today, the BMPE has evolved.  Drug money is increasingly used to purchase Chinese merchandise either directly from China or via U.S. importers.  Once again willful blindness comes into play.  The technique has expanded still further.  Importing cheaply manufactured Chinese goods at overvalued prices gives reason to send criminally derived money directly out of the country sometimes avoiding currency controls.  This laundering technique is prevalent in many parts of the developing world.

Europe has been hard-hit with another version of Chinese trade-based money-laundering.  Italy, Poland, Spain and many other countries have seen a flood of cheap Chinese imports and counterfeit goods.  Warehouses in industrial parks are found outside major European cities.  They offer a vast range of consumer goods such as tools, paper products, electronics, and kitchen supplies. The importers declare only a fraction of each shipment. (The volume of trade is so high customs officials are only able to physically inspect a very small percentage of shipping containers.) 

The under-valued goods are sold and the proceeds are often laundered back to China. The government loses tax revenue.   Proceeds rarely stay in the host country.  Billions of euros have been laundered.  There has been a major multi-billion euro investigation in Italy where Chinese authorities actively obstructed justice.  In Spain, China’s largest bank is accused of facilitating some of the laundering schemes run by “Chinese criminal organizations.”  Prosecutors say the sums of illicit proceeds are so large that the “damage to the socio-economic order and the national economy is clear.”

Invented during the T’ang Dynasty (618-907 AD), a subset of trade-based value transfer is Chinese fei-chien or “flying money.” Remitting sums of money via value transfer in trade goods has been perfected over the centuries.  Today, underground “flying money” is used by the Chinese diaspora around the world – including Chinese organized crime. Flying money also facilitates Chinese capital flight.

The insatiable Asian demand for smuggled African ivory has resulted in the slaughter of tens of thousands of African elephants.  According to some experts, the very survival of the species is in China’s hands.  Wildlife trafficking is facilitated by international criminal networks.  Enormous profits are generated and laundered. 

International illegal logging and forest exploitation feed China’s voracious appetite for wood.  For example, Papua New Guinea is home to the world's third-largest tropical rainforest. Land and forests belong to the country’s indigenous people by law, but the government has given away wide expanses of land to foreign business, much of it illegally. Ancient rainforests are being razed, and the logs shipped to China.   

Human smuggling is also a major source of illicit trade.  The U.S. Department of State has called China a “source, destination, and transit country for men, women, and children subjected to forced labor and sex trafficking.”  Human smuggling from China to the United States – both by land and by sea – is reported to be on the rise. The going rate per person smuggled is believed to be somewhere between $50,000 and $70,000.  And Chinese mafia groups are expanding their ties with counterpart criminal organizations in Latin America and branching out into the trafficking of counterfeit goods and the sale and distribution of narcotics.

A depressed stock market, political uncertainty, and fears of a domestic real estate bubble encourage wealthy Chinese to get much of their money out of the country. Yet China has limited its citizens to sending the equivalent of $50,000 a year out of the country.  There are many ways they get around this, including structuring legal transactions using family and friends, the use of underground banking channels, “flying money,” trade-based value transfer, and even casino and gaming junkets via Macau.

The Chinese territory of Macau reported gambling revenue of 360 billion patacas ($45 billion) for 2013.  By comparison, Las Vegas casinos earned $6.5 billion.  Macau is the only location in China where gambling is legal, and millions of tourists flock to the territory each year.  The territory is almost entirely dependent on gambling.

Via junket operators, visitors use yuan/renminbi to buy casino chips and cash out their winnings in foreign currencies, including dollars. The money can then be moved abroad and used to make purchases in Europe and the United Sates – thereby laundering their money and circumventing capital flight restrictions.

Money launderers use other methods to “layer” and disguise their transactions so that law enforcement authorities have a difficult time “following the money.” A preferred tactic is to use offshore shell companies without beneficial ownership information.  The British Virgin Islands is one of the world’s largest offshore destinations for secrecy and, as a result, one of the favorite destinations for Chinese wanting to move businesses and cash offshore.

Roughly 40 percent of the BVI’s offshore business comes from China and other Asian countries.  Many clients include communist Chinese elites.  Chinese send wealth offshore (often using trade mispricing tricks), layer it in offshore secrecy, and then sometimes return it to China disguised as foreign investment which enables special tax and other privileges.

There are U.S. national security repercussions. For example, China is North Korea’s largest trading partner.  It exerts enormous influence on its small but nuclear-armed neighbor.  North Korea engages in a variety of illegal activities including counterfeiting to help finance its statist regime.

China also falls short in enforcement.  According the State Department,  “U.S. law enforcement agencies note China has not cooperated sufficiently on financial investigations and does not provide adequate responses to requests for financial investigation information” . . . nor does “China enforce U.S. court orders or judgments obtained as a result of non-conviction-based forfeiture actions against China-based assets.”

Corruption is the great enabler or catalyst for money laundering. In Transparency International’s 2016 “Corruption Perception Index” that ranks countries around the world, China is tied with Belarus, India and Brazil at 79. The U.S. is ranked 18th.  Chinese President Xi Jingping claims he is against corruption but willfully turns a blind eye to it - unless conducted by one of his political rivals. 

What can be done?

Ironically, China is a member of the Financial Action Task Force (FATF), the international anti-money/counter-terrorist (AML/CFT) policy-making body that sets worldwide standards and guidelines.  Periodically, FATF issues warnings about “high-risk” and “non-cooperative” countries and jurisdictions.  The process is sometimes called the FATF “blacklist.” The negative publicity and subsequent monitoring of the blacklisted country result in increased scrutiny.  Sometimes this encourages blacklisted countries to clean up their acts.

FATF should publicly name and shame China.  Politically, it is not going to happen.


John A. Cassara is a former U.S. Intelligence Officer and Treasury Special Agent.  He has written four books and numerous articles about international money laundering and terror finance. Set

If you experience technical problems, please write to