Chinese underground banks are the financial lifeline of organized crime groups worldwide: TRM Labs

According to a May 2025 report from TRM Labs, Chinese underground banking networks have become critical for the operations of organized crime groups worldwide. These networks, also known as “fei qian” or flying money, operate in the shadows and function outside traditional banking regulations, and as a result, facilitate an array of illicit activities, from drug trafficking to cybercrime. The symbiotic relationship between global crime networks and Chinese underground banks According to TRM Labs’ report , there is a symbiotic relationship between Chinese underground banks and organized crime groups worldwide, and it operates beyond regulatory oversight. These networks have been known to use informal value transfer systems, such as “mirror exchanges,” to move funds across borders, which helps them avoid triggering the AML alarms in regulated banking systems. This network allows a broker in the U.S. to collect drug cartel cash and provide equivalent value in China—often in cryptocurrency or through trade-based money laundering (TBML)—without any cross-border wire transfers. In this way, cartels have been able to repatriate illicit earnings while helping wealthy Chinese clients interested in capital flight evade China’s strict capital controls, creating a mutually beneficial partnership. TRM Labs says these networks’ reach now extends globally, allowing them to serve a diverse clientele of criminal organizations from Mexican cartels to North Korean hackers. The cartels, for example, reportedly rely on Chinese underground bankers to launder drug proceeds, as seen in a Los Angeles-based ring that laundered over USD 50 million in narcotics revenue via crypto and trade-based schemes. Similarly, North Korean hackers depend on Chinese over-the-counter (OTC) brokers to convert stolen digital assets into fiat currency or commodities, evading global sanctions. The symbiotic ecosystem thrives on the ability of underground banks to act as a bridge between the cash-heavy criminal underworld and the formal economy. It depends on encrypted communication platforms like WeChat and Telegram, and exploiting regulatory gaps in jurisdictions with weak oversight, to ensure that illicit funds remain obscure. The financial pipeline for drug trafficking One particularly alarming thing about Chinese underground banking networks is that their capabilities have allowed them to evolve into a shadowy financial pipeline that boosts illicit activities, especially the lucrative drug trafficking between America and China. TRM’s report claims the system, which operates outside regulated channels, allows cartels like Sinaloa to launder hundreds of millions annually while Chinese brokers profit from small commissions, typically 1-2%. The increased adoption of crypto has revolutionized this pipeline, as it enables these groups to make faster, larger and more anonymous transactions. For example, TRM Labs reported cases where Sinaloa Cartel-linked launderers in the U.S. deposited drug cash into crypto ATMs or exchanges, converting it to Bitcoin for transfer to Chinese-controlled wallets. These funds are then used to purchase precursor chemicals for fentanyl production or other goods, which are reinvested into the drug trade. The pipeline not only encourages the opioid crisis but also supports a broader illicit economy, including North Korean sanctions evasion and Russian military supply chains. Disrupting the pipeline will require advanced blockchain analytics, international cooperation, and proactive measures, such as targeting key nodes like OTC brokers. There have been successful cases, such as Binance freezing accounts linked to North Korean launderers in 2022. However, the networks’ constant innovation means law enforcement has to remain on their toes and get even better at their jobs. Cryptopolitan Academy: Tired of market swings? Learn how DeFi can help you build steady passive income. Register Now

Source: Cryptopolitan