Government Suggests that Unusual Pleas are Just the Tip of an Iceberg
Chinese law generally prohibits its citizens from converting more than $50,000 in Chinese yuan into foreign currency in a year. On Monday, two men living in Las Vegas pleaded guilty in federal district court in the Southern District of California to operating an unlicensed money transmitter business, in violation of 18 U.S.C. § 1960. Allegedly, they ran a scheme in which they helped clients circumvent this Chinese law — as well as the anti-money laundering programs of U.S. financial institutions — by converting electronic funds in China into hard currency in the United States, which the clients then used to gamble at casinos.
The case reflects the continuing ingenuity employed by individuals to use expanding technologies to circumvent currency controls and money laundering laws. The case is also interesting because the defendants allegedly ran their scheme with the help of insiders at the casinos, who provided assistance in exchange for a cut of the cash.
According to the government press releases, these “guilty pleas are believed to be the first in the United States for a developing form of unlawful underground financial institution that transfers money between the United States and China, thereby circumventing domestic and foreign laws regarding monetary transfers and reporting, including United States anti-money laundering scrutiny and Chinese capital flight controls.” The investigating agencies were Internal Revenue Service-Criminal Investigation, the Department of Homeland Security, and the Drug Enforcement Agency — which noted in the press release that, although the defendants “did not admit to transacting narcotics proceeds in their unlicensed money transmitting businesses, we know that drug trafficking organizations are willing to use a variety of businesses to launder proceeds from the sales of drugs[,]” referencing the prevalence of underground payment systems for the trafficking of narcotics.
The Department of Justice press release sums up the allegations:
. . . . Han and Zhang would collect U.S. dollars (in cash) from various third-parties in the United States and deliver that cash to a customer, typically a gambler from China who could not readily access cash in the United States due to capital controls that limit the amount of Chinese yuan an individual can convert to foreign currency at $50,000 per year. Upon receipt of the U.S. dollars, the customer (i.e., the gambler) would transfer the equivalent value of yuan (using banking apps on their cell phones in the United States) from the customer’s Chinese bank account to a Chinese bank account designated by defendant Han or Zhang. For facilitating these transactions, Zhang and Han were paid a commission based on the monetary value illegally transferred.
. . . .
Han and Zhang further admitted today that they were regularly introduced to customers by casino hosts, who sought to increase the gambling play of the casino’s customers. By connecting cash-starved gamblers in the United States with illicit money transmitting businesses, like those operated by Han and Zhang, the casinos increased the domestic cash play of their China-based customers. All a gambler needed was a mobile device that had remote access a China-based bank account. As a result, Han and Zhang managed to transmit and convert electronic funds in China into hard currency in the United States; all while circumventing the obstacles imposed both by China’s capital controls, and the anti-money laundering scrutiny imposed on all United States financial institutions. For their efforts, the casino hosts often received a cut of Han’s or Zhang’s commission.
The plea agreements remain sealed, which suggests the possibility that both defendants may be cooperating with prosecutors. If so, the obvious targets of such cooperation would be the casino employees who allegedly conspired with the defendants. Aside from the individual criminal liability of any casino employee who knowingly furthered the scheme, casinos themselves are covered by the Bank Secrecy Act and must carry out effective anti-money laundering programs — including, of course, by filing appropriate Suspicious Activity Reports, including as to misconduct by insiders.