Chinese chemical suppliers have emerged as key facilitators in the illicit fentanyl trade, providing necessary precursor chemicals to drug cartels worldwide. According to a recent report by Elliptic, a leading crypto analytics platform, over 90 China-based companies were identified as suppliers of fentanyl precursors, with about 90% of them accepting cryptocurrency as payments.
China’s ban on Fentanyl export ineffective
Following diplomatic pressure from the United States in 2019, China implemented a ban on the export of fentanyl to curb its illicit use. However, this move has not succeeded in curbing the fentanyl epidemic. Instead, Mexican drug cartels have stepped in to fill the void left by Chinese suppliers, manufacturing fentanyl using precursor chemicals imported from China. The situation has exacerbated the crisis, as fentanyl overdoses have become the leading cause of death among individuals aged 18 to 45 in the United States.
Elliptic’s research reveals that the Chinese chemical suppliers involved in the fentanyl trade have embraced cryptocurrency payments, despite the Chinese government’s anti-crypto stance. The analysis of blockchain transactions shows that these suppliers have received over $27 million in cryptocurrency payments, marking a significant increase of 450% in the number of transactions compared to the previous year. Bitcoin emerged as the most popular cryptocurrency used, followed closely by Tether (USDT), a stablecoin pegged to the US dollar. The use of cryptocurrencies in these transactions poses a significant challenge to law enforcement agencies, making it difficult to trace and disrupt illicit financial flows.
The use of cryptocurrencies in the fentanyl trade extends beyond payment methods. Elliptic’s blockchain analysis uncovered a known fentanyl trafficker who paid tens of thousands of dollars in Bitcoin to one of the Chinese suppliers. Alex Peijnenburg, who was sanctioned by US authorities in November 2022 for his involvement in selling fentanyl and other drugs, conducted Bitcoin transactions totaling $84,598 with one of the suppliers. These findings underscore the need for increased efforts to combat the intersection of cryptocurrencies and the global drug trade.
Addressing the issue: regulatory measures and financial disruption
Recognizing the severity of the situation, the US government has prioritized disrupting the financial activities of fentanyl traffickers and their supply networks. The White House has expressed its commitment to expanding efforts to increase accountability measures, including financial sanctions. In line with this objective, the US Department of the Treasury sanctioned several individuals and businesses in China for supplying precursor chemicals to Mexican drug cartels producing fentanyl for the US market. The sanctioned entities’ cryptocurrency wallets were also listed, highlighting the government’s intent to cut off the illicit financial flows associated with the fentanyl trade.
Elliptic’s research points to an exciting discovery regarding the cryptocurrency transactions of these Chinese chemical suppliers. While cryptocurrency exchanges are banned in China, most suppliers used accounts at three specific exchanges based outside the country. These findings indicate that disrupting the gateway exchanges could effectively disrupt the fentanyl precursors’ crypto trade, as most exchanges comply with anti-money laundering regulations and employ blockchain monitoring systems.
