Feds set up fake money-laundering ring to catch real money-laundering and drug ring

A man from Staten Island and six Boston-area men were arrested today on money-laundering and cocaine-distribution charges based in part on evidence obtained by a group of FBI agents and informants posing as their own Latin American cocaine-money laundering ring, according to documents unsealed in Boston federal court today.

Jin Hua Zhang, 35, and the six Boston-area men, one from Hyde Park, were formally charged with conspiracy to commit money laundering and conspiracy to distribute and possession with intent to distribute five kilograms or more of cocaine. Four other people from New York, including a former Bank of America employee, were indicted separately for their alleged roles.

According to an affidavit by an FBI agent on the case:

Agents on the FBI Task Force first detected the network in greater Boston but also identified leaders and members of the group throughout the United States and overseas. Over the past year, agents determined that ZHANG and his crew (the "ZHANG Organization") laundered at least $25 million worth of drug proceeds and profits from other illegal businesses. To date, agents have traced funds from the ZHANG Organization to Hong Kong and elsewhere in China, India, Cambodia, and Brazil, among other locations. The investigation also revealed that the ZHANG Organization distributed kilogram-sized quantities of cocaine, a Schedule II controlled substance, and MDMA, or ecstasy, a Schedule I controlled substance, to FBI CWs and UCs.

The affidavit says the FBI investigation began in May, 2021, when somebody who had agreed to work with the FBI undercover in exchange for protection from a loan shark he could not pay back was approached by Licheng Huang, 39, of Kingston to see if the informant might know somebody who could help the Zhang gang launder US dollars into Chinese renminbi, for depositing in Chinese bank accounts.

In July, the feds say they broke up another renminbi laundering gang based out of a restaurant on Tyler Street in Chinatown.

The informant informed his FBI handlers, the affidavit continues:

Based on this information, the FBI Task Force designed an undercover operation to identify the network of money launderers working with HUANG's group (which ultimately led to ZHANG) and to identify the sources of the illicit funds that the group sought to launder. Agents directed CW-1 to make HUANG a counterproposal: CW-1 would agree to introduce HUANG to other criminals (in reality, FBI undercover agents) who could help HUANG and his group convert drug funds into cryptocurrency. Based on my training and experience, I know that cryptocurrency is a decentralized, peer-to peer, computer network-based medium of exchange that may be used as a substitute for government-issued currency.

Over the next several months, undercover FBI agents, the original informant and a second informant - whom the FBI enlisted after it caught his or her company involved in illegal activities - met with Zhang and associates to exchange money in locations that included a South Shore Plaza parking lot (outside the Cheesecake Factory) to various locations in Quincy, a Starbucks in Milton, a hotel in Brooklyn and a pizza place in New Haven, typically after exchanging text messages on services such as Telegram and WeChat. The money would then be turned into Tether, a cryptocurrency, for distribution to China, the affidavit states.

Zhang, the affidavit continues, did not like going inside any of the businesses at which he arranged money transfers, supposedly because he found such business safer in a car, such as Frank Pepe's, a well known New Haven pizzeria:

On January 27, 2022, a surveillance team accompanied UC-2 [an agent], CW-2 [one of the informants], and another undercover agent posing as an employee of UC-2 to the restaurant. At 12:48 p.m., UC-2 sent a message to ZHANG over Telegram: "We are here having lunch." ZHANG responded, "Enjoy will be there 26 minutes." At 1:13 p.m., ZHANG texted UC-2, "I’m here." UC-2 replied, "You wanna come in or you want [CW-2] to come out?" ZHANG told UC-2, "Just send her out." UC-2 responded, "OK she's coming." Three minutes later, ZHANG texted UC-2, "190k only" and "Not 200k." UC-2 responded, "Ok take fee of [sic] the top?" ZHANG responded, "Yes you can." UC- 2 did the math, "Ok I will send 186200," then asked ZHANG "same wallet as before?" Over Telegram, ZHANG forwarded UC-2 the address for the digital wallet.

Agents saw CW-2 and the UC walk out of the restaurant and enter a white Toyota sedan. Agents saw two men in the car. CW-2 entered the Toyota alone. ZHANG was in the front passenger seat and an Asian male was in the driver's seat. ZHANG told CW-2 that it was risky to bring the money inside the pizzeria and that he felt more comfortable in the car. ZHANG told CW- 2 that he needed UC-2 to launder larger amounts of money because the current volume was too small. ZHANG also asked CW-2 if CW-2 had heard about the fact that one of his money couriers had stolen $200,000 from him last week. CW-2 was handed a bag of money by ZHANG. CW-2 contacted UC-2, who wired the Tether to ZHANG's digital wallet. Once UC-2 confirmed that the deal was done (he texted a screen shot of the Tether exchange to ZHANG over Telegram), CW-2 and the undercover agent walked back into the restaurant carrying the bag of cash and the Toyota drove off. The bag contained $190,000 in cash.

Among those arrested: Mariano Santana, 55, of Hyde Park. The affidavit says he was involved in two cash deliveries in a Quincy parking lot.

Zhang and the FBI team exchanged money-laundering tips at a meeting at the One Brooklyn Hotel in New York, the affidavit says:

On January 10, 2022, ZHANG and an associate went to the One Brooklyn Hotel in Brooklyn, New York, for a meeting with the FBI UCs and CW-1. During the recorded meeting, UC-1 explained his fictitious money laundering business. UC-1 described how his business was mostly from Latin America. UC-1 indicated that he usually charges 7% for "powder" money, which was a reference to money derived from cocaine trafficking. UC-1 further explained that to safely launder this money, he would send it through multiple layers, and even if law enforcement investigated, the funds would not appear to be the proceeds of criminal activity. As a result, UC-1 told ZHANG, both UC-1 and his money laundering customers were protected.

In response, ZHANG explained that he and his associates also receive money from similar sources (i.e., drug proceeds), but he received all of this money in cash. ZHANG indicated that the money he received in New York were mostly from cocaine trafficking, which he referred to as "Latin American," or the proceeds of marijuana trafficking, which he called "leaf." ZHANG also clarified that money that appears to be from marijuana traffickers sometimes includes cocaine proceeds, which he referred to as "white."

ZHANG asked the UCs if they have dealt with what he called "T5" money. In response, the UCs told ZHANG that the money they launder comes from all different sources. ZHANG explained what he meant by "T5" money. According to ZHANG, these funds come from victims of fraud schemes. These funds are transferred from business or personal accounts when a victim is convinced under false pretenses to transfer money to a fraudster's account. ZHANG provided the UCs with following example of a T5 scheme: a scammer uses social media, such as Instagram or Facebook, to lure a victim to "invest in" cryptocurrency. The victim is led to believe that he or she is making money, so the victim invests more. However, eventually, the scammer takes the victim's money. ZHANG indicated that if the loss amount is small, neither the police nor the bank would investigate. But if the loss is large enough, ZHANG said the FBI could get involved. Normally, by the time the victims realize that they are being scammed and report the fraud to the bank or police, the proceeds have been transferred out of the fraudsters' bank account that was receiving the victim's money. However, once the fraud is detected, the bank or law enforcement would know that the receiving account was involved with an online fraud. Therefore, the accounts are often closed. ZHANG's description of the fraud schemes highlighted a problem that ZHANG and his associates discussed regularly with the UCs and CWs during this investigation and worked to overcome, namely, finding ways to extract funds from the accounts to which fraud victims send money without leaving a trail of accounts that can be traced to the fraudsters who were responsible for tricking the victims into parting with their money.

The affidavit continues that after that meeting, Zhang and the fake ring set up a new operation to distribute cocaine and ecstasy. On Aug. 12, a Zhang courier delivered a cardboard box containing three kilograms of cocaine to one of the informants on Beach Street in Chinatown.

Innocent, etc.