Chapter 1: What is the main topic discussed in this episode?
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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? How you got $200 million in cash sitting in Mexico? You gotta get that back to China. In order for them to be able to start getting nine figures worth of cash back to China, the 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 paced. 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 Jalisco 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 was a couple of ways to get the drug proceeds back to Mexico or to Colombia.
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Chapter 2: What are the origins of the Mexican drug cartels?
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, just north of the border, there's a small town called San Ysidro. 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, in my case, a Toyota Camry, bomb run down to San Diego, go to the McDonald's, order some food, bullshit around. Here comes the operative for the other group. So now he'll come over, give me a dollar bill, ask for change. I give the guy four quarters, he goes on 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 the 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.
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Chapter 3: How did the Sinaloa cartel evolve in Los Angeles?
Right. And so between Cabo San Lucas and Los Cabos is a 20-mile stretch. Well, you could be staying in Cabo, going to the nightclubs in Los Cabos, but 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 two trips a day filled with gringos.
Right.
The sport fishing boats, Cabo San 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.
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Chapter 4: What methods do cartels use for money laundering?
So if it made... Made $12,000 today, you just say it made $20,000.
Or if it made zero, you just said it made $20,000.
Right, right.
A lot of times those charter boats don't even leave. They just stay in the 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. So, of course, he goes in. Smart guy. He looks at the books. What have you been telling the IRS you made? And they're solid.
It looks great. And he's like, look, I want like half a million dollars or something for this one or two laundromats, whatever it was. Let's say it's one. So he's like, I want $300,000, let's say. $300,000 for this laundromat. He's like, damn, 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 he ends up saying, OK, 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 done. He closes a few years later. He's reading the newspaper and he sees the guy that he bought the the laundromat from got indicted for the past 15 years. He's been opening up to running two or three laundromats at one time. He would run them for three or four years and then he'd sell them.
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Chapter 5: How do Chinese underground banking networks operate?
Or $500.
And since you've got a tremendous contingency of Americans there, no one's going to be suspicious when they're dropping off all this cash in dollars.
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And so it's 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.
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Chapter 6: What is the Black Market Peso Exchange?
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 the importation and distribution of primarily
The three principal factions of the cartel, led by Ismael Zambada, Joaquin Guzman, and Guero Palma, utilized 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 L.A. area, including, among others, to Tim Robles and John Ellenberger, two of the principal FBI and DEA targets in my L.A. 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 Triad. For those of you unfamiliar with Los Angeles, Orange County is located in the bottom third of this map.
OC 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 Gor, 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 phenomena. 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, threw 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. Now, 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.
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