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The fentanyl trade has had a devastating impact in the United States, and the opioid drug is now the leading cause of death among Americans ages 18 to 49, according to the U.S. Department of Justice.
The danger posed by fentanyl cannot be overstated; indeed, the National Institute on Drug Abuse reports that fentanyl is between 50 and 100 times more potent than morphine.
In response, the US and other countries have set legal restrictions to control the supply and sale of prescription fentanyl and fentanyl analogues. Unfortunately, however, instead of limiting the availability of the drug, it has led criminals to obtain it from other countries.
While America’s opioid epidemic is relatively well known, what is less understood is the global trade fueling the crisis, which stretches across Mexico, India, China and beyond.
At Elliptic, we decided to investigate the chemical supply chain that synthesizes several controlled substances fueling the drug epidemic in the US and elsewhere, and analyze the extent to which crypto-assets are being used.
This was a more detailed follow-up to a study we conducted earlier this year that found China-based companies fueling the fentanyl epidemic mostly in the US.
Examining supply chains
As part of our latest research, we investigated global fentanyl precursor supply chains, focusing on trade involving cryptoassets between Chinese suppliers and buyers around the world. In addition to focusing on these chemicals, we decided to include tablet press and mold suppliers in our research.
China’s chemical industry is now the largest in the world, and Elliptic found that parts of it have evolved to meet the demand for precursors and precursor chemicals used to create deadly drugs like fentanyl.
The Asian country effectively banned the sale of fentanyl as a controlled drug along with several precursors in 2019. However, we found that in addition to various value transfer mechanisms, including wildlife trafficking, trade-based money laundering and informal banking systems, crypto is still being used for pay for fentanyl precursors and other related equipment for drug production.
In a sample of 141 vendors, our researchers found that the number of crypto payments to these vendors increased by 450% year-over-year, with the majority of revenue coming from centralized exchanges.
Furthermore, the trade has now shifted to exporting precursors to major criminal organizations in Mexico, such as the Jalisco Nueva Generación (CJNG) cartel and the Sinaloa cartel.
These groups use precursor chemicals and synthesize them into pills that are shipped north of the border into the United States, where they are often disguised as far less potent drugs like Oxycontin, Adderall, or Xanax. This often has disastrous consequences for potential users, who have replaced them with weaker drugs.
Other criminal players
Our research also revealed the involvement of other criminal organizations in the supply and sale of other chemicals used to synthesize a range of drugs, including MDMA and methamphetamines. An analysis of the sources of funds for some of these suppliers showed that buyers are not limited to Mexico or the US, with significant exposure to the Russian exchange Garantex, which is sanctioned by the Office of Foreign Assets Control (OFAC). We were also able to link Chinese chemical sellers to Russian drug dealers sanctioned by the agency.
In our report, we identified 100 entities – all from China – who would supply the fentanyl precursor chemicals we were looking for, shipped securely to Mexico for payment in cryptoassets.
We also uncovered $32 million in payments to 100 suppliers of fentanyl precursor chemicals—enough to produce $50 billion worth of fentanyl pills.
Using our latest report, law enforcement investigators and virtual asset services can learn how to prevent the flow of cryptoassets to and from suppliers of chemicals used to manufacture illicit drugs, some of which are internationally controlled and some of which are used to circumvent these controls.
Download the report to read the full findings of our investigation.
Download the report
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