Matthew Cox | Inside True Crime Podcast - Cartel Insider Reveals How Money Laundering Actually Works

Episode Date: August 26, 2024

Cartel Insider Reveals How Money Laundering Actually Works

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the shit had to get involved. Now, the reason why this particular model has taken off is because... Hey, wanted to go ahead and give you a quick disclaimer. This is a video about money laundering, about how the cartel has changed its dynamic as, far as laundering money and how they are now using a Chinese method that we go deeply, deeply into and explain. Pete initially had done an extremely extensive description of that process. It was too much. It was too extensive. It was too complicated. And I just don't

think anybody's going to stick around to listen to it. And so we're going to start a little bit into the video so that it's a little bit more fast pace. If you want to see that version, though, we're putting the full version on our Patreon along with the curse words and everything else that we have to cut out of the YouTube video. But check out this video. It's going to be great. Well, today we're discussing a novel circumstance that has revolutionized how drug cartels surface and launder their capital. Okay. In particular, the advent of Chinese underground banking networks. Drug trafficking organizations, like Sinaloa and Haleasco cartels, cannot make use of their profits without being able to surface the capital. Back when I was active,

Before the Chinese became involved in laundering drug money for Mexicans, there were a couple of ways to get the drug proceeds back to Mexico or to Colombia. Senolual Kingpins came together in 1987 to form a collective. The Senolua Collective became operational as a standalone cartel in 1989 after the arrest of Miguel Felix Gallardo and the collapse of the predecessor in Guadalada Cartel. Los Angeles was adopted by the Senaloa leadership as the American base of operation. With respect to transporting money to Mexico, that was fairly easy.

The cash generated by Senalo's American-based distribution network was consolidated in L.A. And simply physically transported down to Mexico. Essentially, these are what are known as bulk cash transports. That's what $3 million in cash looks like. When I was 22 years old, I participated in a handful of bulk cash transports. The money would be loaded into the trunk of a Toyota, then driven down to the border. While not very sophisticated, it was very effective. Right.

Well, how does that work? You drive down there and you just, did you go? In New Mexico? No, no, of course not. We don't cross the border. Why not? Because that's a separate operation. Okay.

See, the group in Los Angeles is essentially a distribution network. Their operation requires them to get the money to the border. So once, just north of San Diego, right north of the border, there's a small town called San Jacido. And before you get into Mexico, there's a McDonald's right near the border. Right. And so what you do is you drive to, you know, in my case, So Toyota Camry,

bomb run down to San Diego, go to the McDonald's, order some food, bullshit around, here comes the operator for the other group. So now he'll come over, give me a dollar bill, ask for change. I give the guy four quarters, you go down his way.

At that point, I check the dollar bill because you're going to have a serial number, but that serial number has to correspond with the number I was given back in Los Angeles. So once the serial numbers match, at that point, I go into the restroom, pass the guy to car keys. He leaves in the vehicle.

I just stay at the McDonald's. Right. 20 some odd minutes later, the guy comes back. The car is parked. Keys are under the floor mat. That way, you don't say, some guy showed up. I thought he was your guy.

Give him the money. I got the dollar as a receipt. Right, right. So it had to be your guy. Had to be the guy. And for the first couple of times, like these are how people build credibility. Right.

You know, and like I said, for the first ones, I was 22 years old. Right. And so they were able to gauge how you carried yourself. And so for the first two, there was a chase car. That way, they were able to confirm, hey, vehicle delivered. Right. A vehicle picked up.

So now once the money is taken into possession by the other group, it's out of your hand. You can provide an accounting. I got to the drop-off point. I got the receipt. Right. Everybody's in the clear. Now, what they do, they take the money and run it into Mexico. They got to get it down to Guadalajara.

Right. But nobody's stopping any cars going into Mexico. At the time, no. I don't know how it is today, but back then, of course, nobody was getting any searches whatsoever. And remember, it's Mexican nationals going back into Mexico. Right. So it's not even, you know, 21, 22-year-old Americans,

which perhaps theoretically could get some level of scrutiny. you got just some guy coming home from work. So when they get the cash back into Mexico, do they then try and put it into a Mexican bank, or do they leave it in cash form? No, they definitely want to get it into the Mexican bank. Right. How hard is that?

Well, not very difficult, but it requires a tremendous amount of infrastructure to be in place. And so, you know, what was advantageous for Sinaloa is their territory encompassed for the principal tourist destinations. So they had control of Guadalajara, which is the second largest city in Mexico, which is essentially taking Chicago and Houston, adding them together, that's their city. So you've got tremendous amount of nightclubs, tremendous amount of strip clubs,

all of these cash-intensive businesses that they can use to filter money through. They also had control of the resorts. And so right across the bay from Sinaloa is Kabul. Well, that metropolitan area encompassing both Kabul, San Lucas and Los Cabos was essentially built by seeing a law. Right. Because I understand when you see like Like they say how Mexico, they say like

you know, building half of Miami was built by drug dealers. Sure. Okay. Because the thing is, you know, when American resorts go down into Mexico, they're essentially renting the property. You know, the Rich Carlton doesn't build the resort. Hyatt doesn't build a

resort. A cartel owned property company owns the land. They lease it to a cartel-owned company that manages the resort. They have a second property, a second company that's responsible for the development company for building the resort. Right. So this is just all money circulating through various accounts. And then the American come in and say, hey, well, we're going to brand this thing, a Hilton Hotel.

Not realizing that the land that's on belongs to the cartel, the property is rented. and the property is managed all by cartel front companies. Now, in order to get the money into the banking system, that's where it requires a large infrastructure. But again, having control of the American tourist areas provides them with a ready pretext. Why? Because Americans go down there, and they're spending dollars.

Right. And so between Cabos-San-Luccas and Los Cabos is a 20-mile stretch. Well, you could be standing in Cabo, going to the nightclubs in Los Cabos, well, you're going to jump in a taxi and drive back and forth. Well, there are companies that maintain warehouses filled with taxis that never leave the warehouse. These are just phantom fares.

That car is on the road, three shifts every day, and at the end of the day, you know, at the end of every shift, the secretary from the office, she's going to make cash deposits. Why? Because it's Americans renting them. The party buses that run from Cabo San Lucas to La Paz. Those buses don't leave the terminal. But on paper, they're making. and two trips a day, filled with gringos. Right.

The sport fishing boats, Calabal St. Lucas is an enormous sport fishing area. Well, the charter boats are rented twice a day, filled with Americans. And as you can see, this provides a pretext for them to just say all these cash deposits. Right, right. So if it made $20,000, made $12,000 today, you just say it made $20,000. Or if it made zero, you just said it made $10,000. Right, right. A lot of times those charter boats don't even leave.

They just stay in a marina. But on paper, they've made two trips filled with seven tourists. What's funny about that is, I have a story. Okay. I think you've heard this before. I have a buddy whose dad took early retirement from Bank of America, took his retirement, and went and bought a laundromat. I think I might have told you this.

Bought a laundromat. And he, of course, he goes in, smart guy, he looks at the books. You know, what have you been telling the IRS you made? And they're solid. Yeah. Like it looks great. So, and he's like, look, I want like half a million dollars or something for these, this one or two laundry amounts. Whatever it was.

I think, let's say it's one. So he's like, I want 300,000, let's say. 300,000 for this laundry amount. He's like, damn, like, I, like, it's really doing well. I got a real deal here. So he gives him 300,000, which is essentially a good chunk of his retirement, buys the place from the guy. And almost immediately, he's not making nearly. what this guy was making.

And so then he ends up saying, okay, well, you know what? Maybe the employees are stealing from me. So he ends up letting like two of the employees go and starts working all the hours pretty much himself. He and like his wife or his kid, right, whoever. Then he, you know, that's not working. And then he starts running a few more ads. And then he, like he just starts doing all these things.

He struggles for six months to a year. And after a year, he's basically pulling more money out of his savings account, his retirement fund to just to make the bills like after a year he's basically breaking even and he realizes like I'm basically working for nothing at this point so he said you know what fuck it and he closes the whole thing up and it's it's done he closes a few years later he's reading the newspaper and he sees the guy that he bought the um the laundry mat from got indicted for the past 15 years he's been opening up running two or three laundromats at one time. He would run them for three or four years and then he'd sell them.

But he was laundering money through the, for the, for drug money for dealers or whatever, um, uh, um, traffickers or or what distributors, whoever it was. He's running their money through partly to get like 10% of the money is his and partly and he's making payments to like phantom, um, employees, whatever he's helping the, making payments on loans that he doesn't have to give them their money back. But his real goal was to build up the portfolio for the business, the business taxes for the actual business. Because he's like, look, I can run an extra half a million dollars through my laundromat and I can pay taxes on it. But after three years of doing that, it looks extremely profitable on paper.

And I can just sell it and I'll make $300,000. Stick $300,000 in my pocket. So he had this whole thing. He did it for like 15 years. He got busted. I don't know how much time you got. But of course, you know, you think, oh, well, that's, in a way, I think thinking about money laundering, it's kind of like, oh, it's almost like, who's really getting hurt?

But the truth is, look, my buddy's dad, like, lost his entire, well, probably half of his retirement. Like he retired with almost like a million dollars, $300,000 to get into it. Another $200,000 to try and keep it afloat for two years. And then just completely fucking went on. But, yeah, so, I mean, it's... Well, here domestically in the United States, that's a common ploy that's used in Los Angeles.

You know, several decades ago, the most popular athlete on the planet was Bo Jackson. And so this was in the summer of 93. And so me and a group of my buddies were all partying at a nightclub in Beverly Hills, called the China Club. And so my buddy comes over, hey, you want to meet Bo Jackson? You know, I lived in Los Angeles, but I was from Chicago. I actually grew up just a few miles away from Comiskey Park.

Well, he was on the White Sox at the time. So I go over, I get introduced to Jackson, we bullshit for a little while. No big deal. A year later, I see him again at a nightclub down in Newport Beach. And so I walked over, reintroduced myself. And he remembered because there weren't too many guys from the south side of Chicago who had moved to Barley Hills. Right. And so we had this whole little conversation, you know, like I said, spent a few minutes bullshitting.

And then the second time around, he's telling me that he's making an investment. He's taking a look at this nightclub. He's like, man, this place is a gold mine. Like, you come here often? And I was like, like I knew it was being used to launder money. Right, yeah, this is not. And he's like, and so I'm like, oh, you know, I come here.

You know, it's a little bit. You know, I was actually out with my girlfriend who's one of her friends's birthdays. It was more like it wasn't the type of nightclub I normally hung out at. It was more of like a touristy trap place over in the fun zone area in Newport Beach. Right. But it was being used by people to surface capital. And so he's telling me about this thing as a gold mine. He's thinking about making an inverse.

You spend a lot of time A nightclub, what do you think? And I saw, look, sometimes things aren't what they always appear. Right. Like, I didn't tell them exactly what was going on. I said, just be very careful. He's like, well, because he brought in his accountants. He brought in, you know. It doesn't matter. It's been set up to fool all then.

That's right. It's like, you know, I had one of the principal targets in my case was an individual named Robles and Robles on the nightclub down in Orange County that on Thursday night through the hottest party in Orange County for a couple of years. probably about two and a half years it was a disco 2000 party

and his nightclub was the host for disco 2000 on Thursday nights which was enormous then on Friday and Saturday it was a standard nightclub and so he was able to take the proceeds derived from the sale of alcohol

with respect to those three nights and then inflate it right and so this is actually how I got interested introduced to the individual Lance Estes, who was the primary target of one of my other conspiracies, because Lance was head of security at the nightclub, and he was a right-hand man. And so he was responsible for, let's say, you know, if you got a thousand people all spending 300 bucks apiece, that's 300,000 in gross sales. Well, the next day, they deposit

$450,000. Like, he's taking the money to the bank with the girl that was responsible. That's the way it looks better, too, right? And there's some credit, like to just say, oh, is all cash. No, it's better if there's some credit cards going through. Sure. There's some whatever back then checks, checks, credit, whatever's going through. That way it's a mixture of just happens to be a little bit more cash than the average. Because the IRS has, they have statistics on what a typical club brings in. So if it's too out of character, then they could launch an investigation and say something's not right, watch it, try and figure it out. When the nightclub is in a very wealthy area. You're right. And you go there on any

Thursday night or there's Lambeaus, Ferrari's Porches Park. Cash back then is super prevalent. Much more prevalent than it is today. Now it's almost non-existent at this point. What was interesting about this particular setup is it was popular on Thursdays, Fridays, and Saturdays as a standard nightclub. Right. Sunday to Wednesday, there was essentially no business coming through there. Well, that provides the key opportunities to surface capital because a full nightclub limits your ability to raise money, to push money through.

Right. Well, what this particular nightclub would do, is they would have live music events. And so, you know, back in the mid-1990s, the Orange County music scene exploded in popularity. Well, back in 93, like in the heart of the drug activity in my case, you know, you had bands like corn before they went on to achieve international stardom. Right.

They were playing this clip. All these little Orange County bands that just cut their teeth playing at Robles's Nightclub. Right. You might have, in fact, one of the corn concerts is on, YouTube. There's like 200 people at this nightclub. All right. So what do you... On paper, there's a thousand. Yeah, I was going to say. Yeah, yeah.

So you've got, you know, 800 people paying to cover. You know, 800 people worth of phantom sales and alcohol. Right. And so on paper, that nightclub looks extremely successful because you've got three main nights, including one night, which is the hottest club in Orange County, and three or four nights a week with live shows. So someone like a Bo Jackson steps in And he's looking at the numbers

Yeah, same thing with the IRS, the taxes Exactly what happened with your buddy Right, who would pay extra money on taxes If they weren't making it like that's insane And who would spend you know Three or four years setting this up like that doesn't happen So people think it does happen But that's what they're thinking

Yeah, it's got to be legit That's why you know the nightclub industry I can speak from personal experience in Los Angeles was just principally a money laundering venture, whether it was, you know, two popular nightclubs in Beverly Hills, there was one on the sunset strip, there were at least two down in Newport Beach. Right.

They're just all pushing through money. Right. Well, I was just a thing. The reason why the nightclubs are really not only because it's a cash-intense business, but you'll notice a club will have like a two-year run or three-year run, then they shut down. Right. Then they'll reopen six or eight months later.

Well, that's a model that was generated by, the Italians in the organized crime context because that's how they set up the strip clubs because there was a guy who was South Florida in fact he's deceased so I'll say his name Michael J. Peters who would go around setting up strip clubs like one of the guys in my case

met with Peters to get in on a strip club out of Minnesota and so they'll take a minimum of a million dollar investment and they'll funnel it through the strip club However, the way they would do it is they would take a business that's bankrupt. They purchased the bankrupt business to capture the tax loss credits. Because when you take that business and then inject new capital into it and operate it, you can write off those tax loss credits. So not only are you surfacing the money, but you're doing it tax-free.

Right. You're offsetting your taxes and you're able to launder the money. And you're laundering the money. And then over the course of that next three-year period, you're going to be able to write off all of the renovations. It's depreciation. So you're laundering the money through depreciation, you're laundering money through the tax credits,

and you're pushing the money through. Then three years later, you shut it down, reopen it after new renovations, transfer ownership to another company with accumulated tax loss credits, and just do it again. That's why you'll see nightclubs run for two years, shut down,

reopen six months later, under new management. That's just a common device that's utilized here in the United States. In Mexico, totally different. Right. Because in Mexico... Aren't they more money laundering friendly? Here's the thing.

In Mexico, first of all, there's no 2 o'clock in the morning shut down alcohol. There's no last call. So they're selling all day. Also, particularly with respect to the nightclubs and tourist areas, you know, you were in to Cancun? It's just spring break. Yeah, yeah.

Every day is spring break. You go to Kabul. Every day is New Year's Eve. I mean, it's just, nightclubs are just packed, like a nightclub in Guadalajara holds 3,000 people, clubs in Forta Vajarta, and Cabo San Lucas, clubs in Cancun, clubs in Mazelan. Right. These are all controlled and Sinaloa territory.

Well, a club that holds 3,000 people, if you've got $300 per person in sales, that's $900,000 in legitimate sales. So instead of $300, you say they, these ones spent $400. Or $500. Right. And since you've got a tremendous. continuous contingency of Americans there. No one's going to be suspicious when they're dropping off all this cash and dollars. Hey, you guys, you ever heard the term cool like the other side of the pillow? Listen, this pillow is great. It's called ghost bed. I personally, you have used one of their pillows because they make pillows. They make mattresses. I've actually slept on this pillow for

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at the checkout to save a whopping 50% off site wide. And so this is just a money making venture that in Mexico, they don't look at a business plan as, is this going to make us money? They look at it as

can we push money through here? right as long as you've got you could have a whole network of tanning salons it doesn't matter there may not be a single person that ever uses the beds they're running 24 hours a day i don't feel like you need i don't feel like you need tanning salons in mexico am i wrong about that is that racist they're pretty popular here in florida i mean i feel like yes so any of these enclaids that attract American dollars serve as a perfect incubator for money laundering.

In fact, one of the guys that we were friends with in prison. I don't want to say his name. But he was a good friend of Arturo, Beltran Leva. Right. And Beltran Leva, Arturo, controlled the Acapulco region. And what they did

is they controlled the strip clubs in Acapulco. Well, there were several of them that were very large clubs. And so I think one of them was referenced in your story the unlikely narco? What was it, the Palladium?

That's where Belta Lave would party. That's where Barbie would party. Well, you take a club like that. Very high end. You know, this is where the drugler is a party. Right. So they're all legitimately dropping, you know, multiple thousand dollars on a round of drinks.

Like that's nothing. But more importantly, let's say you take a club of that size, not only are you going to be able to push money through with phantom alcohol sales, but you've got what they were using was the women to serve as a vehicle. So let's say you've got 300 women on the workforce, and that's what works over the course of the thing.

You've got three shifts, day shift, afternoon shift, overnight shift. Right? At the end of their shift, each woman gets handed $500, go deposit in the bank. But at the end of a month, that's $400.5 million for 300 women. Right, that are now in a bank. that are now in a bank. At the end of a year, those 300 women

have over $50 million sitting in bank accounts collectively. So then what they do is they say, okay, you, Angela,

Maria, go buy this condo. Right. Then you, Claudia, Veronica, go buy this condo. So you've got

a cartel-linked construction company building residential towers on cartel-owned property being managed by cartel-owned management companies

being purchased by strippers who are surfacing cartel money and then over the course of a year two years or three years they take the time they ultimately sell them

to Americans or non-people that are unaware of how the entire operation was put together right and so you can look at every opportunity

in Mexico as a money laundering operation and this is running $24 hours a day so this is what why how People like Chapo and Zimbada and all these guys end up with half a billion dollars or a billion dollar, two billion dollars.

Worth billions of dollars because not only are they legitimately getting their money into bank accounts, but then they're putting them into assets that are ultimately going to just appreciate. And so that's the structure of how it worked in Mexico. Now, the reason why it becomes important for our discussion is because the money laundering services, are expensive. Right. You're paying 10%, 12% of your capital.

Later on, when you see the Chinese have revolutionized it, the fees have plummeted. It's essentially putting a lot of the indigenous Mexican operations in jeopardy. They just can't catch a break.

So with respect to Mexico, the drug proceeds generated by the cartel operative here in the United States are, for the most part, collected in Los Angeles transported down to the border area where Mexican nationals will take possession of the money, run it into Guadalajada

or its surface. That was the old way that's still being used today but it was much more prevalent back in my era. Beginning in the 1980s with Operation Polar Cap and continuing through Operation Frontrunner in 2024, Los Angeles has been at the heart of the money laundering operations here in the United States. Long before underground banking, Chinese banking networks

began laundering Mexican drug proceeds in 2017. The strategy most utilized by the Mexicans is a scheme known as the Black Market Peso Exchange. The Black Market Pesol Exchange is a form of trade-based money laundering. In this scheme, a cartel operative in Los Angeles arranges to sell U.S. dollars at a discount in exchange for clean Mexican peso using a broker, while at the same time the broker facilitates a Mexican importer's access to U.S. dollars in L.A.

to purchase goods from U.S. vendors. Once the goods are shipped and sold by the Mexican business in exchange for pesos, the pesos are turned over to the broker who then pays the cartels organization in Mexico in clean Mexican currency. This particular scheme, known as trade-based money laundering, is the process of disguising the drug proceeds by moving value through trade transactions to legitimize their illicit origin. While originally developed by the Colombians, the Mexicans were the ones to perfect it.

Trade-based money laundering is often used by the cartels to collect money from their drug sales in the U.S. without having to take the risk of smuggling bulk amounts of cash across borders and without having to convert and wire the money through established financial institutions, which not only carry transaction fees, but also a threat to their illegal activity being detected. The first full year to Senolal cartels operations in Los Angeles was 1990. By then, the Mexicans and the Colombians had adopted the payment-in-kind business model. With this model, the Mexicans were no longer being paid in cash for smuggling the Colombian product over the border. Instead, the Mexicans were now demanding payment and product.

See, this is where an earlier podcast, we discussed how the American government dismantled the Colombian networks on the West Coast. Right. By the time 1990, we were around, there was just one. Whereas you had two previous ones that were taken down, and those were the larger ones. Well, suddenly, the Colombians were able to get the product into the United States, but they didn't have the distribution capacity. So who ended up inheriting all that product by default? The Mexicans.

So the Mexicans are getting half off the top for themselves. That money is going back to Mexico. That's their proceeds. Then they get the product that the Colombians couldn't sell. They had to distribute that material as well. But those proceeds had to get back to Columbia. Now, getting money to Columbia is an entirely different kettle of fish. You've got a large geographic distance.

So it's not just driving the money down to the border. Right. So not only does there a large geographical distance, you also understand that the Colombian banking structure was under a level of scrutiny that people today wouldn't be able to really imagine. You know, you and I were teenagers in the 80s. So I don't know how well abreast you were

of these type of activities, but the Colombian government, particularly the Colombian cartels, was under a tremendous level of scrutiny that we don't see today even with the Mexicans. situation today is a criminal problem or a public health problem with the rise of synthetics. In the early 1980s, the actual pretext, the basis for the war on drugs was a geopolitical

struggle between us and the Soviet Union. You know, for when Reagan declared his war on drugs in January of 82, well, there'd already been a communist regime in the Western Hemisphere for two decades in Cuba. Right. And we had taken numerous attempts to try to destabilize. and undermined that regime unsuccessfully. Well, in the early 80s, you had a second regime take hold. In Nicaraba, the communist or the socialist, backed by the Soviet Union, won the election. But they took over power in that country. So for the first time, you had two Soviet client states in the Western Hemisphere,

and you had revolutionary insurgent groups operating in Guatemala, operating in El Salvador, operating in Honduras. It's looking like the commies are on the march. And so from the Reagan administration's perspective, the Colombians became a threat. The cartels became a threat, not because they're communists or communist sympathizers. No, these are just hardcore capitalists.

But what the Colombian mistake was is that they failed to appreciate how the Americans were going to view their activities which indirectly supported the communists. so when they're flying their planes from Colombia to Miami while they're around from Colombia to Mexico they're stopping off in Nicaragua because they need to refill their aircraft

well who controls the territory the communists so they clear cut a landing strip plane lands they're paying cold hard cash every time they land they're paying cold hard cash for the fuel well this is an indirect source of capital for the local indigenous groups that is coming independent of the Soviets

right so now it's Suddenly the Colombians became perceived of as a threat because you're supporting these guys, not politically, just supporting them financially. I was heard that Castro did the same thing. He basically leased out his space for a few years or something to eventually stop, but that's what I heard. Well, that's why you had this panic set in. This is ultimately what gave rise to the Iran-Contra affair, where we were supporting the Contra's fighting the Nicaragua and Sandinases. Right. Did you see American Made?

No. That's a good movie. Sorry. Okay. Tom Cruz. Talk to me. It goes over. It's a seal.

I forget his name. Oh, Barry Seal. Barry Seal. Yeah, yeah. It's his whole thing. They do a huge thing on the Contras. Yeah, I never talked. Okay.

And so anyhow, the point being here is because of geopolitical concerns, the Colombian banking system was under a tremendous amount of scrutiny. You didn't want to be in the United States doing business with the Colombian. Because all your financial transactions are being monitored. You know, you got agents visiting. I mean, it was just a. Nightmare. It was just a nightmare. And so when the Colombians originally came up with,

they're the ones that created the black market Paiso Exchange. And they were using that as a device to get American dollars sold to Colombian businesses to buy product from American vendors. Well, once the Mexicans took over the distribution, they took the black market peso exchange concept, and they personalized it. And for the purposes of getting the money to South America, they excluded Columbia. And so, like I said, the first full year of Sinaloa's operation in Los Angeles was 1990.

Well, this was actually how I cut my teeth. I got recruited in January that year. I was 20 years old. Right. But I had something that one of their people needed, which was a language skill. See, in South America, you've got enormous business interests, whether it's, you know, Argentina, Uruguay, major. agricultural powerhouses Argentina and Chile

a lot of mining industries Venezuela you realize that Venezuela has more oil reserves than Saudi Arabia well all of these countries require man Venezuela was beautiful back in the 80s when I was the last time I was there

when I was a teenager it was like being in Miami you know what the socialists have done to Venezuela and earlier to Argentina are just heartbreaking was she going there take all that, right? Well, you know, like, you know, 40 years ago,

what are we going to, what are we going across the world? This place is just hop, skipping and jump, you know what I'm saying? 40 years ago, Venezuela was the third wealthiest country in the Western Hemisphere. A hundred years ago, about 120 years ago, Argentina was one of the wealthiest countries in the world. In fact, when the Nazis left Germany. Yeah, that's where they went. They went to Argentina because there's such a high standard of living. Yeah. It's just in the last 40 to 50 years that the country's become an economic basket case. Well, the same thing with Venezuela since Chavez and those guys took over in the late 90s. But prior to that, Venezuela was snapping up enormous amounts of heavy industrial

grade equipment to support this huge energy complex. Right. And so for a Mexican national or a Mexican-American businessman in Los Angeles, he can easily do business with an Argentinian, Uruguay, and Venezuela, and Chilean. Why? Because everybody speaks Spanish. All of those countries are former Spanish colonies. Right.

The largest economy in South America is Brazil. Enormous agriculture, enormous energy, enormous mining. The difference with Brazil, however, it was never a Spanish colony. Right. They speak Portuguese, colony of Portugal. And you happen to be half Brazilian. Well, yes, my family is Brazilian. I'm American.

But I was raised in Portuguese-speaking household. Like English isn't my native language. I spoke Portuguese and Spanish before I ever spoke English. And so one of the guys that I was involved in trafficking with was the individual who put up the product, this when I was 20, and he had a relationship with an older businessman who happened to be a Mexican-American

involved in the heavy industrial equipment space. And that's actually how I end up getting roped in because there wasn't enough business with Brazil to justify having somebody on duty all the time. But every month, once, twice, maybe three months, times a month, I did call into the office to essentially do translating services. You know, Brazil is a very difficult country to do business. At the time in 1990, they had hyperinflation.

And so what you had were efforts by Brazilian nationals to circumvent. And so they'd go to Uruguay, open up a company, and then they'd order equipment from the United States. So then, you know, like I said, a couple, two, three times a month, I'd get told, hey, go out to the office. I'd go out there. I'd provide translation services. This worked to my advantage because it allowed me as a 21-year-old to be able to go around telling people that, hey, I'm an international businessman, I'm working into heavy industrial equipment space.

You know, my parents were never suspicious of anything because they'd see me with my suitcase show up at home, and I've got all kinds of pamphlets and stuff. So as far as my father was concerned, I'm in the business of selling this heavy equipment. These earth movers back in 1990, it cost half a million dollars apiece. And so nobody was surprised when all of a sudden I was able to move from West Covina to Beverly Hills. Well, I'm generating. five figures a month in proceeds. So the Cina Loa method as it developed in the 1990s was essentially take U.S. dollars

that are available in the United States, sell them as a discount in South America to businessmen throughout the continent who were interested in making purchases here in the United States. And so the reason why it really worked beneficially is because, you know, here in the states, we've got very low tariffs.

Well, in Brazil, from my own personal experience, I can tell you that at times, tariffs were like 40%. Just something outrageous. Right. And so by purchasing the dollars in the United States, first of all, they're getting a more favorable exchange rate. Secondly, there's no transaction fees. Third, there's anonymity.

So the government of Brazil doesn't really, realize that these financial transactions are taking place. Fourth, there was a practice that was called misinvoicing. So essentially, that half-million dollar earth mover, well, you got it for 110 grand. Okay. Because that way, when the piece of equipment arrives in to Port de Sontos, they're not paying the tariffs on half a million, they're paying it on 100,000. Yes.

And so you take all of those instances, add them together, it becomes a very interesting package for legitimate businessmen. and they're not going away, you know, the brokers aren't going around telling people, hey, we've got drug money in L.A. Yeah. They're just saying, hey, we've got dollars in the United States that we're looking to sell. And so this created this enormous industry where one of the reasons why Los Angeles became the money laundering capital of the U.S.

was because all the money would have to come to L.A. The guy that oversaw the operation at the time was an older gentleman, I just knew him as the name Viejo. And he had a network of, essentially Mexican-American businessman whose job it was to simply surface capital in the form of either heavy equipment, electronics, consumer goods, and that's the baseline that was created back then. The involvement of the Chinese money laundering rings handling drug proceeds from Mexico

is nothing new. From its beginning in 1990, the Sinaloa cartel focused on importation and distribution of primarily the three principal factions of the cartel led by ismael zimbada wakene guzman and weddo palma utilize the la area as their principal american base of operation a fourth kingpin named armando valencia operated out of the la area his organization was the one that was based in orange county unlike the other organizations which focused on valencia's organization was also involved in the manufacturing and distribution of methamphetamine valencia had operatives in orange county who supplied the raw materials to traffickers in the LA area, including, among others, to Tim Robles

and John Ellenberger, two of the principal FBI and DEA targets in my LA investigation. Independently, during that same era, we had four Chinese triads operating in the greater L.A. area. The triad based down in Orange County was known as the 14K. For those of you, I'm familiar with Los Angeles, Orange County is located in the bottom third of this map. O.C. has always been home to a large Asian population, which, as you can see, is clustered in the cities of Westminster, Garden Grove, and Fountain Valley. The leader of the office for the 14K in Los Angeles was a powerful Chinese gangster named Frank Ma. Frank Ma. I know that name. His organization, known as Ma Gore, was based in Westminster.

Now, what's interesting about the 14K is that this was the first of the powerful Hong Kong-based triads to accept operatives from the mainland. See, in China, proper, they really didn't have triads. That's more of a Hong Kong phenomenon. But you did have organized crime. groups. And so in southern China you had, based around the city of Guangzhou, the organization known as the Big Circle Boys. And the Big Circle Boys was essentially the paramilitary arm of the Red Guard back in the Cultural Revolution. And then when Mao realized, hey, these guys are getting too powerful, he crossed them through them in re-education camps. Once they get released, they band together to form like a criminal confederacy, go around causing all kinds of mischief

in southern China, and whenever they're about to get charged, those that are able to do so, boom, slip into Hong Kong. Well, those are the guys that ended up forming one of the factions with the 14K. You know, the 14K, you have to understand, isn't a single triad. It's a society consisting of 15 to 20 triads. So the 14K operation in the United States, which was led by Frank Ma, was different than the 14K operation in the Netherlands. or South Africa, or in Vancouver or in Toronto. These are all separate, essentially, triads. But they all are one huge network operating out of Hong Kong.

And so the 14K in Orange County, which was principally based at a West Minister, was right next to the town where Armando Valencia's operation was based out of Santa Ana. So you started getting business relationships between the two of them. Okay. This is some of the activity that was underlying by indictment for the L.A. investigation.

Right. And so you had a business relationship that got developed between the 14K and the Valencia faction of the Sinaloa Collective in early to mid-1990s. Now, where things took a turn is that in the mid-1990s, the American Department of Justice initiated attack

against the domestic production of synthetics. And so in 1994, the DEA characterized a lab that was able to produce 10 pounds of material as a super lab. Okay. That was a 1994 super lab. You know, my case derived a lot of attention

because in mine there was, you know, several transactions that were over 100 pounds at a time. Right. So it was 10 times bigger than their baseline. Okay. Well, this concentrated effort

by the authorities to undermine the domestic production resulted in creating a vacuum where the Mexicans were able to step in. And so you had

the Valencia organization based out in Guadalajada step in to fill the void. They entered into a relationship with a guy named Memezcua, his operation, also based in Guadalajada, they're producing the raw material.

And so Valencia needs to start developing his own independence source for the precursors. Well, his operatives in L.A. in Orange County knew a bunch of Chinese guys in Orange County. And it just so happened that the guys in Orange County, that faction of the 14K was the faction that took guys from the mainland.

And so now they were able to say, hey, do you guys have any connections to obtain precursors? Well, in the Chinese culture, there's a concept called Guan Shi. That's critical to understand. And it's it's a system of reciprocal obligations that are created through networking. And so pretty soon, word gets put out throughout the network.

Does anybody got any connections? Well, maybe somebody's out of brother that works at a company or maybe somebody that has a brother-in-law. Eventually, they were able to find enough business relationships where the Mexican faction of Cina Loa operating,

the millennial group, it was technically called. The millennial group was able to begin purchasing precursors from China, sending the product, the materials into Mexico for them to take over to manufacturing. Well, that's the first iteration of the Chinese because they had to be able to get the money back to China. Right.

So this wasn't laundering Mexican proceeds to launder Mexican money. This was surfacing the capital for the purposes of paying for the precursors. Okay. And so that's where you've got a concept that's well over a thousand years in the Chinese community,

in the Chinese culture called Sheifat. and so in English that translates to flying money now that's actually a misnomer because the money doesn't actually travel anywhere it's just a transfer of value system this is common throughout ethnic groups throughout the world

you know sometimes you know we've got it really good here in the United States and we're blinded by how other cultures don't have it as well you know here you drive to you know you're right outside of Tampa, well, every one of these little towns has got a half a dozen banks in them. You got a Wells Fargo branch, you got a Chase branch, you got Bank of America.

Right. They don't have that in China. They don't have that in Honduras. You know, outside of this area here, you've got all those agricultural land. Who do you think is picking the crops? Those aren't conservatives wearing MAGA hats. Right. Those are guys in Honduras or Nicaragua or El Salvador.

They need to get their money home to their families in the form of remittances. So what they use is called black market money exchanges. Well, the Chinese have been doing this for 1,500 years. This is part of their culture. Right. And so the triad, the 14K, tapped into this pre-existing Chefen network to get proceeds from Mexico to China to pay for the precursors. Now, they're charging another 6%. But, hey, you're making a fortune on the synthetic.

It's just a modest fee to pay. But this was set the predicate. This is when the Chinese first started moving money for the Mexicans. Okay. Now, do you want to discuss examples of... How this is done? Mirror transactions? I think that's when you've got somebody here where somebody can go and give them $500.

and I got $500, and then they basically contact another group or whatever in China, and they say, hey, John So-and-so just gave me $500, and then his family can go to them and say, hey, there's $500 waiting for me here, and they give him $500. And they take a cut, obviously, but that's it. No money actually goes back and forth. And then at some point, maybe quarterly or yearly, they have a reconciliation of the accounts where they say, listen, you're, you're 300,000 ahead of me. You've got to get me $300,000.

Something like that, correct? Yes, that's very prevalent. Like I said, throughout ethnic communities in the United States. So if you're someone who's from the Dominican Republic, you moved to New York to large Dominican population, you know, one of the locals is going to take you around, introduce you to all the stores and all the bodega owners. Right.

Well, once they, you know, once they get comfortable with you, and they know your grandmother lives in Santiago and your fiancé lives in Santa Domingo, and two or three months later, I said, hey, I've got to give them some money to my mom. How do I do that? How do I do that? Every one of these bodegas handles it. Right.

And so this underground banking system is prevalent throughout the United States. Like, I had to utilize the services once because in 94, I traveled down to Brazil. So it was initially going to be like a six-week trip. I was going to, you know, from the week of New Year's, like right after Christmas, through carnival. Right. And so I didn't realize, you know, prior to that, I would go every year up until the age of 15. Well, I was always a child. Right.

Like, you know, when you're 14 or 15 years old, you're not paying for anything. Right. You're staying at your uncles. You're going with your grandparents. So when I returned as a 24-year-old that I'm now, you know, staying in the Beverly Hills section of San Paulo. Well, you know, my apartment in Beverly Hills was $4,000 a month. The house up in the Hollywood Hills was $7,000 a month. The apartment in

Sao Paulo? 8,000 a month. Like, it was twice as expensive in Sao Paulo to live at that strata as it did in Beverly Hills. Right. Like, I didn't realize

just how much expensive everything was. I ended up getting roped into going to a couple of weddings. I had to go buy suits. I had a lot of nice suits at home. But, you know, in L.A., you dropped $2,500,

you know, $3,000 is a lot of money for a suit back in 93-94. In Brazil, you're paying $5,000 for the same thing. same soon. Like, everything was 30, 40 percent more expensive than in the United States. So you ran out of money. Basically, I ran out of money. And well, here's the thing also you understand is down there, the currency was essentially debased. And so you don't want to hold money in their, you know, monopoly money, but the time was called Cruzzettos. Because it's literally

decreasing in value every day. Right. So now I travel down there. I took money with me. I took about $40,000 in cash thinking, okay, that lasts to six weeks. Right. I'm down there a few weeks. I'm already running out of money. And I got involved with a woman that was one of my cousin's friends. So I ended up staying like extend a trip another three weeks.

Then I extended it another three. I ended up staying like for basically three months. And so I needed to re-up on money. And so like I called my buddy Aria back in Beverly and say, hey, send me some money because he was the guy that was responsible. Like Ari Nagarjavani, owned businesses. All my other friends were

flakes, but he's the one guy that I knew, okay, I can call him. Even though he was part of the Beverly Hills faction, I was part of the West Covina faction, like we were the two responsible ones in our respective groups. Right. So I call up Aria thinking, hey, below $10,000 structuring, send the money, we're not going to trip anything. Turns out I was mistaken to do international transfers, anything over $3,500. So I contact Aria, he goes to send me $9,500.

He's like, hey, I can only send you $3,500. because he couldn't and he had legitimate businesses he couldn't run the risk of running a file so I'm like crap so I had you know I had RIA send me $3,000

then I called Joey Escobosov send me $3,000 call Sean Fincher send me three grand Kyle Martinez basically I was able to get like another $15,000 well the problem with this is when you do these Western unions

you got to actually pick up the money and their local monopoly money currency they're not giving it to you in dollars so I'm driving from this part of San Paulo I got a rope in either my girl or one of my cousins because I didn't drive down there it's an hour and I have to get to the airport

pick up a backpack full of monopoly money drive back so I had all these bullshit-ass currency so they would take me to what's called a combio and combos are common throughout Latin America or it's essentially a money exchange and so they buy your

cruisados and sell you back dollars and so after about the third or fourth one of these and they knew that I was an American because my cousins would take me so they're vouching for me oh yeah yeah my cousin from the States

and so one of these like why are you doing this crazy transactions 3,000, 3,000 he's like do you got anybody in Miami well one of the guys I had an excessive trafficking relationship with was out of Miami

I said yeah I got somebody in Miami he's like here he gives me the information have them take some money to drop it off to them there we'll give it to you here right okay and so that's how I became familiar

with what was technically referred to as mirror transactions well it's essentially just black market money exchanges and so this is what the Chinese started doing to facilitate

the importation of precursors but this isn't like FDIC insured well see the reason why the government gets the reason why the government gets really concerned about this is because

the mechanisms that are in place to detect the movement of money are all obviated there's no actual transaction so people are able to able to move money without triggering any of the tripwires. Did you ever do any with Chinese people, with the Chinese, the Chinese people, the triads or anything?

There was a couple of instances where 14K guys down Orange County had to move money to facilitate what was a counterfeit compact disc scheme. Because this is the time they kidnapped that guy? No. You remember what I'm talking about? No. That's a great scene. Sorry.

That's hilarious. Yeah, that was a 14K. Okay. That was a different group. And so, anyway, in one of the individuals in my group that I was associated with, I was involved with laundering drug proceeds through the music industry. And this was the inception of the West Coast genre of hip hop. And back in the early 1990s, there were artists that had achieved commercial success.

Right. You know, NWA came out with. straight out of Compton in ADA. You know, Ice Cube later on came out with some album, DJ Quick. Well, these guys had tremendous commercial success, but they never had essentially commercial airplay. You never heard NWA's fuck the police. Right.

On American Top 40 Radio. Right. You know, Ice Cube, no Vaseline, or summer vacation were not hits on the Billboard Top Ten. Okay. And so in the music industry, you had a genre that, for the first time allowed for large sales, commercial success, without any music airplay. So that allows for an opportunity for you to start producing albums and surfacing money through that particular industry.

You know, when we were in prison, we saw how many guys there were, you know, a lot of the younger guys all thought they were hip-hop artists. They're going to be rappers. As soon as they get out, they're going to make your fortune when their album drops. Yeah. Okay. Yeah. Well, those guys are all over the place in Los Angeles.

Yeah. I don't know any of it did. Yeah, you know. And I had really high hopes. At prison listening to these guys bang on their lockers and you're singing their hip-hop songs. And so there was a long,

you know, prior to 1993, that's where things changed because you had the commercial success of Dr. Drey's The Chronic, which actually crossed over. Prior to that, there was no West Coast gangster rap

artists that Brokes were and so what my friend and his associates would do and this was the usual guy that helped bankroll and run death well records for a while

and they would just identify young artists sign them up you know they go to some guy hey T-Bung heard you a rapper we'll pay you to lay the tracks they'll bring their producer

they produced and put together an album, and they distribute it. And then he sells a ton of CDs. No, they don't really. They don't, well, on paper, they sell a ton of CDs. Because back in the early 1990s, a lot of the hip-hop from the West Coast was being sold through swap meets. Right.

And so you could have 50,000 copies of your album produced, you know, 50,000 CDs manufactured, and you sell 1,800 copies this week. You know, the swap meets in L.A., the swap meets in San Diego, the swap meets in Oakland, the swap meets in San Francisco, Vegas, all up and down to West Coast. And so you're selling, you know, $5,000 copies this week. That's $10 apiece, profit.

So you're making $50,000 this week, $5,000. Next week, $5,000, $6,000, $8,000. And the people at the bank, all they see is the secretary from the record company showing up and she's making cash deposits. Right. Because back then, nobody's using Apple Pay or even credit cards that swap money. means they're just paying cash. Right.

And so a lot of drug proceeds were being surfaced through the music industry that way. So T-Bone thinks he's balling, but he's really not. No, T-Bone doesn't realize that as far as he's concerned, it's a flop. He doesn't even know about the sales because there are no sales. Oh, okay, okay. I would think you would tell him, like, you're bawling, bro. You're kicking ass. No, he just doesn't realize there's any sales.

Yeah, we don't want to cut him in. Give him anything. Yeah, so what you do is you take those all those CDs that are manufactured, you dump them into Bay in Santa Monica. Right. but to the bank they're thinking oh wow this you know talk to code at a nightclub

how's that album coming along we've got an underground banger we're really popular in Japan I bet you are a cocksucker you know and so but that's how the early genesis of the hip hop industry was used

basically there was a lot more albums sold as phantom sales than legitimate sales well that changed in 93 with the chronic and so that summer of 93, I was in a trafficking relationship with an Israeli national. He wasn't a part of the Israeli

organized crime syndicate. He just happened to be a guy who was in Israeli. Well, he had a relationship with an individual who was a sound engineer at Westwood One. Westwood One was the company out of Los Angeles that provided the sound and stage equipment

for all the big concerts. So, you know, when you two played in L.A. or Pearl Jam or Nirvana, all the big bands coming through They'd use that That company would have the contract To provide the equipment Well, the sound engineers For a less than one

Would record the shows Right. I wrote about this in your book. Didn't I? No. You didn't. No, I thought they were removed They shipped the...

No, you're talking about the drug smuggling operation That's using death row artists. Yeah. Has a pretext to move to load. It's not the same company? No, phantom companies are phantom concerts.

Oh, okay. That's right. Okay. Yeah, this is... Sounded similar. Well, you get confused with all the players, I understand. Go ahead. And so what he was able to get...

He was trying to cultivate a relationship with me because I was reluctant to do business with him because I didn't want to cross lines. No, the Israelis had their own operation. And although I ultimately sold a lot of that product, I dealt with John who was dealing with Aria. Was it because he was Jewish? No, not because he was...

I'm just saying... Go ahead. No, no, because... trust you. Well, no, the thing is this, he, you know, even if you're not a member of a particular group, they expect you not to behave in a manner that's going to cross them up. And so I didn't want to cross lines because in the West L.A. context, Aria was responsible for dealing with the Israelis. And I just respected that boundary. Like, I was very good at always staying in my lane. And so, but he wanted to deal with me because I had access to the pharmaceuticals. See, at the time,

the Israelis were trafficking in a product called UFOs, known colloquially as flying saucers. well that was essentially the Budweiser of and so although they had enormous loads they weren't able to obtain the pharmaceuticals and so the top tier of the trafficking community that's actually really how I

established my reputation is because the people that were in the know they would come to me for their personals so that ultimately led to developing relationships with guys who were you know sitting on five six hundred kilos at a time but they come to me for the other. So that

cried like the little of a segue. And so long story short, there's really guys trying to cultivate a relationship with me. I'm a little reluctant to do business with the guy. Well, he knew that I was a music aficionado. I'd go to concerts all the time. So one night we were all partying at a nightclub called Bar One. And he's like, hey, come out to the car

with me. I want to show you something. So I go out to the vehicle and he breaks out this, you know, the old school CD cake had like 30 CDs in it. And he starts handing them to me. And it's like Pearl Jam, Nirvana. Jane's Addiction, you too, and I'm just like, and, you know, and like I had all their albums. Right. Like, what the fuck are these? And he explains me to live recordings, but there were, you know, digital copies of original master recordings.

And so, like, here, the government ended up seizing a whole bunch of these. Like, this was the one for 1992 Lollapalooza. You know, and so this is like bands that back in the early to mid-1990s, you know, we had all the guns and roses. We had all of Jane's Addictions. We had all of these bands that were enormous, enormous commercial success where we're getting digital copies of the original master recordings of their live concerts. That's ultimately how he was able to, hey, I'm hooking you up with these. Boom, boom, boom, boom, boom.

And it's like, all right. So I started doing business with him in the ecstasy context. He became the connection for this compact discs. Okay. So now what we wanted to do was take these and create a separate revenue stream. not only was capital being surfaced through the hip-hop genre with the CDs going into Santa Monica Bay this we could legitimately sell these

now the problem with these type of artists is that if you go to any domestic compact disc manufacturing company and you're a small business owner and you show up with the original master recordings of T-Bones album they're going to have no problem

Yeah, you want 25 copies, we'll make them for you. But if you show up with you too, or if you show up with Pearl Jam or Nirvana, they're going to be like, hold on a second. They'll take the order. We'll get your 50,000 CDs made for you. No problem. Then as soon as you leave, they pick up the phone,

they call the FBI. Right. Or before they call the FBI, they're going to call Universal Music Group. Right. You're going to call Warner Music Group. They're going to call Interscope Records or Island Records. We got a guy here with a master recording of a live concert for U2,

and he wants 25,000 copies of Diablo. And they're like, well, we didn't authorize that. Right. Then they bring in the FBI. So in order to get around having some essentially do-gooder cause a problem. Those do-goaters. We had to come up with a way to get the CDs manufactured, but not rely upon any American domestic manufacturing production.

Right. Well, one of the guy, another guy I was doing business with was out of Las Vegas. He was running up to Vancouver, British Columbia. Well, the guys on the British Columbia and purchasing the product were Chinese, the 14K faction in Vancouver. So he ends up discussing the matter

because I explained to him my problem, like, man, this is a screwed and we can't get this stuff made. And so, you know, back then I'm making cassette recordings of the albums for all my buddies. Right. And they're like all trying to get their hands on, you know, we didn't have the ability to burn CDs. Right.

That was five years later. You know, and so he starts talking to the Chinese guys, of in British Vancouver. Well, the guy is in Vancouver, this is the essence of Guanxi. One of them calls a 14K operative in Toronto.

Well, the 14K in Toronto do a lot of business with the Italian mafia. Well, one of the 14K guys in Toronto talks to an Italian mob guy in Toronto. The Toronto mob guy calls a guy in Italy. He says, yeah, sure, we can get this done. And they're not going to report to the FBI.

Right. So all of a sudden, we were able to now develop a capacity. that's why if you look at all these albums right here it says right here across the bottom made in Italy right but they were all produced in Italy because the Italians weren't going to pick up the phone

and call the FBI and so now you had the ability to get the CDs manufactured under one hand but now we had a second problem how are we going to get the money to Italy so

my buddy from Vegas discusses the matter with the guys in Vancouver the guy in Vancouver calls a guy in Hong Kong who says, hey, who do we got in Italy? Well, they're the 14K faction in Italy. So then the 14K guy in Vancouver tells my buddy, hey, have your buddy in L.A.

Go drop off money to this guy in Orange County. So essentially, you've got a guy from Vegas, white guy, talking to a Chinese guy in Vancouver, who's talking to a Chinese guy in Toronto, talking to a mob guy in Toronto, who's talking to a mob guy in Vegas or in Italy to arrange the production side,

then it's a separate group with 14K guy in Vancouver talking to another Chinese guy in Hong Kong who says take the money to the Chinese in Orange County. Me and my buddy drop off the money in Orange County, they get the money in Italy. Well, that's Fai Chang. Right.

The money never traveled. Yeah. And that's how we were able to get all these CDs made that ultimately caused quite a bit of problems. Right. What's another million dollars in fraud just in compact discs? Right.

Were you charged with that? No. I was already in so much other trouble. They didn't charge me for the cop like this. They let that go. We're going to let the CD. We're going to let the counterfeiting go. Oh, thank you.

Telecommunications fraud. They let that go. All right. The counterfeit credit cards. Well, that's actually happened. So that's what led to the counterfeit credit cards. Because up until that point, I was manufacturing credit cards, but I wasn't doing it on scale. I was just doing it for us to be able to use, you know, to go fill up the boat with gas.

Why didn't we talk about it and this in the book? Because you didn't. Well. You wanted to make me look bad, scumbag. I really... It's an entire dimension that you didn't want to capture. I really pigeonholed you into just drugs. When you're really multifaceted, right?

I can't feel like I did you justice in that book. I just discussed the bank fraud with you. Passport. Stop. Do you know how fast you were going? I'm going to have to write you a ticket to my new movie, The Naked Gun. Liam Nissan. Buy your tickets now.

I get a free chili dog. Chili dog. Not included. The Naked God. Tickets on sale now. August 1st. Or fraud, you just really shortchanged me. Yeah.

Well, that's my bad. That's why I come off as such an unsympathetic person. That's it. It's all me. Yeah. And so, anyhow, that was an illustration of how you move money, whether it's through ethnic groups or whether it's true to Chinese. And so this is the segue now for the black market. a peso exchange in China.

Great, let's do that. Well, as indicated earlier, trade-based money laundering schemes have been utilized now for decades in Mexico. Where it transitioned into the Chinese context is by the early 2000s, a Mexican drug lord named Nacho Cordonell. Oh, that's Nacho?

That's Nacho. I always thought he would be older. Nacho Cordonell formed a business relationship with Armando Valencia, where the two of them took the production of synthetics to what was essentially an industrial scale. Well, the purchase of the precursors was done through, of course, the Chinese.

This individual, Zhen Li, was a Chinese businessman operating in Mexico. Now, he achieved legendary status because it was the investigation targeting this individual who resulted in the seizure of over $200 million in cash from his house. Oh, geez. That's a whole, that's a spare room.

Right, Jesus. Here's the guy's house right here. Here's the room full of money. That's one operation. So now, this individual has got $200 million in cash sitting in Mexico. He's got to get that back to China. Right. Well, there is no Bay Chan network that could handle that kind of volume.

I mean, that's just an outrageous amount of money. That's not the only individual. There's a number of these guys that were the brokers. Remember the guy in prison I was talking about how they were buying so many containers that they were hiding it

into Chinese rugs well these are the kind of interval they were buying that from right and so in order for them to be able to

start getting nine figures worth of cash back to China the Chinese had to get involved with trade-based money laundering and that's where

it really started taking off because they said okay well if the Mexicans are going to charge 10 or 12 percent we're going to charge 6 percent

so they're already undercutting coming in the front door. Jeez, you think you just drop it to maybe 10%. No. I mean. No, because here's the thing.

And now normally you would say, well, something's going to happen to this guy for undercutting all the other people. But they need him for the precursors. So he's essentially untouchable. Okay. And so now it's a race to the bottom

who can lower their fees to keep up with the Chinese. And so what they were doing is essentially what the Mexicans were doing, but instead of buying goods from American vendors, they're buying it from the Chinese vendors. So, you know, you go out to any Walmart here in the United States

and you're going to find a bunch of crap from China everywhere. Right. But that's how it is in Mexico. So whether they were buying containers full of clothing, consumer goods, electronics, everything that was coming from China essentially now became a tool to surface capital through trade-based money laundering schemes. All right. Now, hold in a second.

Okay. So from the 2000s up until 2010s, this was in conjunction with the Chinese-Mexican operation in Guadalajada while there's still a parallel operation going on in Los Angeles the Black Market Paiso Exchange standard conventional model well that really blew up in early 2010s when there was an investigation called Operation Fashion Police

that resulted in raids of over 200 businesses and this is all in Los Angeles. You know, L.A. is such a prime hub for money laundering because L.A.'s got the largest fashion district in the world. It's got the largest jewelry market in the world. Well, all of these have been embroiled in repeated money laundering scandals. And so when they did the braids in connection with Operation Fashion Police, they recovered like $75 million from one company.

My money is just boxed up, or they're just buying clothing and materials and shipping that to Mexico. So they got $35 million out of a house in Bel Air. They got tens of millions out of an apartment in downtown. Right. Well, that 2014 operation resulted in the loss of nearly $100 million, but more importantly, it dismantled a lot of the Mexican infrastructure. So now who are the last guy standing? The Chinese.

So suddenly the Chinese black market pay for exchange became much more important because the Americans are drawn too much heat. can't be taking nine-figure losses while paying twice as much. Right. Whereas all you can do is take the money, put it in a toilet camera, drive it to the border, and give it to the Chinese and go out of the hot. Let them take care of it for half the price. And you don't have to worry about the Americans rating, you know, the vendors that

they were surfacing the capital through. Right. It's all in Mexico. That's right. Justice Department officials in Los Angeles have accused Chinese underground banking network of partnering with the Sinaloa cartel to launder Sinaloa drug proceeds. Now, here's the twist.

In 2017, the government of China instituted currency controls. There's essentially banking restrictions that preclude wealthy Chinese from moving money out of the country without permission from the Communist Party. Yeah, they don't like that. Well, the problem for the Chinese is this.

They want to keep their money in China. Well, the money I want to keep the money in China. and there are a lot of wealthy tycoons and just very successful businessmen who are concerned with the trajectory to countries on. What do you mean? You mean like, is it possible that their real estate market? Like, you're saying,

the real estate market isn't stable or their banking system isn't stable or their stock exchange isn't stable? It's more of a collision with the Americans or you saw, you know, the United States essentially start sanctioning Russian bank. Right. Or Western-led countries saying, well, we can confiscate this $300 billion in Russian reserves.

Right. Well, that really spooked. The Chinese. All other countries and what's characterized as the global south. Okay. So are they considered because of China, what, were to invade Taiwan, they're afraid that the U.S. might start seizing their shit. Not just seizing their shit. We're going to say they ban them from the Swift network.

So now they're not going to be able to conduct foreign transactions or they're banned from the Western world. Yeah. That's what you, yeah. The Western world's banking networks, banking structures. All right. And so if you're a wealthy Chinese individual, you want to start hedging your bets a little bit. Right. And what's interesting is in 2022, the American government estimates is that there was some

$30 to $36 billion in drug proceeds generated in the United States by the Mexicans. Okay. That same year in 2022, capital flight from China was over $900 billion. Okay. And so what you have are wealthy Chinese individuals who want to purchase American dollars. Right. They can't move money beyond 50,000 out of the country. So what do they need?

They need somebody in the United States who has access to dollars. Well, who's got cash? The Mexicans. Okay. So for the first time, there was a marriage between Chinese citizens who aren't criminals. These are just wealthy individuals that want capital. Well, they're criminals now. Well, I feel like that may be illegal. Well, the thing is, they don't know. They're not being told you're buying Mexican cartel drug money.

They're just saying, hey, we've got a pool of capital. Fajat. We got money in the United States. Would you like to buy some? Sure, I'll take that money. And so what you've got is a marriage of convenience where all of the Mexican drug capital that's coming to Los Angeles, tens of billions a year can satisfy 3% of the demand out of China. So for the first time, you've got a ready-made institution where they're saying, we'll take all of your dollars, we'll pay a premium for your dollars. And that's one of the operations that was recently taken down in Los Angeles, where Operation Frontrunner, where this individual, this Chinese guy,

And it's Mexican national. It's got a little mask on. Well, they're driving through the port of entry in Tijuana. Worried about that fresh air. Well, this was 2021. Oh, okay. I did the COVID pandemic. So.

It's a good time for bank robbers and money lauders. And so, yeah, so he gets caught crossing the border. See, like, prior to this, there was like plausible deniability on the Chinese part. Right. Well, they were like, hey, we're just buying cash. No, no. You actually went to Sina Loa. You knew whose money it was.

and in the span of a two-year period, that guy alone was $50 million. That's just one network. Now imagine dozens of networks all up and down to West Coast. They've completely disrupted the Vancouver real estate market, to San Francisco real estate market, their entire pockets of Los Angeles that are now predominantly Chinese, where people aren't actually living in the houses. They're just buying property in San Marino.

They're buying property in Arcadia. Yeah, it's like these condos and stuff in New York They're just sitting vacant They're five million dollar condos Nobody lives in Now the reason why This particular model has taken off Is because the Chinese money launderers in Los Angeles

Are charging 1% So it's almost nothing The one that got busted was charging 0.5% Half of 1% Because they don't need to make money On the front end with the Mexicans They're making their money on the back end

with the Chinese. They're charging them 30%. So if you want to buy a million dollars in U.S. dollars in Los Angeles, the businessman in China's got to pay $1.3 million. And so what's interesting is because in China, there's no currency restrictions within the country. So they can just transfer $1.3 million. It doesn't raise, there's no suspicious transaction reports for $10,000. That's here. Over there, they can move money within the country. The government is not even following that. So you've got this free flow of currency moving back and forth that doesn't leave China. Meanwhile, the Chinese National

has his representative in Los Angeles get a duffel bag of cash. Or if he wants to pay a little bit more, he can pay for the Chinese broker in L.A. to arrange for a structuring operation. Right. To go ahead and do all these little $9,500 deposits and build it up.

And then just wire the money from one bank to another bank. Yes, and then they use it primarily to, you know, they want to make investments in our financial system, they want to buy property, you know how many kids are, Chinese nationals that are going to UC Berkeley or you're going to Stanford, we're going to need a lot more than 50,000 a year to go to Stanford.

Right. So they're paying for college tuition. And so this is an enormous opportunity for the Mexicans to say, hey, we can get all our money laundered for 0.5% to 1%. And what does this do? Well, prior, like back in my era, they had to have an entirely separate operation just for the laundering. That's a network of safe houses, a network of drivers, a network of couriers.

All that has gone. As soon as the money comes to L.A., you got one guy, go meet with the Chinese guy, drop it off. And so every day, you've got a Chinese courier meeting with a Mexican courier, 300,000 here, 450 years, 650 year, and they can't meet the supply. And so you've seen this level of panic set in within the American law enforcement community because there's very little opportunity to thwart any of these operations. The cartels are getting rich.

They went from paying 10, 12% to paying 1%. And they removed all the infrastructure costs. And so this is a game changer in the drug world. It sounds okay to me. I'm sure it's illegal. Obviously, it's illegal. Well, it's illegal. And the thing is,

is for the Chinese operations in Los Angeles, this is essentially a side hustle dealing with the Mexicans because they're like I said they're making their money on the back in dealing with the Chinese nationals and so they're raping

the Chinese nationals aren't they 30% that's ridiculous 30 to 40% but you know but we're also going to put their money right everything about your country

is collapsing around you it's collapsing but it's just what ain't doing good it's not doing well I mean I don't know if you have you have you checked into the real estate market I mean it's not doing great

it's in a bubble a bubble That bubble burst. It's not a bubble. It was a bubble. Now it's free fall. And the banking system, they've got banks collapsing left and right over there. It's not good.

I'm going to send you a video. I learned everything I know on YouTube. I'll send you a video. You know, we're the economists every week? Economist is monomous. Well, here's the thing that you have to understand that this is also an opportunity for the Chinese government

to work with their American counterparts. Because when we're talking about, the Chinese. Oh yeah, that's right. The companies aren't involved. And this is actually, you know, the, you know, just a couple of weeks ago when he had the press conference, the U.S. attorney in Los Angeles was praising the assistance of the Chinese government. That's right, because they're shutting it down because they don't like it. They don't like this at all. They don't want the money leaving. Right. So like for the first time ever, they're like, hey, let's work in Hannah. Stop this. Well, like, before whenever you had the, you know,

whenever our government indicts, you know, Chinese state sponsored hackers, they never hand those guys over. They're running around snatching people up in China. Like, you give them a name, they go grab these guys. Like, that guy here in the car, they snatched him up, send him back. And so this is an opportunity for the two sides that actually come together. But in reality, there's almost... There's no stopping it. There's no stopping it.

Right. The networks amongst Chinese nationals, the underground banking system, is too well established. And the only way to essentially undermine this would be for the Chinese government to change the reporting requirements within China or loosen up their restrictions on capital flight. But until either one of those two are taking place, there's going to be

very little opportunity for the American government to stop this, particularly where you get a city like in Los Angeles where we have four triads operating. One of them is ethnic Chinese based out of Taiwan. But the other three are straight in China.

And so when you've got a Chinese organized crime network sitting on top of a 1,500-year-old financial network, sitting on top of a pool of money that's begging to pay 30 or 40% premiums. Yeah, you're not going to be able to really stop that. That's right. Especially since you don't need a whole bunch of people

to be involved either at this point. And it's exactly what I'm saying. the infrastructure has been plummeted, you got literally this entire operation for $50 million was like two Chinese guys, you know, five or six Mexicans. There was like a total of 12 people indicted. That's the entire operation, all the Chinese, all the Mexicans, 12 people, two Chinese, you know, a handful of Mexican nationals, and the rest are just drivers. Right.

And so that's what. Gee, he's not going to be happy about this. So, anyhow, that's what you wanted to discuss this development, and we put this together for you. Hey, I appreciate you guys watching. Do me a favor if you like the video. Hit the subscribe button, hit the bell so you get notified videos like this. Leave me a comment.

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