California is now home to the largest legal state-regulated cannabis marketplace on the planet. But massive federal raids near Sacramento this week are serving as a reminder that the state is still home to an enormous unlicensed and unregulated market, too.
More than 100 properties in and around Sacramento, financed by Chinese companies, are thought to be part of the illegal grow operation.
On April 3 and 4, hundreds of federal agents and local law enforcement officers descended on 74 houses in the Sacramento region, and filed civil forfeiture actions against more than 100 properties, in what’s being characterized as one of the largest residential forfeiture efforts in the nation’s history.
According to the U.S. Attorney for the Eastern District of California, this week’s raids and arrests targeted a vast and meticulously organized black market cannabis network.
According to authorities, that network involved millions of dollars in suspicious money transfers from China, large purchases of California real estate and the gutting hundreds of homes in quiet suburban or rural neighborhoods for use as secretive cultivation rooms. Ultimately, authorities say, the scheme shipped huge quantities of cannabis far from California’s regulated market to illicit distributors on the East Coast, where cannabis remains largely illegal.
‘A Blight in Our Communities’
“These grow houses are a true blight in our communities, bringing with them increased crime rates, environmental damage, extraordinary consumption of electricity – and just a rotten, lousy place to have to live,” Scott McGregor, the U.S. Attorney for the Eastern District of California, said at a Sacramento press conference announcing the enforcement actions Wednesday.
In a separate prepared statement, McGregor decried “criminal organizations, funded by money from China,” permeating residential communities near Sacramento. “The scope of this enforcement operation sends a clear message to international organized crime: get out of our neighborhoods.”
This week’s operation included raids in Sacramento, the city of Elk Grove in Sacramento County, and communities in surrounding Placer, El Dorado, Amador, Calaveras, Yuba and San Joaquin Counties. Agents seized 61,050 plants and more than 440 pounds of cannabis flower, along with 15 guns and $100,000.
Sessions Denounces the Mob
The announcement of the large-scale raids, which involved more than 500 law enforcement officers, was accompanied by a statement from Attorney General Jeff Sessions. Blasting “transnational criminal organizations” for “trying to impose a false sovereignty over our neighborhoods,” Sessions said the federal government will seek to seize tens of millions of dollars in California real estate believed purchased for illicit cultivation as part of the trafficking operation.
The raids have 'nothing to do with' California legalization, says the local US Attorney. 'This is illegal under anybody’s law.'
Sessions, no friend of state-regulated cannabis economies, particularly legal adult use states such as California, chose neither to disparage nor mention the state’s legal cannabis sector when discussing the trafficking case.
However, McGregor specifically pointed out that the raids, including some in which officers used flash-bang grenades to burst into homes, had no connection with California’s state-permitted cannabis sector and that authorities weren’t conducting actions interfering with state cannabis laws.
“It has absolutely nothing to do with that,” Scott said. “This is illegal under anybody’s law.”
Chinese Influence in Illicit Operations
The Sacramento region for decades has attracted illicit cannabis operations, sometimes associated with Chinese or Asian-trafficking networks, due to the area’s proximity to San Francisco, diverse ethnic communities and decidedly lower housing costs than the Bay Area.
Straw buyers purchased homes in California on behalf of multiple investors, often completing purchases with money wired from banks in China, prosecutors say.
Thirteen immigrants from China were arrested in raids on suburban cultivation sites last September and another 10, including U.S. citizens and individuals with Chinese passports, were arrested in raids in neighboring Yuba County in March and May, 2017.
Court documents filed this week case describe an elaborate scheme in which straw buyers purchased homes in California on behalf of multiple investors, often completing purchases with money wired from banks in China. Federal authorities reported tracking 125 wire transfers, totaling $6.3 million, to facilitate the real estate purchases, many closed with minimum down payments of $5,000 to $10,000.
Mr. Yang Buys 7 Houses
According to a civil forfeiture filing obtained by Leafly, an Ohio man named Leonard Yang “used hard-money financing and tens of thousands of dollars wired to the United States from China” to facilitate acquisition of seven Sacramento area houses that were all used for illicitly growing cannabis.
In Sept. 2015, Yang was indicted on federal narcotics and money-laundering charges. Some 5,000 plants were seized at his Sacramento homes. Yang was arrested with $10,000 in his Cadillac, along with four garage door openers and multiple house keys.
For one of the houses tied to Yang, the purported buyer was identified as a 25-year-old woman, Yan Bing Li. According to court documents, she was the listed purchaser of a $416,000 house in the suburb of Elk Grove, having qualified for a loan based on reporting earnings of $5,000 a month managing a liquor store in Brooklyn, N.Y. But authorities say there is no evidence of any association with the liquor store; she worked for a restaurant in Texas.
$49k Wired for Travel
However, the seizure notice said Li was able to secure the purchase of the house with help of $48,999 wired from the Agricultural Bank of China. The filing said Yi had even listed the bank transfer on her 2016 U.S. tax return as funds for “travel.”
Li’s aunt, Xiu Ping Li, listed as a Sacramento homeowner, is in bigger trouble. In June, she was indicted on international money laundering charges that can carry a sentence of up to 20 years in federal prison. She is accused of receiving three wire transfers of $48,985 each from the China Construction Bank to her Bank of America account to facilitate other Sacramento real estate purchases for illicit cultivation.
“This was a large-scale operation, with millions of dollars coming into the US from China,” Internal Revenue Service Assistant Special Agent Cindy Chen said in a statement on this week’s federal actions. “This criminal organization used foreign money to purchase homes and turned them into marijuana grow houses, all at the cost of innocent neighborhoods.”
