By Dylan Tokar, Justin Baer and Vipal Monga

On a hazy Southern California morning, undercover police officers watched Jiayong Yu step out of a Range Rover in a strip-mall parking lot and walk into a Chase bank with a black-leather backpack full of cash.

At the teller window, Yu pulled out stacks of bills and waited while a woman fed them into a cash-counting machine. After Yu left, an officer asked the teller if he had deposited more than $10,000, the threshold requiring banks to flag transactions to federal regulators.

More like $100,000, the teller said. By then, Yu was already on his way to Chase and Bank of America branches in Claremont, Calif., about 35 miles away.

Federal authorities allege that Yu worked for an underground banking network that bought dollars at a discount from Mexico's Sinaloa drug cartel and sold them at a premium, largely to Chinese nationals in the U.S.

The network allegedly handled some $50 million in proceeds from drug trafficking over four years, depositing a portion of the tainted cash at ATMs and teller windows at major banks including Citibank in cities around Los Angeles County, according to federal prosecutors.

Similar money-laundering operations operate in plain sight around the U.S., hiding the staggering returns which are the sole reason cross-border cartels smuggle the fentanyl, methamphetamine, cocaine and other illegal drugs consumed by millions of Americans, according to current and former law-enforcement officials and court records.

More than 80,000 people in the U.S. died from drug overdoses last year, a significant drop from 2023, according to estimates released Wednesday by the Centers for Disease Control and Prevention.

Chinese money-laundering operatives in some cases open dozens of bank accounts at multiple banks, using counterfeit passports to disguise their identity or recruiting local business owners and students. They charge traffickers 1% to 2% on the dollar, undercutting competitors.

In North Carolina, prosecutors filed money-laundering charges last year against a Chinese network that used shell companies to make cash deposits totaling at least $92 million between May 2022 and April 2024 at banks including Chase, Bank of America and Wells Fargo.

In one five-month period, the network's money couriers made more than 100 deposits at bank branches in 20 states, using accounts created in the name of a sham company.

None of the banks cited in these cases has been accused of wrongdoing.

Banks occasionally close accounts based on suspicious activity, sometimes within a month. Even that allows enough time for money launderers to disburse millions of dollars of ill-gotten gains into avenues of financial anonymity. Usually within a day, the money is moved, often with the purchase of a cashier's check or to cryptocurrency. In some cases, the money is transferred to accounts held by customers of Chinese money brokers.

When bank accounts are closed, money-launderers open new ones under different names elsewhere.

"U.S. banks are a prime candidate for exploitation and there are vulnerabilities which Chinese money brokers have been able to take advantage of over the course of many years," said Frank Tarentino, special agent in charge of the Drug Enforcement Administration's New York office.

In a rare enforcement action last year, TD Bank paid $3 billion in penalties for lax internal systems that allowed a Chinese money-laundering operation based in the Flushing neighborhood of Queens in New York City to move more than $470 million in illicit cash through TD branches in New York, New Jersey and Pennsylvania.

The case sparked increased scrutiny of U.S. banks, which report tens of millions of suspicious transactions and large cash deposits each year. Only a slim fraction of those reports trigger investigations.

Sgt. Scott Guerrero had assembled the team that watched Yu deposit the six-figure cash haul at the Chase branch in Artesia, Calif. He was on loan to a DEA task force from his job as a narcotics officer at the police department in South Gate, Calif., a working-class city in southeast L.A. County that has become a hub for regional drug trafficking.

Guerrero was investigating a local drug operation for the DEA task force when he came to realize how much cash was going to suspected Chinese money-laundering operatives. After wrapping up a smuggling case in 2019, he recruited task-force colleagues to chase the money.

The pursuit lasted four years, across L.A. County, south to the border, north to San Francisco and as far east as Texas. Officers followed the cash from traffickers to money brokers to banks and cash buyers, offering a rare view inside a money-laundering operation serving America's multibillion-dollar illegal-drug trade.

"Our anti-money-laundering monitoring program performed as intended in this case," a JPMorgan Chase spokesman said. "We will continue to cooperate with law enforcement, while encouraging regulators to modernize existing laws to keep America safe from money launderers."

"We have extensive systems to detect suspicious activity and, consistent with legal requirements, report that activity to the appropriate authorities and take action on the relevant accounts," a Bank of America spokesman said.

A Citigroup spokesman declined to comment on the California case but said the bank's anti-money-laundering policies and practices are robust. "We notify the authorities as required and fully cooperate with any investigation," he said.

Wells Fargo declined to comment.

Paper chase

China restricts its citizens from buying more than $50,000 a year in foreign currency. As a result, many Chinese turn to black-market money exchanges to move the equivalent of tens of billions of dollars out of China, according to estimates.

Sai Zhang, who left China for the U.S. on a student visa, took up the money-exchange business in Southern California, federal prosecutors allege. Zhang, who has denied wrongdoing, allegedly tapped into the surplus of American dollars held by the Sinaloa cartel to meet the cash demand of local Chinese nationals -- making money on both sides of the trade.

Starting in 2019, Zhang became a target of Guerrero and the DEA-sponsored task force. Almost immediately, investigators met their first hurdle.

The DEA task force, created for long-running investigations, typically used wiretaps to eavesdrop on suspects. But Zhang ran much of his operation using WeChat, a Chinese instant messaging app, as well as other encrypted apps.

Guerrero and the task force instead racked up thousands of hours at stakeouts of suspected locales where Zhang's associates held money received from cartels. Guerrero recruited Cpl. Steve Gonzales, a Glendora Police Department officer who helped manage field operations for the task force and logged long hours of surveillance work.

Tailing suspects to cash-drops led to a handful of five- and six-figure seizures but brought the team no closer to an arrest. To cinch the case, officers needed to connect Zhang with the money collected by his operation to drug sales -- simple but not easy. Zhang kept his distance through a chain of cash couriers and cartel operatives.

Julie Shemitz, the federal prosecutor overseeing the investigation, pushed the officers to pursue the cartel couriers delivering cash to Zhang's operatives, according to people familiar with the investigation. With any luck, one of those cartel couriers would return to a house where drugs were kept, tying the money to illegal narcotics.

In January 2021, one of Zhang's top lieutenants was photographed by U.S. border surveillance cameras crossing into Mexico with an alleged money man for the Sinaloa cartel.

The photo revealed close ties between Zhang's operation and one of North America's most notorious crime organizations. It also put the task force a step closer to making a case.

By focusing on the Sinaloa connection, Guerrero's team began collecting evidence of the drug trafficking that fed Zhang's banking network.

They hit a jackpot on Oct, 18, 2022. DEA agents in Charlotte, N.C., alerted Guerrero to the locale of an imminent cash pickup by a woman suspected of working for Zhang. Gonzales and a colleague quickly arrived at the meeting spot, a supermarket parking lot in San Gabriel, Calif.

Shortly after arriving, they watched the passenger of a blue Maserati take a black bag from the driver of a white Ram pickup. The bag contained some $300,000 in cash.

Guerrero had made the rounds at police departments around L.A. County, pitching the money-laundering investigation and lining up a roster of officers the task force could enlist to clandestinely follow suspects and make traffic stops. When Gonzales radioed for help, San Gabriel police went after the Ram pickup.

Police tailed the truck for hours. It finally pulled into a parking lot in Compton, Calif., about 20 miles from the supermarket parking lot. The driver took two boxes from a silver sedan and put them in his pickup. Police stopped the truck after it drove off and seized 50 kilos of cocaine.

Gonzales, meanwhile, followed the Maserati to a house in Temple City, Calif., where he watched and waited. He needed to see where the drug money would go next.

Cash drop

Gonzales saw a person leave the house and pass a bag to two women in a car -- customers of Zhang's money exchange. Officers pulled the car over and found $25,000 in the bag.

The task force had determined that Zhang advertised dollars for sale on WeChat, and buyers were directed to houses where the money was kept, according to people familiar with the investigation.

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