June 7, 2023 | Miami Herald

U.S. must expose China’s hidden hand in America’s deadly fentanyl crisis

June 7, 2023 | Miami Herald

U.S. must expose China’s hidden hand in America’s deadly fentanyl crisis

Fentanyl is now the leading cause of death for Americans ages 18 to 49, taking tens of thousands of lives each year. The federal government is working to reduce demand for the drug at home while disrupting the supply of fentanyl by Mexican cartels. Those efforts are necessary, but so far Washington has failed to exploit one of the cartels’ greatest vulnerabilities: their dependence on Chinese money launderers to send massive profits back to Mexico.

The cartels produce fentanyl-laced pills for as little as 10 cents and sell them for $10 to $30 in the United States. The cartels previously sent shipments of bulk cash across the Southern border, then relied on Mexican banks to not ask too many questions. But global anti-money-laundering controls have gotten tougher.

Bringing profits home is essential for the cartels because they need cash to finance their operations. That’s where Chinese money launderers come in. They don’t need to ship the cash to Mexico — risking seizures by law enforcement — because they have ways to launder the cartels’ profits inside the United States.

Wealthy Chinese nationals in the United States are hungry for dollars because their government allows citizens to convert only $50,000 worth of yuan into U.S. dollars each year. Beijing also restricts the direct transfer of Chinese currency abroad. Thus, wealthy Chinese turn to the black market to buy dollars, which they invest in U.S. real estate or use to pay tuition at American universities.

After exchanging their dollars for yuan, the crucial last step for Chinese money launderers is to deposit those yuan in Chinese banks, which have not fully implemented the anti-money laundering controls that have taken root around the globe. A pair of indictments by the U.S. Department of Justice underscored the indispensable role of Chinese banks.

In 2020, the Department of Justice indicted Xianbing Gan, a Chinese national, and Xizhi Li, a U.S. citizen for money laundering. Both lived or spent time in Mexico. Gan processed between $25 million and $65 million and received 14 years in prison following his conviction. Li obtained at least $30 million of laundered cash, pleaded guilty and received a 15-year sentence. Both men held accounts at three of China’s largest banks, which are also the largest banks in the world.

The U.S. government already has several important tools it can employ to exert pressure on these banks, including sanctions, fines, prosecutions and subpoenas to increase transparency and encourage banks’ compliance.

Some may fear that these kinds of enforcement actions would risk triggering a global financial crisis, but that is unlikely. The United States used these same tools from 2016 to 2018 against Chinese banks aiding North Korea’s sanctions evasion, which led to increased Chinese sanctions enforcement — both the Obama and Trump administrations capitalized on their fear of losing access to the U.S. financial system. The Biden administration can and should use a similar approach. Effective money laundering relies on a continuous cycle of moving funds, so throwing a wrench in any part of the system could disrupt down.

While the executive branch should initiate enforcement actions right away, Congress should toughen counter-trafficking laws. Its priority should be to update the 2019 Fentanyl Sanctions Act. Instead of offering the current menu of possible sanctions to impose on opioid traffickers, it should require the strongest sanctions: property blocking and visa denial.

Congress should authorize the president to impose a range of sanctions on the facilitators who serve the drug traffickers, including individuals who are grossly negligent with respect to financial transactions or who export drug precursors. Congress should also enact so-called secondary sanctions targeting those who do business with the primary targets of fentanyl sanctions. Specifically, the law should impose sanctions on foreign financial institutions that knowingly conduct or facilitate significant financial transactions on behalf of a sanctioned person.

To support these efforts, the Treasury and State departments should publicly highlight the role of Chinese money launderers and be even more blunt with Beijing’s representatives in private. The administration should also surge resources for law enforcement and for intelligence assets that follow the flow of cartel money inside the United States and abroad.

The Biden administration and Congress must tell China that access to the U.S. financial system comes with a non-negotiable condition: Chinese banks cannot fund the drug crisis that is killing tens of thousands of Americans each year.

Anthony Ruggiero is senior director of the Nonproliferation and Biodefense Program at the Foundation for Defense of Democracies (FDD) and served as the National Security Council’s senior director for counterproliferation and biodefense in the Trump administration. Elaine Dezenski is senior director and head of FDD’s Center on Economic and Financial Power and served as the deputy and acting assistant secretary for policy development at the Department of Homeland Security in the Bush administration. Follow Anthony on Twitter @NatSecAnthony. FDD is a Washington, DC-based, nonpartisan research institute focused on national security and foreign policy.


China Sanctions and Illicit Finance