COVID-19’s Effect On Money Laundering
Illicit funds seem to be backing up in Los Angeles, evidenced by three seizures of over a million dollars each carried out over the past three weeks. It is believed that more sophisticated ways of transporting dirty money have been halted due to the coronavirus pandemic. According to the Los Angeles Times, “The coronavirus pandemic has slowed trade-based money laundering systems that drug trafficking groups use to repatriate profits and move Chinese capital into Southern California.”
One method that has been slowed is the Black Market Peso Exchange, where drug traffickers use wholesale businesses to remit profits back to Mexico. It is quickly explained in the following video from when undercover police in Florida were involved in a similar scheme to send money to Colombia:
The other money laundering method that has been impacted is Chinese capital flight. The Times explains:
With the Chinese government curtailing the amount of money its citizens can shift overseas, drug traffickers and money brokers set up the following system, Bodner said: A Chinese national who wants to convert yuan to dollars and stash it in the United States will contact a broker. The broker instructs this person to pay a factory that produces chemicals used to make methamphetamine or fentanyl.
The factory ships the precursors to Mexico, where they’re converted into narcotics, smuggled into the United States and sold for dollars. The broker directs the drug trafficking group to deliver cash to a relative or an associate of the Chinese national whose money initiated the entire sequence.
That money is now in the United States in USD and has not entered the global financial system. “The more money that wants to leave China, the more chemicals go to Mexico and the more synthetic drugs end up in L.A.,” said Bill Bodner, special agent in charge of the Drug Enforcement Administration’s Los Angeles field division.
The pandemic has thrown a glitch in the cycle because most drug precursors made in China are from Wuhan, the epicenter of the pandemic where factories have been shuttered or are operating at reduced capacity.
The pandemic has also caused the price of illicit drugs to rise. For example, with supply lines in shambles, a pound of meth which went for around $900 five months ago is now $1800.
