Colombian drug cartels used Hong Kong banks to launder more than US$5bn

US court documents reveal at least US$5bn in illicit proceeds 'cleaned' in HK and the mainland

PUBLISHED : Friday, 11 September, 2015, 8:44am
UPDATED : Saturday, 12 September, 2015, 2:39am

South America's notorious drug cartels are using banks in Hong Kong and the mainland to launder the proceeds of their multibillion-dollar global narcotics trade, according to the United States authorities.

Newly unsealed US court documents accuse three Colombian nationals of helping to run a worldwide money laundering operation, based in Guangzhou, which saw at least US$5 billion in Colombian drug proceeds from the US, Mexico, Colombia, Panama, Guatemala and Canada - as well as parts of Africa and Europe - "cleaned" in the SAR and on the mainland.

The illicit drug money was used to buy products - often counterfeit - that were shipped to Colombia and other countries, prosecutors said.

The banks involved were not identified in the indictment but it is understood Hong Kong police are assisting US investigators.

Last night, a police spokesman said they would "not comment on individual cases", adding Hong Kong is "vigilant to the risk of being abused by criminals to launder proceeds of crime".

A Monetary Authority spokesman said: "We understand this case involves cooperation between law enforcement agencies in different jurisdictions".

The spokesman added it was "inevitable" money launderers would try to abuse the banking systems of international financial centres.

Earlier this year, the South China Morning Post revealed South American drug cartels were targeting Hong Kong's lucrative cocaine market.

READ MORE: How Mexican drug cartels have infiltrated Hong Kong

The Jalisco New Generation was reaping huge profits selling cocaine at a considerable mark-up in Hong Kong, according to chamber president Rodrigo Alpízar Vallejo. His comments come amid an increased push by Latin American drug cartels into the Asia-Pacific region in recent years.

Investigations by the Post have also found that the Sinaloa cartel - one of the world's biggest, most established syndicates - maintained both a corporate and criminal presence in Hong Kong. In addition to trafficking cocaine to the city, the group also ran front companies and bank accounts which it used to launder drug funds, according to official Mexican documents and interviews with law enforcement  Post sources.

One of the three men named in the US indictment, Henry Poveda, appeared in court on Thursday; the other two men, Christian Duque-Aristizabal and John Jairo Hincapie-Ramirez, are in custody in Panama and Colombia respectively, awaiting extradition proceedings.

All three face a single count of conspiracy to launder money.

A fourth defendant connected to the case, a Hong Kong woman named Luo Yuling, previously pleaded guilty in April to conspiring to launder money.

Luo faces up to 20 years in prison when she is sentenced. She was arrested in September 2014 at Newark Liberty International Airport in New Jersey during a layover between Panama City and Hong Kong, according to prosecutors.

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Assistant US Attorney Amir Toossi told US District Judge Carol Begley Amon that other defendants remain at large. They have not been publicly identified.

According to the indictment, the organisation used "Chinese casinos", currency exchange houses, export companies and factories to receive billions of dollars. The only legal casinos in China are those in Macau.

The money travelled through accounts in Hong Kong and China and eventually was used to purchase products, often counterfeit consumer goods, that were shipped to Colombia and other countries, prosecutors said.

Poveda’s court-appointed lawyer, Mia Eisner-Grynberg, declined to comment on the case. She and Toossi told Amon they have engaged in preliminary plea discussions.

READ MORE: Beijing signs landmark pact to stem flow of Macau's dirty casino cash

US authorities have pressed banks in recent years to improve anti-money laundering safeguards. In 2012, HSBC Holdings paid US$1.9 billion to resolve claims it allowed drug cartels in Mexico and Colombia to launder proceeds through its banks.

Jodi Avergun, an attorney at Cadwalader, Wickersham & Taft and a former US Drug Enforcement Administration official, said US authorities might be able to go after the Chinese banks if US-based branches were used in the alleged transactions.

“It really depends on what banks were involved, whether the money movement triggered any alarms,” she said.

In 2012, HSBC Holdings paid US$1.9 billion to resolve claims it allowed drug cartels in Mexico and Colombia to launder proceeds through its banks.

Professor Lin Jiang, of Sun Yat-sen University, said: "[Money laundering] is … more prevalent than you think … China's excessively strict foreign exchange controls are indirectly breeding money laundering, providing a huge demand for underground banks."

Lin said many factory manufacturers in the Delta often convert Hong Kong dollars and renminbi with underground banks for convenience while  casinos in Macau offer receipts to give legitimacy to suspect currency flows. 

"These are all very hard to prove or trace. The mainland government should consider allowing free currency conversion in a free trade zone, with a daily cap, to bring underground channels to light," he added.

With additional reporting by Reuters