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The illegal trade in fentanyl is a criminal enterprise that spans North America, China and much of the Western world. And the deadly power of this powerful opioid has led numerous countries to set legal restrictions to control the supply and sale of prescription fentanyl and fentanyl analogs.
For its part, China – which has the world’s largest chemical industry – effectively banned the sale of fentanyl as a controlled drug along with several precursors in 2019.
Unfortunately, however, the ban on synthetic fentanyl from China has led to a new criminal trade involving the export of fentanyl precursors to major established drug cartels in Mexico.
In our report, Crypto and the Global Fentanyl Trade, we set out to investigate the chemical supply chain by synthesizing several controlled substances fueling the drug epidemic in the US and elsewhere, and analyze the extent to which the crypto-asset is being used.
For one part of our investigation, we investigated major drug gangs such as the Sinaloa Cartel and the Jalisco Nueva Generación Cartel (CJNG), which use banned precursor chemicals shipped from China to synthesize fentanyl into pills destined for the US market. These pills are often disguised as popular—but much less potent—prescription drugs like Xanax, Adderall, or Oxycontin, with often disastrous consequences.
Elliptic Investigator chart showing a likely customer purchasing chemicals from five Chinese chemical suppliers and tablet press(es) and/or dies from one Chinese manufacturer.
We also found that China is the source of equipment used to manufacture final illicit drugs for sale in the US and other drug markets, such as pill presses and dies.
This trade largely hides in plain sight, operating on the fringes of legality in China and relying on layers of obfuscation between primary producers and end users.
What we found
After collecting the payment addresses of suppliers who were willing to supply us with the necessary precursor chemicals to synthesize fentanyl, we proceeded to analyze the volume of trade from the source and the amount of funds going to these addresses.
We identified 100 individual suppliers who offered to supply the relevant fentanyl synthesis chemicals for crypto payment, delivered to Mexico avoiding any customs controls.
Of these individual vendors, we were able to flag 80 individual clusters with 144 unique addresses on the Bitcoin, Ethereum, and Tron blockchains, as well as one Monero address.
Our report found that shipments of precursor chemicals and equipment for the production of fentanyl went to numerous locations in Mexico. These include Mexico City, the state of Querétaro (largely influenced by the Cartel Jalisco Nueva Generación (CJNG)) and the state of Jalisco, where the Cartel Jalisco Nueva Generación (CJNG) is headquartered.
We have also discovered how the shipment of this illegal material takes place through global logistics providers via various air routes and see. Shipping methods include:
- In the USA and transferred by truck across the border to Mexico.
- Via Air from Hong Kong SAR.
- Direct to Mexico via ports on the Pacific coast.
While digital assets are not the only form of payment used to purchase these chemicals, our research found it to be significant, with more than $32 million paid to suppliers, and we obtained payment data from three cryptoassets:
- Bitcoin;
- Tether (USDT) on Tron; and
- Tether (USDT) on Ethereum.
Growth in payments received by fentanyl precursor suppliers from 2021.
The chart above shows a 450% year-over-year increase in the number of individual payments received in the clusters we identified in our research. It also reveals that the dominant asset used is Bitcoin at $19 million. They were followed by Tether (USDT) on Tron with $9 million and USDT on Ethereum with $4 million.
It can be difficult to estimate how much synthetic fentanyl may have been produced through these transactions, as we know from our research that a wide range of chemicals can be used and their prices vary widely.
Furthermore, these suppliers also supply other chemicals necessary to synthesize a wide range of illicit drugs. However, if we assumed that all of these funds were paid for fentanyl precursor chemicals, the potential street value could be over $50 billion. Therefore, it stands to reason that billions of dollars worth of fentanyl products and other drugs such as methamphetamine and ecstasy may have been produced from these sales.
How we can help
Compliance officers and law enforcement agencies can use Elliptic’s comprehensive dataset of crypto wallets used by fentanyl dealers. Furthermore, our Nexus block analysis engine can track the activities of these dealers on the chain.
We also routinely monitor Dark Web markets for additional risk factors, such as fentanyl and firearms trafficking. Our research and investigations team focuses on identifying new ways suppliers use to conceal the trade of such illicit goods.
Download the report below to read the full findings of our investigation.
