Money launderer Xiao Yu Lu had millions of dollars of assets, including this Lamborghini sports car, seized in Operation Brookings. Composite Photo/NZ Police/NZME
An illegal cryptocurrency dealer who laundered dirty cash for drug dealers and bought millions of dollars of assets — including a $421,000 Lamborghini sports car — with the profits has dodged a jail term.
Xiao Yu “Shaun” Lu made at least $5 million profit in unauthorised Bitcoin sales over five years but came to the attention of police as a suspected money launderer for organised crime figures.
Money laundering is the process by which criminals disguise the original ownership and control of profits gained by their offending, by making such proceeds appear to come from a legitimate source.
One popular method is Bitcoin which, because of its perceived anonymity, is the currency of choice for many drug dealers.
Targeting these so-called “third party” launderers, who are not involved in the original crime which made the profits but essentially act as contractors to clean dirty money, has become a strategic priority for police in recent years.
Shaun Lu was one of the first to be targeted by the specialist money laundering team in an investigation, Operation Brookings, which started in January 2020.
At the centre of the inquiry was an unregistered Bitcoin trading operation controlled by Lu, as well as a money remittance service he provided to transfer funds to China.
Over five years he made more than 3000 Bitcoin sales and more than $18m flowed through his accounts.
While his business had legitimate customers, Lu also handled large sums of cash which he knew to be — or was reckless about being — the profits of crime.
He was willing to turn a blind eye to the source of these funds in return for a 15 per cent commission on average.
During the live phase of Operation Brookings, the police were able to prove that Lu laundered at least $300,000 on behalf of drug dealers.
One of those criminal customers was a young woman from Invercargill.
In May 2020 she drove to Christchurch and met Shaun Lu, who had flown down from Auckland, in the airport carpark.
A police surveillance team filmed as the 23-year-old woman handed a black Countdown supermarket shopping bag to Lu before she immediately left.
The following day, Lu and his business partner drove back to Auckland in a rental car and boarded the Cook Strait ferry at Picton.
Police took the opportunity to covertly break into the rental car. Inside Lu’s backpack were bundles of $20 and $50 notes, held together with tape or rubber bands.
There was about $100,000 in cash.
Another customer was Preston Radford. He flew from Christchurch to Auckland to meet with Shaun Lu at Halfmoon Bay Marina, twice, in August 2018.
On each occasion, Radford — who was under surveillance in a separate police investigation — handed $100,000 in exchange for Bitcoin.
Radford and his business partner, Sami Zagros, were later convicted of importing 14kg of methamphetamine.
Not all of Lu’s customers were criminals.
But because he was not registered to provide financial services, all the money Lu made from Bitcoin sales and money remittance services was unlawful and he needed to launder it.
It was a little over $5m over five years.
He washed the cash through the purchase of luxury cars — including a $421,000 Lamborghini — properties and motorcycles, as well as the transfer of funds to China.
These assets were often registered in the names of other people in an attempt to disguise the true ownership and purchased with multiple deposits from various bank accounts.
In the case of the Lamborghini, Lu made 29 payments from different accounts.
When Operation Brookings concluded in October 2020, police found nearly $275,000 cash in a safe concealed in the floor.
Police also restrained three properties worth $2,245,000 and 11 vehicles valued at $1,425,000.
Lu denied all the charges and said his wealth came from selling Bitcoins and working as a painter.
But he eventually pleaded guilty to 18 charges of money laundering, as well as one count each of obtaining by deception and providing an unregistered financial service.
Lu appeared for sentencing in the Auckland District Court this week where Judge Stephen Bonnar, KC, said his offending was motivated by greed.
“Clearly this was a significant money-making operation for you.”
The judge started the sentence at just over four years in prison before giving discounts for Lu’s admission of guilt and lack of previous convictions.
This reduced the sentence to two years in prison, which meant Lu was eligible for home detention. The end sentence was 12 months’ home detention.
Operation Brookings was one of the first investigations of its kind in New Zealand as part of a strategic shift by police to focus on professional money launderers.
An audit in 2012 by the Financial Action Taskforce (FATF), a global body that audits the anti-money laundering performance of member countries, had noted New Zealand had a poor rate of prosecuting money laundering.
At that time, investigations into financial affairs were more likely to support asset recovery cases, or focus on the crime generating the funds to be laundered — usually drug manufacture or supply.
As a result, there had been a lack of attention on identifying “high-risk” money laundering targets such as lawyers and accountants, who help criminals hide their money through companies and trusts, or money remittance firms taking dirty cash and wiring funds overseas.
The FATF recommendations led police to establish a specialist team with a deliberate focus on professional money launderers.
These so-called “third party” launderers are not involved in making money through criminal activity, most often drug dealing in New Zealand, but are engaged as contractors solely to disguise the origins of dirty cash or get it out of the country.
Instead of reconstructing the financial transactions through forensic accounting alone, the money-laundering teams also use investigative techniques more commonly found in covert drug operations.
Intercepting private communications, hidden cameras, physical surveillance and even undercover agents — along with combing through spreadsheets of banking data — are among the tools needed to gather neccessary evidence.
Operation Brookings was followed by two other investigations, Operation Martinez and Operation Ida, as a trilogy of linked covert inquiries in 2020 and 2021.
The principal target in Operation Ida, Ye “Cathay” Hua, last month received a record prison sentence for a money-laundering case in New Zealand. She was jailed for seven years and six months for laundering at least $18m for the drug cartel of Xavier Valent.
Detective Sergeant Anna Henson, who works in the specialist money-laundering team in Auckland, says targeting professional money launderers is crucial because of the integral part they play in the business of organised crime.
“Drug dealing is about money. People who are involved in organised crime and drug dealing need money launderers to help move their money so they can continue operating or simply clean the dirty cash so they can enjoy the benefits of their crime.
“If police target money launderers, it makes it harder for people involved in organised crime or drug importation and supply or drug dealers to operate,” Henson said.
“Drugs cause so much harm in our community, and I believe the money launderers are just as culpable as the gangs or organised crime groups importing and distributing drugs.
“People might say money laundering is ‘just white collar crime’ or a ‘victimless crime’. It’s not. They are essentially facilitating the harm caused by drug dealing in our community on a daily basis. So an effective way of preventing harm is targeting those people helping drug dealers.”
Jared Savage is an award-winning journalist who covers crime and justice issues, with a particular interest in organised crime. He joined the Herald in 2006, and is the author of Gangland and Gangster’s Paradise.
George Block is an Auckland-based reporter with a focus on police, the courts, prisons and defence. He joined the Herald in 2022 and has previously worked at Stuff in Auckland and the Otago Daily Times in Dunedin.
Polkinghorne was sentenced to 150 hours of community work for drug possession.