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Key points:
- Most of the fentanyl traded in the United States is produced using precursors imported from Chinese suppliers.
- Elliptic researchers received offers from more than 90 China-based companies to supply fentanyl precursors, 90% of which accepted cryptocurrency payments. Many mentioned sending the same chemicals to Mexico.
- Many of these companies were willing to supply fentanyl itself, despite it being banned in China since 2019.
- Elliptic’s blockchain analysis shows that the cryptocurrency wallets used by these companies have received thousands of payments, totaling just over $27 million, and that the number of transactions has increased by 450% compared to the previous year. $27 million would buy enough precursors to produce fentanyl pills with a street value of about $54 billion.
- Analysis of blockchain transactions also shows that a known fentanyl dealer paid one of these suppliers tens of thousands of dollars in Bitcoins.
Fentanyl overdose is now the leading cause of death for people aged 18 to 45 in the United States. Cheaper to produce than heroin and 50 times more potent, this synthetic opioid has fueled an epidemic over the past decade, as well as become a huge source of profit for international drug cartels.
China has been the main source of illegal fentanyl for many years. But in 2019, after intense diplomatic pressure from the US, the Chinese government regulated the drug – effectively banning its export.
Far from stemming the tide, however, illegal fentanyl imports into the US have skyrocketed. That’s because Mexican drug cartels stepped in to fill the void and capture the market – producing their own fentanyl using precursors (chemical ingredients) imported from China.
The US government is placing increasing emphasis on disrupting the financial activity of fentanyl traffickers and their supply networks. In a fact sheet published on April 11, the White House indicated that it intends to “expand its efforts to disrupt the illicit financial activities that finance these criminals by increasing accountability measures, including financial sanctions.”
Three days later, on April 14, the US Treasury Department sanctioned several individuals and companies in China for supplying drug cartels in Mexico with precursor chemicals to produce fentanyl destined for the US market. The sanctions also list the cryptocurrency wallets these companies use to receive payments.
The Elliptic Research Team identified more than 90 chemical companies based in China that were willing to supply fentanyl precursors and that offer cryptocurrencies as a payment method.
Our researchers have received offers to supply large quantities of one particular fentanyl precursor. This chemical is not used in the production of other products and is a controlled substance in most countries. However, it is still unregulated in China.
(Left) A photo shared by one of the chemical suppliers purportedly shows a stockpile of fentanyl precursors. (Right) A “menu” of chemicals we provided our researchers, including precursors for the synthetic opioids, methamphetamine and amphetamine.
During our correspondence, suppliers showed no concern about how the chemical would be used, with some explaining that it was their best-selling product and could be used to make fentanyl. Others pointedly mentioned that they sold it to customers in Mexico. When asked if these customers from Mexico were paying with cryptocurrency, one replied:
“They always use USDT or Bitcoin to pay. Not a problem.”
Seventeen companies have even offered to supply fentanyl themselves – despite the Chinese government’s ban. Others have offered to provide other synthetic opioids even stronger than fentanyl, but these are currently legal to manufacture and sell in China.
Many companies have also offered to supply a range of other chemicals, many of which are precursors to the other synthetic opioids, methamphetamine and amphetamine.
In the email correspondence, the suppliers noted that they have shipped fentanyl and fentanyl precursors to Mexico numerous times.
Of the China-based chemical manufacturers who agreed to supply the fentanyl precursor fentanyl itself to our researchers, 90% provided a cryptocurrency wallet address for payment. Bitcoin was by far the most popular cryptocurrency, followed by Tether, the stablecoin of the US dollar.
Elliptic’s blockchain analysis tools show that these wallets have received thousands of cryptocurrency payments, totaling just over $27 million. The number of crypto payments to these chemical suppliers has increased by 450% compared to the previous year.
To put this into perspective, $27 million could buy enough precursors to produce fentanyl pills with a street value of $54 billion—potentially generating enormous profits for distributors of the finished product. This amount of fentanyl would technically be enough for 8.6 billion people to experience a fatal drug overdose.
Although it is obvious that there will not be such a high death rate, the numbers show that the fentanyl trade is extremely profitable for the drug cartels who sell the finished product, and extremely dangerous for those who consume it.
The number of cryptocurrency payments sent to addresses shared by precursor providers increased by 450% year-over-year. The majority of payments by US dollar value were in Bitcoin, the second being Tether, a USD stablecoin.
Elliptic’s blockchain analytics also reveal that a known fentanyl dealer made significant bitcoin payments to one of the precursor suppliers. US authorities sanctioned Alex Peijnenburg in November 2022 for selling millions of dollars worth of fentanyl and other drugs to US consumers through online stores. Between March 2019 and May 2020, a wallet controlled by Peijnenburg sent Bitcoin transactions totaling $84,598 to one of the Chinese companies that offered to sell fentanyl to our researchers.
A screenshot from Elliptic Investigator, showing some of the bitcoin payments from Peijnenburg to a chemical supplier based in China.
Perhaps surprisingly, so many of these companies were willing to accept cryptocurrency payments, despite the Chinese government’s anti-crypto stance. Crypto asset exchanges are banned from operating in the country, and exchanges abroad cannot serve Chinese residents. Despite this, most of the chemical suppliers that accepted cryptocurrencies used accounts on exchanges outside of China – all on three specific exchanges. This may also indicate that these companies are using intermediaries to help them convert cryptocurrency payments into renminbi.
This finding suggests that trading of fentanyl precursors for cryptocurrencies may be disrupted by services that act as gateways to and exits from cryptoassets. Most crypto exchanges are now compliant with anti-money laundering (AML) regulations and sanctions and use block monitoring systems – such as those provided by Elliptic – to ensure they do not facilitate illegal activity.
Elliptic notified the exchanges used by these companies and flagged hundreds of crypto addresses in our tools as being associated with this activity. We are monitoring the situation and will continue our efforts to prevent cryptocurrencies from being exploited by those involved in this deadly trade.
In our upcoming research report – “Crypto and the global fentanyl trade” – we further explore the use of cryptocurrencies throughout the fentanyl supply chain, from raw chemical manufacturers, to dark web vendors who sell a range of synthetic opioids – some even deadlier than fentanyl. We also examine how cryptoassets can be prevented from being exploited for this deadly trade.
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