The Police Investigation into an Alleged Money Laundering Syndicate

Xiaoyu Lu looked like a wealthy businessman living the Kiwi dream.

The married father of three lived in a $1.7m house near Half Moon Bay marina in Auckland, drove a $300,000 Mercedes and had a $160,000 Rayglass Legend boat parked on his lawn.

But on October 14, a few months after he celebrated his 40th birthday, police knocked on Lu's door.

Police allege his business was laundering money derived from other's drug dealing and, in addition to acquiring expensive assets, they claim he transferred $24m cash into bank accounts he controlled in China.

After the police raid on October 14, police arrested six people and seized more than $5m in assets including a $420,000 Lamborghini Huracan and six other luxury cars, three properties worth at least $3.3m, and Lu's boat. Police also arrested a woman in her late-30s, who has name suppression, and two of Lu’s associates, Leixiang Zhu and Yixuan Sun.

Lu told police his income came from selling Bitcoin, from his parents in China and personal savings. Police have charged him with providing a financial service while unregistered, 28 counts of money laundering, and obtaining by deception. He has denied the charges and is in awaiting trial.

All the defendants have pleaded not guilty and a trial date is yet to be set. Stuff understands the police case against Lu and others is a result of Operation Brookings.

Coming to Attention

Operation Brookings was launched on January 15, 2020 after Lu came to police attention in August 2018 during a covert investigation into a Christchurch-based methamphetamine importation syndicate. Police allege he was observed having two meetings with convicted drug importer Preston Radford and that on both occasions he received $100,000 as payment for a Bitcoin transaction.

Police claim they uncovered a sophisticated operation designed to allow Lu to transfer and conceal large amounts of criminal funds into the cryptocurrency Bitcoin for criminals involved in drug dealing. Lu allegedly advertised his service through the localbitcoins.com platform. Police allege he used a registered money service business to transfer about $24m into bank accounts controlled by him in China.

The police case against Lu is that he also needed to launder his own profits. Police claim he did this through buying luxury cars and expensive motorbikes, putting them into other names. Property was another avenue.

Police allege Lu began Bitcoin trading in New Zealand under the profile name “nzshaun2015” in 2015. He advertised his services as: “The best offer in Auckland and New Zealand! Online banking and cash deposit contact hours: anytime. I can do as much as you want. I would like to sell Bitcoins at a good price in New Zealand.”

His profile recorded more than 3000 trades.

The Houses and the Cars

Police catalogued various property and luxury car purchases, often paid for in multiple small amounts to avoid reporting requirements.

In March 2018, Lu bought a property in Half Moon Bay for $1.7m. Police claim the deposit of $100,000 came from his mother’s bank account and the balance from a home loan of over $1m.

Police allege Lu falsely told the bank he was earning $23,000 a month from a job in China. On April 24, 2018 Lu transferred $596,000 to settle the purchase from his mother’s bank account. Police claim the funds in his mother’s bank account came from his money laundering activities.

Between September 17 and 20 2018 Lu made 29 payments from various bank accounts to pay for a $420,000 Lamborghini. He used the same method to buy Mercedes Benz cars. One of the cars was put into his mother’s name, although she did not have a valid New Zealand driver’s licence, according to police.

One of the Mercedes Benz cars was purchased in September 2020 for $288,888 and Lu used it most days. Police allege Lu registered the car under the name of a man who had previously been living in New Zealand on a visitor’s visa but was not living in the country at the time.

During the search of his home in October, police claim they found a floor safe in the office holding about $200,000 in cash.

The Clandestine Meetings

Between June 18, 2019 and May 17, 2020 Police allege Lu had a series of meetings in Auckland in which he received large amounts of cash from a man. At some of the meetings Lu received cash to pay for Bitcoin transactions.

On May 26, 2020 Lu flew to Christchurch airport with Zhu and hired a car to drive to Auckland. Police were watching. They claim they saw Lu and Zhu meet with a woman in the airport carpark. She handed him a black shopping bag and immediately left the airport.

The next day Lu and Zhu drove back to Auckland and boarded a ferry in Picton. Police searched the rental car while on the ferry and found the black bag in the boot. Inside the bag was about $100,000 cash gathered in bundles of $20 and $50 notes.

The Arrests

Police arrested six people during early-morning raids in Te Atatū, New Lynn and Half Moon Bay on October 14.

Zhu said he was an associate of Lu and travelled to Christchurch with him, but denied money laundering. In relation to the motorbikes he said he took ownership of them because Lu did not have a motorcycle licence.

Detective Superintendent Iain Chapman said at a press conference the arrests were the result of an ongoing investigation into money laundering by the Financial Crime Group.

The money had come from drug dealing and the alleged money laundering service had been disguised “within a semi-legitimate business”, Chapman said.

“Largely the money was injected into the financial networks within New Zealand, but we were seeing a significant amount of money sent overseas to China.”

Chapman said the action was going to send a “really clear message” to organised crime groups.

Individuals who undertook this sort of activity “are motivated by financial greed and have no concern for the criminal offending that has generated the funds they are profiting from.

“These arrests serve as a warning to anyone involved in money laundering activity.”

Lu’s lawyer said he would not comment on the allegations, while Sun’s lawyer said she “vigorously denies the allegations”.

“She has confidence in the New Zealand jury trial system and is looking forward to presenting her defence and clearing her name.” 

Zhu declined to comment. (20 December 2020 – Via Stuff)