In two May reports, cryptocurrency-tracing firms Elliptic and Chainalysis indicated that chemical producers in China have been accepting cryptocurrencies as payment for ingredients for fentanyl, a lethal drug produced on a large scale in different countries worldwide.
Elliptic researchers found more than 90 China-based companies supplying fentanyl precursors. Ninety percent accept payments in Bitcoin and Tether, facilitating the laundering of billions of dollars. Seventeen of the companies even offered to provide fentanyl despite its ban in China since 2019.
Several companies openly sold those precursors to customers in Mexico, who also paid with Tether or Bitcoin. Other companies offer a variety of other chemicals including synthetic opioid precursors, amphetamine, and methamphetamine, Elliptic indicated.
The cryptocurrency wallets of these firms received more than $27 million in thousands of transactions, with a 450 percent increase in transactions from one year to the next; a sum that allowed for the acquisition of precursors to produce fentanyl with an estimated value of $54 billion, Elliptic added.
According to the company, chemical suppliers that accept cryptocurrencies circumvent foreign exchanges restrictions in China. This suggests the use of intermediaries, possibly from the Chinese government, to convert payments from local currency to cryptocurrencies, which would imply that the trade of fentanyl precursors with cryptocurrencies relies on services that act as entry and exit points for digital assets.
These “criminal organizations take advantage of cyberspace capabilities to coordinate and sell their products, no longer only on the darknet or deep web, but also on the open web,” Yadira Gálvez, a security expert and academic at the National Autonomous University of Mexico, told Diálogo on July 3.
Chainalysis identified cryptocurrency addresses linked to Chinese sellers of fentanyl precursors, who received more than $37.8 million in cryptocurrencies since 2018. America, Europe, and Asia, have high exposure to these chemical sellers.
The blockchain analysis of the addresses of chemical dealers coincide with fentanyl seizures at the U.S.-Mexico border, confirming regional patterns in cryptocurrency transactions related to fentanyl production identified by the U.S. Drug Enforcement Administration (DEA), Chainalysis noted.
The U.S. Treasury Department on April 14 sanctioned and charged individuals and entities that used cryptocurrency addresses to sell fentanyl and other illegal synthetic drugs. Wuhan Shuokang Biological Technology and China-based Suzhou Xiaoli Pharmatech are two of these organizations.
These chemical companies sold fentanyl precursors to middlemen in Latin America, who in turn marketed them to Mexican drug cartels, such as the Sinaloa cartel, for the production of illicit fentanyl destined for U.S. markets, the Treasury Department said.
Gálvez pointed out that China does not recognize the seriousness of the problem and stressed that “countries must assume their responsibility in the fight against illicit substances. Over the years it has been demonstrated that international cooperation is essential to stop the production, trafficking, and distribution of these types of drugs.”
On June 23, the U.S. government took firm action against four China-based companies, filing formal indictments for manufacturing and distributing fentanyl to the Mexican cartels Sinaloa and Jalisco New Generation.
One of the companies involved, Hubei Amarvel Biotech, openly advertised on its website the shipment of these chemicals to the United States and Mexico. The other three companies are Anhui Rencheng Technology, Anhui Moker New Material Technology, and Hefei GSK Trade, all of which were implicated in similar crimes.
Governments should involve the private sector, especially pharmaceutical companies and laboratories, to encourage cooperation and the fight against money laundering, Chainalysis indicated. The United States places great emphasis on Chinese companies producing precursor chemicals for fentanyl.
“This poses a challenge for law enforcement and authorities, both in the fentanyl trafficking chain and in demand and consumption management, which are facilitated by the use of cyberspace for transactions by these companies and criminal organizations to get their hands on the precursors,” Gálvez said.
“If Latin American governments do not strengthen their capacities in investigation, dismantling of criminal organizations, and physical presence in the territories, together with international cooperation, the insecurity and violence caused by these organizations will continue to be a major problem in the region,” he added.
Dark web markets are key to the global distribution of fentanyl and similar substances, providing valuable information on opioid trafficking with cryptocurrencies. International collaboration and regulation are essential to combat this illegal trade and safeguard global health and safety, the Chainalysis study stressed.