Chinese Money Laundering

The paper first examines the structure and operations of Chinese Money Laundering Organisations (CMLOs) before moving on to describe how they have developed in the West. It then discusses them through a “state threats” lens to evaluate whether they fit within this framework. In doing so, it draws on Redhead’s 2025 studies to assess how Western nations should respond. While recognising the extent and scope of the threat of CMLOs, the research does not find any evidence in the public domain to suggest that the Chinese state has been directing the operations of CMLOs operating in North America and Europe; however, it appears that there is, at least, tacit acceptance of their activities.

Within a relatively short period of time, Chinese money laundering organisations (CMLOs) have become one of the pre-eminent global money laundering threats. Using centuries-old techniques, modern-day CMLOs have evolved into multi-billion-dollar operations, providing quick, cheap and efficient money laundering services to transnational organised crime groups (OCGs). In some countries, such as the US, CMLOs have come to dominate the market, and their activities are growing in the UK and Europe.

This paper seeks to explore the reasons why CMLOs have become so successful and how their activities have developed. It identifies that the imposition of strict capital controls by China has created a demand from wealthy Chinese individuals for ways in which they can move money out of the country to access Western currencies. CMLOs are able, for a fee, to provide this from the funds that they launder on behalf of transnational crime groups. CMLOs also take advantage of large Chinese diaspora populations both as potential clients and as part of their operations; for example, through the recruitment of “money mules” to deposit criminal proceeds into bank accounts controlled by the CMLOs. These factors, combined with OCGs’ increasing demand for “professional” money laundering services and the involvement of Chinese groups in the fentanyl drug trade, have created the perfect conditions for CMLOs to flourish.

This paper goes on to apply a “state threats” lens to the activities of CMLOs, building on the work of researcher and risk consultant Matthew Redhead, to inform readers how countries in the West could respond to the threat. Ultimately, the research concludes that there is no evidence to suggest that the activity of CMLOs is being directed by the Chinese state. While there is evidence that Chinese money laundering schemes can, and do, involve Chinese government officials and members of the Chinese Communist Party, that is very clearly not the same as saying that the schemes are state directed. This conclusion, therefore, prompts a follow-up question, which the paper explores, as to the prospect of collaboration between the West and China in tackling CMLO activity.

1. Introduction

Over the past decade, Chinese money laundering organisations (CMLOs) have become one of the most significant money laundering threats in the West. In a relatively short period of time, they have grown to dominate the market for laundering the proceeds of transnational organised crime, particularly, but not exclusively, relating to the sale of illegal drugs. As a result, disrupting their activity has become a key objective for law enforcement, and the threat has become an area of public and political discourse, particularly in the US.

The US National Money Laundering Risk Assessment, published in February 2024, identified CMLOs as “now one of the key actors laundering money professionally in the United States and around the globe.” The scale of their operations has become vast; the US government estimates that US$154 billion in illicit funds flows through China every year; however, it is unlikely that this represents anything like the total value of funds that CMLOs move around the world.

The opportunities that the fentanyl drug crisis in the US have afforded CMLOs has meant that the scope and scale of their operations in North America are that much greater than in Europe. This does not mean that European authorities are unaware of the threat, though; in October 2019, the UK’s National Crime Agency (NCA) issued an often-referenced alert on the threat of Chinese underground banking activity in the UK and, later that year, Europol stated that the activity posed a “growing threat” to the EU (Jorgic, 2020). Based on interviews with experts in the UK and the Netherlands, that threat has continued to grow. This is supported by the analysis in the UK’s National Strategic Assessment 2025 of Serious and Organised Crime, which concludes that “it is likely that the already high threat from Chinese-speaking money laundering networks in the UK continues to grow” and that “this increase has also been seen in countries in Europe”.

Against this backdrop, this paper seeks to answer the following questions:

1. To what extent is there evidence of a relationship between the Chinese state and transnational Chinese money laundering activity?

2. To what extent do existing policy responses to money laundering need to change to build resilience to the specific threats of CMLOs?

This paper is divided into four substantive sections, excluding this introduction. Section 2 sets out the evidence as to the structure and operations of CMLOs, the link between their growth and policies of the Chinese state, and how the networks operate. Section 3 explores the reason why the demand for services of professional money launderers, of which CMLOs are a subset, has grown and how CMLOs have been able to dominate the market. Section 4 considers whether the activities of CMLOs meet the definition of a “state threat” and, if not, why not. Section 5 draws together the evidence in the paper and considers what it means for future responses to the threat.

The use of the terminology around some of the activities that CMLOs undertake has long been an area of academic discourse. This is particularly relevant in relation to what are often described as “underground banking systems” but, as professor of criminology and criminal justice Nikos Passas writes, this is a misleading phrase on the basis that “all three words are inaccurate. It is not always underground; banking is rarely involved, if ever; and it is not a single system”. It is a term that “obscures more than it illuminates” according to Passas. The Financial Action Task Force (FATF) has also noted that the term “underground” is something of a misnomer, given that some providers may operate legitimately and advertise their services openly.

Passas coined the term “informal value transfer systems” in an attempt to better describe the nature of the activities, and while the term is not without its critics, it has been widely used over the past 25 years. However, a variety of different terms are still in use, such as parallel banking or alternative remittance systems, as well as regional terms such as hawala, which is sometimes used as a generic term for IVTSs. For the sake of ease, and while acknowledging that the term is not perfect, IVTS is used throughout this paper where it is absolutely necessary.

At its core, an IVTS involves the movement of value across borders without the use of formal banking systems. Typically, funds are received in one jurisdiction by an IVTS provider and then an equivalent value is made available by a member of the IVTS provider’s network in another jurisdiction. This is sometimes referred to as a “mirror transfer”. The transaction will be settled between the IVTS providers through a variety of means including cash, trade or netting off transactions over time. While there are legitimate uses for IVTSs, Europol has stated that “IVTSs are commonly used to move the proceeds of migrant smuggling, organised property crime, trafficking in human beings, and drug trafficking”.

Given the clandestine nature of IVTSs, there is little evidence as to the scale of their operations; however, it has been estimated that US$400bn passes through hawala networks every year. There is also no evidence as to the percentage of illicit transactions, although most sources suggest that the majority are legitimate.

Leaving aside arguments about the accuracy of the term “underground banking”, it is clear that law enforcement and the media freely use the phrase “Chinese underground banking”. Again, however, it is not always clear to what this refers. While Chinese underground banking is often used as shorthand to describe the activities of CMLOs, in reality, these networks use a wide range of techniques to move illicit funds around the world. Definitions of underground banking also range from the narrow – the traditional hawala-style method of moving value across borders – to a much broader definition that encompasses all the ways in which value can be transferred and/or accounts settled, including trade-based techniques and, increasingly, the use of cryptocurrencies.

In reality, CMLO activities should be seen to represent the broad umbrella of services that can be offered; it soon becomes redundant to attempt to impose a particular typology upon activities that are too complex or intertwined to fit into a neat categorisation. Ultimately, CMLOs have access to a range of different tools that can be used either in isolation or in combination to achieve the ultimate end result of moving value from one place to another. Generally, therefore, this paper will refer to “CMLO activity” other than where there is a need to talk about a specific technique that is used.

The research for this paper focuses on the laundering of the proceeds from organised crime committed in the West by Western organised crime groups (OCGs). Predominantly, this means that it focuses on the proceeds of the trade in illegal drugs (including, but not limited to, the fentanyl trade), which generate significant cash proceeds, while acknowledging that the same techniques can be used for laundering other types of serious and organised crime, such as fraud or organised immigration crime. Deliberately excluded from the scope of this paper is the money laundering activity associated with the rise of “scam compounds” in South East Asia and associated “pig butchering” frauds, which are often run by Chinese OCGs and target victims worldwide, other than where there is any indication of overlap between these operations and those which seek to launder the funds of other transnational criminal groups. Also excluded from the scope of this paper are cash-generating crimes, such as the production of and trade in counterfeit goods that originate in China.

It is also worth noting that underground banking can refer to a broader range of activities than the IVTSs with which this paper is primarily concerned. Professor of criminal justice Linda Zhao divides underground banking services in China between those which facilitate cross-border remittances and provide foreign exchange services, and those which provide shadow banking services within China. In 2012, it was estimated that China’s shadow banking economy accounted for over 40% of the country’s gross domestic product with its “meteoric expansion” being one of the unintended consequences of policies introduced in China post-2008 in response to the global financial crisis. Since 2018, the Chinese government has been attempting to control the sector, including through a suite of reforms; however, the sector remains in a state of crisis. This form of underground banking is, however, not within the scope of this paper.

1.1. Methodology

The primary research for this paper was conducted between September 2024 and March 2025. The first phase involved a literature review, initially of academic literature and, subsequently, of grey literature in the public domain. Searches were run across Google Scholar and EBSCO to identify potentially relevant peer-reviewed academic literature using search strings and key terms. Additional academic literature that had not been identified by the researchers was identified by “snowballing” and, in a small number of cases, academics interviewed for this paper also provided material. The literature review was conducted in English; however, interviewees provided several papers in other European languages and Google Translate was used to read them. The literature review also had a limitation in that it was conducted primarily in English and based on Western sources, which may have had their own preconceptions about China and the way in which the Chinese state operates. No Chinese literature was reviewed for the paper; however, the core question at the heart of this paper is the perception of the threat of CMLOs in the West and therefore, while a limitation, the lack of Chinese literature does not diminish the validity of the findings.

It has long been noted that there is a lack of reliable and robust literature in relation to underground banking in general. Passas notes factual inaccuracies, speculation and “facts by repetition” with little evidence to support them that pervade the literature – a concept that is explored further below. Passas goes on to identify specific examples in which “conventional wisdom” about how IVTSs operate has been generated through the repetition of statements, often without reference, which are misleading or erroneous in and of themselves; in these cases, the sheer act of repetition means that these statements become widely accepted as “facts”. Zhao notes that in 2012 there was limited academic research on Chinese underground banking, and that which was available was often contradictory and lacking in primary data. The situation has not changed substantially since 2012, and this is one of the reasons why the works of Passas and Zhao appear often within this paper.

Interviewees for this paper also raised the lack of academic research, particularly in the European context where the topic was felt to be underexplored and often considered in too simplistic a way. In addition, the research that has been carried out is generally at country level, rather than looking at the threat from a transnational perspective. While this paper does not attempt to fill the gap per se, however, it seeks to draw comparisons between the role of CMLOs in each of the in-scope countries and therefore identify points of potential collaboration in the policy response – whether that collaboration is with or without China.

In addition to reviewing existing secondary literature, analysis was undertaken of primary sources, such as evidence that is in the public domain relating to CMLOs from government inquiries and hearings in the US and Canada. Evidence given by experts – often senior officials within government or law enforcement – is extremely valuable, but the fact there is no equivalent in the UK or the Netherlands means there is a clear asymmetry of information that has to be taken into account, especially when considering a comparative assessment of the operations of CMLOs in the US/Canada and Europe. There is a risk that specific ways in which CMLOs operate in the US and Canada because of a particular jurisdictional context are incorrectly assumed to apply to CMLOs in other parts of the world – the most obvious example being the connection between CMLOs and the illegal trade in fentanyl in the US. It also leads to the perception that CMLO activity may be less extensive in Europe than in the US and Canada, a perception which may or may not be true, and a question that will be explored in the paper.

This analysis was supplemented by 17 semi-structured interviews with experts from Canada, the Netherlands, the UK and the US. Interviewees were drawn from law enforcement, government authorities, the private sector, academia and journalism. Potential interview subjects were identified during the course of the literature review as being notable commentators on the topic and through the author’s existing network. It goes without saying that all of the interviews conducted for this paper were valuable, but hearing the views of operational law enforcement officers was particularly helpful, not least in providing first-hand perspectives. The author also held a number of informal consultations to validate the findings with experts working in the area. While these discussions do not constitute evidence for the purposes of the research, they were essential in developing the research and testing the robustness of the findings.

Finally, a validation workshop was held in June 2025. In advance of this workshop, a draft of this paper was shared with experts identified during the research from across the US, Canada, the UK and the Netherlands and representing law enforcement, policymakers and the private sector. The key findings of the paper were presented and discussed over the course of 90 minutes to ensure they were robust and comprehensive, and to identify any gaps or areas that required further clarification. Feedback from the workshop was incorporated into the final draft of this paper.

Before moving onto the next section, it is worth noting one further caveat, in particular. There were many consistent themes and details across the academic literature, official reports, evidence hearings, grey literature and interviews; these included some of the drivers of CMLO activity, the way in which organisations operate and, to some degree, the extent of the Chinese state’s involvement. This demonstrates the risk that Passas identified, as set out above, that by repetition alone, statements – which may or may not be true – become treated as facts. While this risk is not unique to this project, the “underground” nature of the subject means that there is a relative paucity of information in the public domain with which to challenge some of these facts. Where possible, an attempt has been made to identify the ultimate source of a statement or piece of data. However, it is worth noting that despite this effort the risk remains – although not necessarily unique to this project – of “truth by repetition”, whereby belief in a statement is increased by repetition, whether the statement is true or not.

2. Structure and operations of CMLOs

The past decade has seen an explosion in the activities of CMLOs; however, many of the methods used have their roots in traditions that are centuries old, notably the IVTSs that developed to facilitate trade through China and to allow Chinese immigrants to remit home funds earned overseas. While it might be claimed that CMLOs were “virtually unheard of less than a decade ago”, experts interviewed for this paper emphasised the importance of viewing the activity of CMLOs as an extension and evolution of these long-standing relationships, rather than as an entirely new phenomenon. That is not to say, of course, that the complexity, scale and nature of the operations of CMLOs have not increased, driven by a number of factors explored in section 3, but that it is important to understand the historical context in order to understand how and why CMLOs operate.

While this chapter starts with a brief history of fei ch’ien (defined below), it is essential to understand that these systems are merely the building blocks and that modern-day CMLOs use a range of other techniques, including trade-based money laundering (TBML) techniques, vast networks of “money mules”, the purchase of properties and other luxury assets, and cryptocurrencies, in combination with traditional methods.

2.1. Fei ch’ien

IVTSs have existed for many centuries, with the Chinese version, fei ch’ien (often translated as “flying money”), being one of the oldest known systems. Fei ch’ien is thought to have originated during the T’Ang dynasty (618 to 907 CE) as trade in commodities such as rice and tea grew between the north and south of the country. Traders needed a way to be able to settle their accounts, without risking moving physical stores of value across the country, and fei ch’ien provided a safe and convenient method for doing so. As China began to liberalise in the 1990s and Chinese nationals began to move overseas, establishing businesses and earning money, IVTS were invaluable in allowing them to send money back home to their families. Fei ch’ien operates in the same way as hawala: an individual wishing to send money to another country will approach a broker with their instructions. The broker will take their money, plus commission, and make an equivalent value available in another jurisdiction via a trusted broker in their network. The transaction between the two brokers will be settled via a variety of mechanisms, such as netting off other transactions or using trade-based mechanisms such as misinvoicing. The activity of fei ch’ien has been described as “completely invisible” to the authorities, although some experts interviewed for this paper disagreed with this assessment, pointing out that it can often leave a footprint in the formal financial sector.

IVTS networks are often described as being based on trust or reputation. The existence and operation of fei ch’ien providers for many years has meant that the networks are already well established, with trusted providers. Central to their operation is the concept of guanxi, a Chinese word that loosely translates as “connections”, but which represents a concept central to Chinese culture of a personal network of mutually reinforcing and mutually beneficial relationships between trusted individuals. Rather than having to start from scratch, CMLOs therefore had access to a ready-made network, based on existing trusted and/or familial networks, allowing them to quickly exploit the mechanisms to respond to the needs of organised crime.

It is interesting to note Passas’s observation that fei ch’ien is generally considered “one way traffic”, with money being moved into China and not out. While this may traditionally have been the case, reflecting its use by expatriate populations seeking to send money home, it is clear that this is no longer so. The impact of China’s capital controls, particularly those imposed since 2016, is explored further below, but it does not seem unreasonable to suggest that increasingly strict capital restrictions introduced in China over the past 20 years have driven a fundamental change in the way that Chinese IVTSs operate.

2.2. Structure of CMLOs

CMLOs are often described as having a “decentralized” or “compartmentalized” structure, allowing for flexibility in operations, including the ability to scale up at pace, and reducing the risk of detection, although this does not mean that their activities are not centrally coordinated. The Chinese diaspora is central to the operations of CMLOs; networks are described as “insular” and “difficult to penetrate”, with the social rules of guanxi, as described in the previous section, governing interactions. The difficulty in penetrating these networks was echoed in many of the research interviews, particularly those with law enforcement, with language and cultural barriers cited as significant obstacles to successful law enforcement activity (see also Wang, 2013). Communication is often via encrypted messaging apps, notably WeChat, which is another obstacle for law enforcement officials, who struggle to gain access to communications.

While the networks themselves may be considered insular, it is important to note that CMLOs actively engage and collaborate with multiple transnational OCGs. The most high-profile example of this is the “alliance” that US law enforcement claims has been formed between the Mexican Sinaloa cartel and CMLOs. This is by no means the only example and there is evidence in Europe of CMLOs operating with ethnically or nationality-based money laundering networks, including hawala networks. Ultimately, CMLOs are happy to work for and with OCGs of many different nationalities. The OCGs that do use their services, do not seem to experience the challenges with language and communication that law enforcement suffers with.

Individuals working for CMLOs appear to have particularly close links to Fujian province in China (US Department of the Treasury, 2024a). This is, perhaps, unsurprising given that Fujian has long been associated with immigration including to Europe and the US, and the preference of Fujianese immigrants for using underground banking services to remit funds, including both legitimate and illegitimate earnings, back to China. It has been suggested that the fact that the relationships, connections and networks for moving value between countries in the West and China have existed for many years allowed them to rapidly expand as business opportunities grew.

One notable characteristic of CMLOs suggested in interviews is the prominent involvement of women in the operations, including in senior roles. This is particularly striking compared with other money laundering networks, such as hawala-based networks, which are dominated by men. This seems to follow in the tradition of Chinese organised crime whereby women are often found in positions of power, particularly in less violent criminal markets. One of the characteristics of CMLOs, compared with other providers of money laundering services, is the lack of violence in their operations and, therefore, it may follow that women are found in senior roles in CMLOs, even if further evidence to corroborate interview data is not readily available.

2.3. Relationship between Chinese capital controls and CMLO activity

The imposition of capital controls by the Chinese state is intrinsically bound up with not only the growth of CMLOs but also the way in which they operate. Prior to the 2008 financial crisis, China maintained strict capital controls that limited both inflows, particularly foreign direct investment, and outflows in an attempt to drive the accumulation of wealth within China and the growth of the domestic economy. These controls were eased somewhat post-2008 in response to the global downturn in the economy; however, further restrictions were imposed in 2016, following significant capital outflows in 2015-16 due to stock market turbulence when more than US$600 billion was believed to have left China. China continues to have stronger capital controls than most countries. Of particular note, individuals in China are only allowed to transfer funds out of China for limited purposes, such as studying or travelling, and there is an annual limit of US$50,000 per person. Foreign investment, including the purchase of property, is prohibited unless an individual is leaving the country permanently. In recent years, China appears to have placed a greater emphasis on enforcing the limits, including prohibiting Chinese nationals from transferring money on behalf of another individual, in order to prevent wealthy individuals from using their personal network to pool their quotas.

These restrictions have, in the words of one expert interviewed for this paper, created a “captive audience” in China of individuals and families desperate to find ways to move their money overseas. It is also one of the reasons why CMLO activity has the potential to be a threat in every country where there is a significant Chinese diaspora and where individuals in China might be looking to move money.

Sources identify multiple reasons why wealthy Chinese individuals wish to move money out of China, many of which are linked to dissatisfaction with policies of the Chinese state, such as the handling of the Covid-19 pandemic, and the crackdown on big tech firms and the wealthy individuals who own them. Economic instability and a slowdown in economic growth in China have also fuelled the desire to move money out of the country. China’s crackdown on corruption has also been linked to the issue of capital flight – not least as it provides a motivation for state officials to move their money out of reach of the Chinese authorities, whether using IVTSs or other means. Since 2012, President Xi Jinping has waged a war against corruption, with the Chinese authorities claiming to have investigated over 5 million members of the Chinese Communist Party (CCP). All these factors have created a demand for Western currencies; the proceeds of organised criminal activities are able to meet that demand.

It is worth noting that underground banking systems are not the only way in which money can be, and has been, moved out of China. An expert interviewed for this paper suggested that the services offered to individuals in China were likely pitched at middle-income/lower high-income individuals on the basis that high- and ultra-high net worth individuals had likely spent many years setting up sophisticated structures to invest their wealth overseas, engaging the services of professional lawyers, accountants and wealth managers, rather than relying on organised criminal networks to move their money. The Panama papers, over 11 million anonymously leaked financial and legal records from law firm Mossack Fonseca, which detailed the firm’s activities in managing the financial affairs of many wealthy individuals, including criminals and corrupt elites, provide some insight into these activities too. Mossack Fonseca had offices in Hong Kong and eight other Chinese cities and, according to reporting, 29% of the active offshore firms that the firm had set up were established by its Chinese offices and China was one of the firm’s most important markets. Members of the Chinese elite, including members of the CCP and their family members, availed themselves of Mossack Fonseca’s services.

China’s capital controls have undoubtedly driven the growth of CMLO activity in the West, but it would be too simplistic to ignore other factors. As will be explored in section 4, this is also one of the reasons why it is too simple to consider CMLO activity as a state-orchestrated tool to undermine the West; China is losing out too.

2.4. Role of the Chinese diaspora

It is estimated that there are now 60 million people of Chinese heritage living outside China and the Chinese state has sought to cultivate its relationship with members of the diaspora, including through the United Front Work Department, and exercise control over them, with expatriates expected to act as “unofficial Chinese ambassadors”.

The establishment and subsequent growth of Chinese underground banking operations has been clearly linked to large-scale emigration from China, most notably the “emigration craze” of the 1990s when relations between China and other countries improved, and more people in China were able to access passports and travel internationally. Chinese IVTS providers grew to meet the demand from expatriate Chinese nationals who wanted to remit funds home.

As noted above, the presence, and spread, of the Chinese diaspora has played a crucial role in allowing CMLOs to operate. As an interviewee for the paper stated, “every jurisdiction with a Chinese diaspora will have a problem with underground banking.” The NCA’s 2019 advisory on Chinese underground banking echoes this, stating that underground banking systems are common where there is a “significant expatriate Chinese community”. The advisory also highlights that being able to move funds in multiple currencies and to multiple jurisdictions makes CMLOs’ activities more profitable, thus making it “highly likely” that they would seek to build operations across many countries.

2.4.1. Money mules

The diaspora provides CMLOs with the “unique capacity” to recruit from Chinese communities worldwide, particularly to serve as money mules. Money mule behaviour is typically associated with Chinese students, but CMLOs also recruit other individuals, often those working in low-paid roles. Individuals may open multiple bank accounts, sometimes using fake Chinese identity documents, into which the cash proceeds of criminal activities will be deposited. Large amounts of cash will be broken up into multiple smaller payments (a practice known as “smurfing”) to try to avoid them being flagged as potentially suspicious transactions. Bank accounts will also be passed between individuals; for example, a Chinese student may open multiple bank accounts while they are studying abroad. When they return to China, these accounts stay open, but management of the accounts will have passed to the CMLO or another Chinese student who has been recruited as a money mule. This, plus the use of fake identity documents, often means that financial institutions are unable to identify who is actually using and controlling an account. Encrypted communication platforms, notably WeChat, play an important role in recruiting and coordinating money mule networks.

2.4.2. Role of Chinese students in CMLO activity

According to the UK experts interviewed for this paper, Chinese IVTS activity often centres on towns and cities with high student populations. The number of new Chinese students in the UK increased steadily from 2006/07 to 2019/20; in 2020, a report from New Oriental, a private education provider in China, found that the UK was the preferred destination for Chinese students studying abroad, overtaking the US for the first time. Students are primarily attracted by the reputation of the UK’s higher education sector and the quality of teaching, although it should be noted that growth has since plateaued, primarily as a result of travel restrictions imposed during the Covid-19 pandemic, and applications have started to reduce in number. Still, for the academic year 2023/24, 149,885 Chinese students were enrolled in higher education providers in the UK, the second largest country of origin of overseas students. A similar pattern has been observed in the Netherlands. While the overall number of Chinese students in the Netherlands is smaller than in the UK, numbers have increased rapidly in recent years, with 2023/24 seeing a 23% increase from the previous year. The central role that students play in Chinese money laundering operations in the UK is highlighted by the prosecutions of CMLOs that are in the public domain, including the successful prosecution of seven individuals who ran a £55 million money laundering network in the UK which used a Chinese messaging app to sell British currency to Chinese students.

2.4.3. Insider threat

Another use of Chinese nationals has been observed in the US and Canada. Described as the “insider threat” method, it involves CMLOs either bribing individuals working within financial institutions to open accounts for Chinese nationals or, in some cases, getting members of a CMLO hired by a financial institution. Once in place, these individuals can approve account openings, change account details and monitor accounts.

This type of activity can be seen in the fine that the US Department of the Treasury’s Financial Crimes Enforcement Network imposed on Canada’s TD Bank in October 2024. The bank was fined more than US$3 billion for a catalogue of compliance failures; one example related to a CMLO headed by an individual named Da Ying Sze, which is alleged to have laundered over US$470 million via TD Bank. Sze admitted to bribing officials at a bank with gift cards and other items of value so they would turn a blind eye to his activity. While experts interviewed for this paper in the UK and the Netherlands were aware of this activity, there have been no publicly reported cases in either country. That said, the 2017 fine issued to the Bank of China in Italy for facilitating the illicit flow of more than €4.5 billion from Italy to China between 2006 and 2010 was used an example of the complicity of financial institutions in CMLOs’ operations.

2.5. Chinese money laundering activity

The US 2024 National Money Laundering Risk Assessment provides a succinct summary of the basic way in which CMLOs operate:

Once the CMLO retrieves the criminal cash in the United States, a comparable sum of Mexican pesos is then released – almost immediately and with nearly non-existent commission rates – to the cartel in Mexico using IVTS schemes (e.g., mirror transactions). Dirty dollars remain in the United States, where at least in part, they are broken down into smaller amounts and deposited into U.S. bank accounts opened by money mules, which sometimes involve international students. This method, known as “smurfing,” allows the cartels to avoid the risk and cost associated with attempting to smuggle bulk cash across our southern border. The CMLO then sells USD [US dollars] to Chinese nationals for a profit, who, in some instances, use the USDs to purchase real estate or even to pay college tuition expenses.

This is a common technique which is seen in many other countries; similar steps are set out in the NCA’s 2019 advisory on Chinese underground banking and were also described by a number of the experts interviewed for this paper. Much of the operation is coordinated via WeChat, as noted above, with CMLOs using the platform as a site to offer US dollars (or other currencies) for sale to Chinese customers. The Chinese customers may be based in China or in another country. Shell companies are often used in schemes, including to purchase real estate or as part of apparent trading activities.

In Canada, a version of this method, known as the “Vancouver model”, was observed in the early 2010s, with the involvement of casinos in British Columbia. The report of the Cullen Commission, which was established by the province of British Colombia in 2019 and reported in 2022, provides a significant level of detail about the operation of these Chinese money launderers in British Columbia, who were estimated to have laundered hundreds of millions of dollars through casinos. In the Vancouver model, Chinese OCGs made large quantities of cash available to casino patrons for them to gamble with. The patrons – whether they won or lost – would pay the Chinese group back via another means, such as a payment transfer in another jurisdiction. Wealthy Chinese individuals were, therefore, able to gamble, bypassing both China’s capital controls and its restrictions on gambling; Chinese nationals also used the cash to purchase real estate or luxury goods in Canada, again circumventing capital controls. The Cullen Commission concluded that IVTS had “undoubtedly been used to launder significant sums of money in British Columbia”, although money was not transferred exclusively between Canada and China, with value moving between Canada and countries in South America, reflecting the transnational nature of the activities of CMLOs.

As is so often the case when attempting to quantify the value of illicit financial flows, the scale of CMLO activity is not clear. There are several reports of Chinese underground banks having over 10,000 clients and laundering over US$100 billion a year; this is repeated in Global Financial Integrity’s 2022 report, Made in China: China’s Role in Transnational Crime and Illicit Financial Flows. While this estimate does not sound beyond the realm of possibility, it is not clear how it was developed, by whom and for what purposes and, therefore, should be treated with an appropriate level of scepticism. Other sources are more reserved in their assessments; the UK’s 2020 national risk assessment confines itself to saying that “a significant volume of the proceeds of crime flow in and out of China annually, particularly through the use of informal value transfer systems”.

It is also worth reiterating the point that money coming out of China may not be the proceeds of crime. The Cullen Commission noted that some users of the Vancouver model were not involved in criminal activity and were moving money generated from China from legitimate sources, albeit “most, if not all” the money that was made available to them in Canada was derived from criminal sources.

Increasingly, CMLOs are incorporating cryptocurrencies within their operations, providing criminals with virtual assets, such as Bitcoin, or stablecoins, such as Tether (USDT) in return for their dirty cash. In this case, the virtual asset serves as the vehicle for Chinese individuals to transfer their wealth out of the country, despite China’s efforts to crack down on the use of Bitcoin and other cryptocurrencies. Cryptocurrencies have also become a popular means of settlement in the purchase of precursor chemicals for the fentanyl trade; research conducted by blockchain analytics firm Elliptic identified 140 vendors of precursor chemicals, of which 100, all in China, accepted payment in Bitcoin or USDT.

2.5.1. Interaction with TBML

While the description in the section above of how CMLOs operate is likely an accurate representation, in reality, their money laundering operations soon become more complex. This is, perhaps, unsurprising given the volumes of money that CMLOs are likely to be laundering on a daily basis.

CMLOs appear not to operate within the silos of typologies that practitioners often like to use to make sense of the money laundering process; in particular, their activity is often a blend of the techniques often considered as IVTS (in other words, underground banking) and those considered as TBML (for example, invoice manipulation). It has already been noted in this paper that the validity of these typologies – and, indeed, typologies in general – are a source of much debate within the financial crime community, and the activity of CMLOs is an excellent example of the futility of the typology-based approach.

While the fei ch’ien activity described earlier in this paper is generally the first thing that people think of when considering Chinese money laundering activity, one expert has stated that the “most pervasive form of Chinese money laundering comes from ‘trade misinvoicing’”. Passas states that “import export and invoice manipulation practices are most prevalent in the hawala networks than the Chinese [IVTS networks]”; however, it appears that this is another way in which CMLOs have evolved their activities over the past 25 years; evidence from law enforcement activity and from the experts interviewed for this paper drew a very clear link between the two.

In 2019, the NCA highlighted the link between Chinese underground banking and a practice known as daigou, translated as “surrogate shopping”. In daigou schemes, goods are purchased outside China by Chinese citizens, then exported to China for sale there. One of the most notable examples of daigou in recent years has been in relation to baby formula. In 2008, the Sanlu Group, a Chinese dairy company, admitted that its baby formula had been contaminated with a toxic chemical. Tens of thousands of children were poisoned, and a number of babies died as a result. The scandal led to a significant increase in the demand in China for formula from overseas markets, a demand which continues to this day. To meet this demand, individuals would purchase large quantities of baby formula in the West and export it to China, often making a substantial profit.

The demand for Western luxury goods in China has also led to a flourishing trade in high-value goods, one which may otherwise be subject to high import tariffs. Daigou activities are not inherently illegal, albeit goods are often imported in contravention of custom controls and import taxes. The NCA has stated that it is “likely” that funds in accounts operated by money mules and controlled by CMLOs “may” be moved into the accounts of businesses which then use the money to purchase high-value goods and import them into China, with the criminal cash also providing the daigou networks with the funds needed to purchase the goods. The proceeds from the sale of the goods can then be made available to an OCG, presenting itself as “clean” money.

Similarly, CMLOs can facilitate the import of goods into third countries from China by providing access to Chinese currency, which can then be used to pay Chinese suppliers. In some cases, goods are imported into a third country where they are sold to realise a profit. Fundamentally, this adds an additional stage to the IVTS method set out above – rather than simply providing a Mexican cartel with pesos, for example, the CMLO can provide the cartel with the means to import, and then sell, goods within Mexico. This further obscures the flow of funds, complicating the efforts of law enforcement to follow the money laundering process.

This is similar to the way in which the black market peso exchange (BMPE) operates, or used to operate. The BMPE is a form of TBML that seems to have originated in the 1980s as increased amounts of cocaine were imported into the US by Colombian groups. Prior to the rise of CMLOs, it was the predominant way in which South American cartels laundered their profits, albeit it was not a quick method of laundering; cartels would have to wait at least six weeks before receiving their laundered funds. It is not clear from the evidence whether CMLOs have replaced the BMPE, adopted it for their own purposes or are collaborating with existing structures – the language of all three is used by different experts and in different sources – but it is clear that CMLO activity is, at the very least, an evolution of the traditional BMPE system.

3. Development of CMLO activity in the West

The evidence is clear that CMLO activity in the West has increased substantially in the past decade; experts interviewed for this paper from all four in-scope countries echoed this, with many considering CMLOs to be the pre-eminent money laundering threat in their jurisdiction. This is borne out by law enforcement activity over the period, with high-profile investigations and prosecutions of CMLOs in a number of countries including the US, Canada, the UK and the Netherlands. The activity of CMLOs has been scrutinised in public inquiries in North America, notably the Commission of Inquiry into Money Laundering in British Colombia in Canada, which reported in 2022, a hearing of the US House Committee on Oversight and Accountability’s Subcommittee on Health Care and Financial Services on 26 April 2023, and a hearing of the US Senate Caucus on International Narcotics Control on 30 April 2024.

Interviewees were united on what the primary driver of CMLO activity in the West is: China’s imposition of capital controls on its citizens. As set out in Section 2, CMLOs provide a valuable and in-demand service for wealthy individuals looking to move more than their allowed US$50,000 out of the country. While some have positioned the growth of CMLO activity as “solidly linked” to China’s own domestic policies. The reality, however, is far more complex. CMLOs would not be able to operate unless there was a demand for their services in the West.

3.1. Demand for professional money laundering services

CMLOs provide what are sometimes described as “professional” money laundering services. The FATF characterises professional money laundering as money laundering by a person not involved in the predicate crime that generated the proceeds to be laundered and who provides this service for a fee or commission. It is distinct from the concept of self-laundering, whereby a criminal will launder the proceeds of their activities themselves. Professional money launderers can either be an individual, a group or a more loosely structured network, and can provide a menu of services to launder the proceeds of organised crime. IVTSs are one of the methods used by professional money launderers to move value outside of regulated financial systems; however, it is by no means the only method.

Not all criminals will need to engage the services of a professional money launderer, but the evidence suggests their use has become increasingly popular over the past decade or so; in 2021, Europol found that “the increase in professional money-laundering networks is likely to reflect a preference among some criminal networks for more sophisticated and complicated methods to circumvent AML [anti-money laundering] controls”.

Michael Levi, a professor of criminology, and Melvin Soudijn, a senior researcher in the Central Unit of the National Police of the Netherlands, developed a conceptual framework of the conditions that affect the way in which organised criminals choose to launder money, being: (1) the type of crime and the form of the proceeds; (2) the revenue generated; (3) the economic goals of the offender; and (4) the robustness of anti-money laundering regulations in a given jurisdiction. Depending on these factors, criminals may want – or need – to outsource the laundering process, or elements of it at least, particularly if they do not have the skills or expertise for self-laundering. This is particularly relevant if the amounts generated are significant and/or the laundering methods involved are complex. Outsourcing the money laundering element of a criminal enterprise may also help to evade detection or prosecution.

Professional money laundering is often, though not exclusively, associated with the trade in illegal drugs in which the profits generated are significant and where funds often need to cross borders; for example, to pay for supplies. As is the nature of illicit financial flows in general, the scale of professional money laundering is unclear. Levi and Soudjin argue that the percentage of professional money laundering involved in high-value (defined as greater than €350,000) non-fraud organised crime could be close to 100%, whereas Jonathan Caulkins, a professor of operations research and public policy, and Peter Reuter, a professor of public policy, argue that only a “modest” share of drug-related revenues require professional laundering. It is highly likely that a significant proportion of professional money laundering activity goes undetected, but based on the cases that are in the public domain, professional money laundering networks launder billions of dollars a year, at the very least.

While the focus of this paper is on CMLOs, it is important to note, however, that other professional money laundering networks are available. For example, the UK’s National Strategic Assessment 2025 of Serious and Organised Crime states that it is highly likely that the scale of the activity of Russian-speaking money laundering networks is greater than has previously been reported. In December 2024, the NCA-led Operation Destabilise dismantled a “multi-billion-dollar” Russian-speaking money laundering network operating in the UK and other countries, which among other things collected the cash proceeds of drug sales and provided the equivalent value in cryptocurrency to OCGs.

By providing effective money laundering solutions, professional money launderers have also driven growth in organised crime. In the words of one interviewee, without the existence of IVTS networks to move the large amounts of cash generated through the cocaine trade, the trade itself would not have been able to grow to its current size.

3.2. Why use a CMLO?

Over the past decade, CMLOs appear to have come to dominate the market for professional money laundering, particularly in the US where they have been described as “the professional money launderers of choice for Mexican drug trafficking organizations.”

One of the main ways CMLOs have been able to expand their activities is through undercutting their competition. While there is some slight variation in estimates, it is commonly quoted that money laundering organisations, including South American cartels, have traditionally charged around 10-15% in commission. Other networks, such as the Russian-speaking network identified in Operation Destabilise, may charge lower rates, somewhere between 3% and 5%. CMLOs will charge around 1-3% commission and will, in some cases, offer their services for free as a “loss leader”.

CMLOs are able to do this because of their unique business model and focus; their profit is made on the transaction that happens in China and from re-selling local currency to Chinese nationals that want it. One source estimates that Chinese nationals may be charged fees as high as 25-30% for moving money out of China through traditional unofficial channels. All the profit is made in China and therefore CMLOs can afford to offer their services to OCGs in the West for free, or close to free. As an article published by ProPublica on one of the pioneers of this model in the US, Xizhi Li, has stated, “The new model blew away the competition”.

In addition to low fees, CMLOs also have the advantage of being able to operate at speed. Rather than having to wait weeks for laundered funds, OCGs can now receive their profits “within hours” and often with a money-back guarantee. Their “professional business model”, including a relative lack of violence, and their effectiveness at laundering large quantities of funds, have made them a very appealing business partner for many OCGs.

Part of their effectiveness is also a result of the diverse range of techniques they use. If OCGs are, as Europol suggests, looking for “more sophisticated and complicated” methods of money laundering, it appears that CMLOs have been willing to provide those services. Interviews with representatives from law enforcement in Europe reported that they generally saw CMLOs being used by bigger and more complex OCGs where the amounts to be laundered were that much bigger, whereas smaller groups were content to use their more traditional networks, such as local hawala dealers. One reason for this may be that CMLOs have a “greater risk appetite” than other money laundering networks; in 2019, the NCA identified that the amounts of cash exchanged by Chinese cash couriers were often in the region of £300,000-£500,000, compared with cash couriers connected to groups controlled from India or Pakistan groups where the amounts were often in the region of £50,000-100,000.

A question that emerged during the research for the paper was the relative extent of CMLO activity in Europe compared to that seen in the US. While acknowledging that there is a real challenge in understanding and quantifying the scale of CMLO activity in Europe, there was a general sense from interviewees that CMLO networks were operating alongside existing money laundering networks rather than dominating the market, as has been the experience in the US. Experts had a range of opinions as to why this might be the case – if, indeed, it is the case – and it is an area that merits further research.

3.2.1. Fentanyl crisis

The other factor on the demand side is the illegal trade in fentanyl. It dominates the discourse on CMLOs and their activity in the US in a way that it does not in any other country, not least because of the role of Chinese suppliers in exporting precursor chemicals. It may also be one of the reasons why the activities of CMLOs appear to be more extensive in the US than in Europe.

The relationship between the fentanyl trade and the role of CMLOs is often described as a partnership, with both sides benefitting equally – the fentanyl trade produces vast quantities of cash that need to be laundered; Chinese suppliers need to be paid for the precursor chemicals; the drug manufacturers need a “constant infusion” of capital to continue to make and distribute the drugs. The CMLOs provide effective and low-cost ways in which cartels can launder money, thus allowing them to realise greater profits, which can then be used to expand their operations. A former law enforcement official estimated that CMLOs have allowed the cartels involved in the production and distribution of fentanyl to increase their profit margin by 3-5%. In return for their services, CMLOs have ready access to US dollars, which they can sell to Chinese nationals.

While Europe does not have the same problems with fentanyl as the US, the production, distribution and consumption of synthetic drugs have risen in the EU. Given that China is one of the main exporters of precursor chemicals, there is a possibility that the scale of CMLO activity will increase, fuelled by the increased demand and market for synthetic drugs in Europe.

4. Applying a state threats lens to CMLO activity

The past decade has seen an increased focus on how countries in the West can manage the threat hostile state actors pose. As Redhead describes, several terms are used to describe the kinds of activities state actors carry out, such as “state threats” or “hostile state activity”; however, the concepts are generally loosely defined. Redhead proposes the following definition of state threats:

state threats are politically and intentionally motivated hostile acts that are underhand and largely, but not exclusively, covert by nature. They fall short of the internationally defined nature of war, and are initiated or encouraged by state actors and executed by state or non-state actors.

Based on this definition, state threats are defined by their severity, source, character and intent/effect. When considering whether the activity of CMLOs can be considered a state threat, the essential principle is to what extent the activity can be directly linked to the intentions of the Chinese state. As Redhead notes, “even where non-state actors have relationships with state actors, these are not obviously state threats.” Acts of non-state actors should only, therefore, be considered as state threats where there is “demonstrable engagement or encouragement by a state actor”.

There is some evidence of the involvement of Chinese OCGs (as distinct from CMLOs) in state-sponsored activities overseas promoting China’s interests and carrying out covert acts overseas, such as establishing Chinese “police stations” in Europe. The evidence as to the extent to which the activities of CMLOs can be considered as “state threats” is less clear. While this paper is unable to give a definitive answer to that question, understanding the extent to which the activity is directed or tolerated by the Chinese state, or is a target of it, has implications when considering how to build resilience to the threat of CMLOs in countries in the West.

4.1. Rhetoric of state threats

US rhetoric often frames the activities of CMLOs as a state-level threat, driven by the impact of the fentanyl crisis on the country, and the close links between the supply of precursor chemicals and the laundering of the proceeds of sales of the drug. US politicians have accused the Chinese state of supporting the production and export of precursor chemicals as a tool to cause harm to the US. A former official from the US Federal Bureau of Investigation said they “suspected a Chinese ideological and strategic motivation behind the drug and money activity … to fan the flames of hate and division”. While officials may have had their suspicions, and politicians have made public statements to that effect, there is little evidence to support this, and the Chinese government has refuted the allegations.

Likewise, US politicians have positioned the activity of CMLOs allowing the fentanyl trade to flourish as a state threat, describing CMLOs as fuelling deaths from opioid abuse, requiring Americans to “work together to find solutions to fight against the CCP.” The language of conflict that some politicians use, and the direct link that some make to it being a fight against the Chinese state, serve to heighten the impression that CMLO activity is very much a state threat.

It is not just in the US where the language of state threats is used about CMLOs; there are examples in Canada as well. Here, it seems to be bound up with the recent history of Chinese OCGs and their money laundering through British Columbia, as well as concerns about China’s interference and influence over Canadian politics and the financial system.

While the UK and other countries in Europe recognise the “state threat” that China poses, including the role of Chinese OCGs in executing state-directed activity, the European experts interviewed for this paper were less inclined to see the activity of CMLOs through that lens, for reasons which are explored below. One interviewee suggested that it “suits” the US to promote the narrative of CMLOs acting on behalf of the Chinese state as it fits into the broader discourse and perceptions of China as a “bogeyman”. The activities of CMLOs, therefore, are presented as just one more way in which China is seeking to attack the US and, given the devastating consequences of the fentanyl crisis, is one that has an emotional impact.

One aspect interviewees raised, although it appears to be more as a hypothetical concern than anything else, was whether the activities of CMLOs might prove to be a threat to the diaspora, in the same way that it is alleged that the state has used Chinese OCGs to monitor the activities of the diaspora and punish those who are critical of the Chinese government. In the same way, the CMLOs that control the underground banking mechanisms used by Chinese individuals could be used to penalise those whom the Chinese state wishes to attack.

4.2. Role of the Chinese state

The core question at the heart of this research paper is whether there is publicly available evidence of China’s “demonstrable engagement or encouragement” of CMLOs. An exchange at the US House Committee on Oversight and Accountability’s Subcommittee on Health Care and Financial Services hearing on 26 April 2023 answers this question succinctly:

Representative Paul A. Gosar (R-Ariz.): What evidence in the public record exists to back up the assertion that the Chinese Communist Party is involved in money laundering and drug trafficking from narcotics flowing across our Southern border in the United States?

Chris Urben: I am not aware of it being in the public record in terms of that specifically, sir.

When discussing whether CMLO activity should be considered a state threat, many of the experts interviewed for this paper voiced the same reason as to why it should not: the activity of CMLOs not only harms the interests of countries in the West, but also the interest of China, in a very real way, through the billions of dollars that have left the country, evading its capital controls. The Wall Street Journal has estimated that as much as US$254 billion may have left China illicitly in the 12 months to June 2024. The scale of capital flight puts pressure on a Chinese economy that is already struggling with slow growth and currency pressure. It is hard to divine what motive there might be for the state to direct the activities of CMLOs in a way that has such a detrimental impact on China and its economy.

There is evidence that Chinese money laundering schemes can, and do, involve Chinese government officials and members of the CCP. But that is very clearly not the same as saying that the schemes are state directed, especially considering President Xi Jinping’s anti-corruption campaign, which has targeted party officials at all levels, including senior officials (sometimes known as “tigers”). The state’s concerns about underground banking (in its widest sense) are also said to be heightened when the underground banking networks are involved in bribery or corruption. While bribery and corruption may not be essential to the operation of IVTS networks, two experts interviewed for this paper hypothesise that the main preoccupation of the Chinese state in relation to the activity of CMLOs was the potential that Chinese officials (or quasi-officials) overseas might be bribed into engaging or facilitating CMLO activity.

The two reasons outlined above – concern about capital flight and about corruption within the party – seem to present a compelling argument as to why China would want to actively crack down on the activity of CMLOs or, at least, do more to try and disrupt their activity. Certainly, when it comes to the threat of CMLOs operating within China, the FATF’s 2019 Mutual Evaluation of China states that the country recognises that underground banking is a significant money laundering and terrorist financing threat. In recent years, the Chinese state has publicly made efforts to crack down on IVTS activity, with one source claiming that over 100 underground banks in China have been “dismantled” since May 2024. China’s next FATF Mutual Evaluation is due to take place in August 2026.

It is impossible to argue that the Chinese state is unaware of the activity of CMLOs outside of China for a number of reasons, not least because of the state’s security apparatus, including its monitoring of encrypted platforms such as WeChat, which the Chinese state has used to the monitor the interactions of users in China and members of the diaspora (Wang, 2013; Redhead, 2025a). To suggest that the Chinese state, with all of its surveillance capability and access to communications data is unaware of how CMLOs are using WeChat to run their operations – including the sale of foreign currencies to Chinese nationals – is somewhat unbelievable.

Through its inaction, some see China as “at least tacitly supporting” the activity of CMLOs. This leads one to the conclusion that there must be something about the relationship between the Chinese state and CMLOs that is mutually beneficial. Tacit support, however, does not equate to the demonstrable engagement or encouragement of the state that would be needed to consider it a state threat.

5. Informing the response to the growth of CMLOs

In the words of Senator Whitehouse at the opening of the US Senate Caucus on International Narcotics Control, “the US and our international partners have been slow to adapt to this threat.” Whether or not one considers the threat of CMLOs to be a state threat, the magnitude of the threat they pose demands a response. As it is imperative for countries to build resilience to state-based threats, resilience is also a crucial concept when considering non-state-based threats. As evidence emerges of how CMLOs are continuing to evolve and increasingly operating with other money laundering networks – from Mexican cartels in the US and Canada, to Albanian hawala networks in Europe – CMLOs can no longer be considered a “China” problem. Treating CMLOs as a distinct typology, for want of a better word, may be increasingly outdated and short-sighted. They should be considered part of a much bigger transnational illicit finance problem that demands a collaborative international response, including with the Chinese authorities.

The core question remains, however, as to the extent to which this is a threat that countries in the West have to address alone or whether there is scope for meaningful collaboration with China and, if there is, how far that collaboration could extend. To provide an illustration, a suggestion raised during the validation workshop was that China could simply remove, or significantly change, its capital controls so individuals were no longer limited in the value of funds that they could move or invest overseas. By doing this, one half of the demand side would be removed, thus destroying the current business model for CMLOs. However, it seems highly unlikely that this is something China would consider and would be counter to the current policy direction, as illustrated by the Chinese government’s ongoing concerns about capital outflows.

There is evidence of attempts to foster a dialogue with China on issues related to illicit finance by both the US and the UK, at least at diplomatic level. Under the administration of President Joe Biden, a US-China working group on illicit finance was established and appears to have met at least four times, with the last meeting in December 2024. At the time it was established, in April 2024, then-US Treasury secretary Janet Yellen was quoted in the Wall Street Journal as saying that the group was a “collaborative effort” and “a key step forward to advancing the security of Americans and protecting the integrity of two of the largest financial systems in the world”. The readout of the December 2024 meeting published on the US Treasury website simply states that: “The Joint Treasury-People’s Bank of China Cooperation and Exchange on Anti-Money Laundering (AML) also met in-person for the fourth time and discussed topics related to illicit finance. Treasury raised several issues of concern”. The current status of this group is not clear. What is clear, however, is that fentanyl remains a subject of dispute between the US and China, with the current US administration citing China’s role in the supply of precursor chemicals as one of the reasons for the imposition of tariffs on Chinese goods. In January 2025, it was announced that the UK and China would establish a new financial crime working group, as part of the UK-China Economic and Financial Dialogue, which would provide an “opportunity for enhanced policy dialogue and collaboration to mitigate UK-China exposure to illicit financial flows”. At the time of writing, there were no details in the public domain as to whether this working group had met, but one would hope that the activity of CMLOs would be on the agenda of any meeting.

At operational level, there are clear challenges for law enforcement in the West in investigating the activities of CMLOs. As noted in Section 2.2, cultural and language barriers are significant obstacles to obtaining information, as is the extensive use of encrypted communication platforms such as WeChat. In addition, representatives from law enforcement interviewed for this paper felt there was limited cooperation from their Chinese counterparts, with requests for assistance going unanswered or resulting in limited information being shared. There have been some recent examples of cooperation between UK and Chinese authorities in the field of asset recovery, albeit primarily relating to assets in the UK which are believed to have derived from criminal activity in China.

However, there is little evidence, in the public domain at least, of collaboration when it comes to the activities of CMLOs. This is supported by public comments from law enforcement officials in the US that their ability to see what was happening in China was “very, very limited”. For IVTS activity, in particular, where one side of the transaction takes place within China (in other words, the movement of funds from a Chinese broker to the recipient in China), this lack of visibility makes it hard to establish the pattern and flow of transactions. The lack of coordination and information-sharing at the operational level undermines efforts to build consensus at the diplomatic level.

Clearly, then, there is nothing to suggest that the type of cross-border collaboration between countries in the West and China that the issue demands will be forthcoming, despite the apparent arguments as to why it should be an area of mutual concern. This makes it all the more important that authorities in the West have a thorough understanding of the way in which the threat of CMLOs manifests, the market drivers and the opportunities for intervention, including targeted campaigns addressed at vulnerable members of the diaspora, such as Chinese students, or providing the private sector with greater detail about potential indicators of CMLO activity. Underpinning these efforts, inevitably, is the need for further research and evidence-gathering to better inform the intelligence picture. This paper makes no apologies for perhaps raising as many questions as it answers, but it is hoped that it provides a useful contribution to a more robust understanding of the threat of CMLOs, to inform ongoing strategic, policy and operational debates.

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Kathryn Westmore is a Senior Associate Fellow at the Centre for Finance and Security at RUSI, having held the position of Senior Research Fellow from 2021 – 2025. During her time at the CFS, she led the Financial Crime Policy Programme, tracking the implementation and evolution of anti-financial crime policy. In 2022, she served as Specialist Advisor to the House of Lords Committee on Digital Fraud and in 2023, she was appointed as a Specialist Advisor to the Home Affairs Select Committee’s inquiry into fraud in the UK.