A Guide to Anti-Money Laundering for Crypto Firms

Boston Federal Grand Jury Indicts Eight People in Alleged Money Laundering Ring

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On July 29, 2022, eight people from New Hampshire and Massachusetts were indicted by a federal grand jury in Boston for their alleged roles in an elaborate money laundering operation and trade-based scheme in the city’s Chinatown area. 

According to a press release issued by the US Attorney for the District of Massachusetts, the group purportedly laundered tens of millions of dollars worth of drug trafficking proceeds. They are also accused of participating in a trade-based scheme, utilizing stolen and/or fraudulent gift cards to purchase and distribute thousands of Apple products globally.

Operation Good Fortune

Dubbed Operation Good Fortune, the months-long wiretap investigation identified Chengzou Liu as a marijuana trafficker who laundered his drug proceeds through Qiu Mei Zeng and Zhang’s family-run restaurant, China Gourmet. 

The defendants are believed to have transferred drug proceeds in the equivalent value of Chinese Renminbi to the drug trafficker’s bank accounts, constituting a violation of 18 U.S.C. §1960 (the prohibition of unlicensed money transmitting businesses). By exchanging the drug proceeds for Chinese Renminbi, the defendants conspired to hide the nature and source of the transferred illicit funds and avoid US reporting requirements and China’s capital flight limits

According to the affidavit written by Special Agent Brady O’Donnell, investigators seized over $250,000 of suspected marijuana proceeds as they were being transported from New York to China Gourmet in Boston by Wei Qing Zeng on behalf of Qiu Mei Zeng. After intercepting the vehicle, investigators located the funds hidden under a box of frozen seafood and meats. 

Trade-based money laundering

A trade-based money laundering scheme, involving stolen American Express gift cards, represents another aspect of the group’s illicit behavior. In the affidavit, O’Donnell details how the defendants purchased Apple gift cards with the stolen and/or fraudulent American Express gift cards to “clean” the illicit proceeds and hide the true nature and source of the funds. 

The defendants then purchased Apple products using multiple Apple gift cards before being shipped overseas, including to Dubai. Once in Dubai, investigators believe the devices are sold to countries where Apple devices are not legally available or are prohibitively expensive. According to the affidavit, revenue from the sale of these devices was then funneled back to the US through wire transfers.

Key takeaways

Compliance staff should note that the use of black market currency exchanges by drug traffickers is not a novel method for fund repatriation. The Financial Crimes Enforcement Network (FinCEN) released a detailed advisory in1997 warning firms about drug cartels using illegal exchanges to launder proceeds of drug trafficking. Owing to criminals adapting their use of black market currency exchanges, FinCEN issued another advisory to financial institutions on filing suspicious activity reports regarding trade-based money laundering in 2010.

 

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Originally published August 5, 2022, updated August 5, 2022

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