Chinese labs sell fentanyl ingredients for millions in crypto

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Fentanyl has long been one of the most dangerous commodities in the underground cryptocurrency economy – so dangerous, in fact, that even many dark web markets have banned it. But new research shows how cryptocurrency plays a different role in the supply chain of this deadly opioid: Chinese chemical producers accept cryptocurrency as payment for fentanyl ingredients they sell to drug operations that mass-produce the narcotic in countries around the world. And they don’t offer it on the dark web, but in plain sight of the general public.

Cryptocurrency tracing firm Elliptic today released new findings that offer insight into an underappreciated role of cryptocurrency in the global fentanyl trade: supplying wholesale ingredients to producers of fentanyl from around the world. Elliptic researchers uncovered over 90 Chinese chemical companies that were selling fentanyl “precursor” chemicals and advertising their products on the open web, 90% of which offered to accept payment in cryptocurrencies like Bitcoin and Tether.

Courtesy of Elliptic

Monthly cryptocurrency transactions to Chinese companies selling fentanyl ingredients identified by Elliptic.

Elliptic researchers performed blockchain analysis of some of the cryptocurrency addresses that these companies shared with potential customers. The researchers estimate that they have received just over $27 million in transactions over the past five years, mostly since 2021, given that transactions increased by 450% last year. But the company warns that this is likely just a fraction of a larger crypto-fueled fentanyl supply chain, and the retail value of fentanyl produced with these precursors is likely thousands of times greater. high, in the tens of billions of dollars.

“The amount of cryptography accepted by Chinese companies for the materials used to make these narcotics is underestimated,” says Tom Robinson, who co-founded Elliptic and leads its research team. (Robinson declined to name any of the companies, though he said Elliptic has shared their names with law enforcement.) “The number of crypto transactions is large, and you only need from a small amount of these materials to produce fentanyl and other narcotics in quantities, both of which have extremely high market value and could potentially lead to a large number of overdoses.”

The Elliptic report notes that the tens of millions of dollars in precursor sales it tracked on blockchain would likely be enough to manufacture enough fentanyl to, if distributed effectively, kill every person on Earth.

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The sale of dangerous opioids like fentanyl on dark web marketplaces like Silk Road and its successors like AlphaBay and Hydra has been notorious for over a decade. But in recent years, dark web markets have begun banning the drug, which can be 50 times more potent than heroin. Although sometimes only loosely enforced, bans are intended to prevent substance harm to patrons and the law enforcement attention that comes with it. “I knew it was very dangerous,” a dark web administrator who goes by the name of DeSnake told WIRED in a 2021 interview, explaining the ban on fentanyl on the AlphaBay dark web market he had. revived at the time. “In a place where no one knows anyone, it would be a very, very big mess.”

Despite this trend away from fentanyl sales on the dark web, four members of the US Congress this week reintroduced a bill called the Dark Web Prohibition Act aimed at increasing penalties for dark web drug traffickers, focusing specifically on fentanyl. The bill would also strengthen and make permanent the Joint Criminal Opioids and Darknet Task Force that helped coordinate the law enforcement removal of hundreds of alleged drug dealers and administrators on the darknet in recent years.

But even as dark web cryptocurrency retail in fentanyl has been curtailed and law enforcement cracks down on what’s left of it, Elliptic’s research shows that wholesale-based on the cryptocurrency of fentanyl ingredients to drug cartels—who then manufacture the synthetic opioid and smuggle it into the United States and other countries to be sold in the physical world—continues. In its study of chemical labs selling precursors, Elliptic notes that several of the websites surveyed specifically mentioned that they ship to customers in Mexico, and 17 of the labs also sell finished fentanyl and other even stronger opioids.

These Chinese chemical companies are in some cases selling products other than fentanyl precursors, Elliptic’s Robinson notes, and he admits that blockchain analysis cannot tell the difference between these sales and sales of fentanyl ingredients. . Some also sold precursors to amphetamines, methamphetamines and other opioids. But Elliptic researchers have in some cases seen companies advertise fentanyl precursors as their top-selling product. Robinson also notes that Elliptic does not claim to have measured the entire crypto-based fentanyl supply chain, but only a “snapshot” of transactions it could identify, suggesting that its $27 million estimate is actually probably less than the total amount of fentanyl. precursor sales over the past half-decade.

The US government may be increasingly aware of the role of fentanyl precursor sellers in China and the share of cryptocurrency, but it has so far acted against the industry on a much smaller scale. than that discovered by Elliptic. The US Treasury Department last month imposed sanctions on four Chinese men and two chemical labs, Wuhan Shuokang Biological Technology and Suzhou Xiaoli Pharmatech, for selling fentanyl precursors to drug cartels in Mexico. Three of the men were also charged in absentia. The fourth, according to the Treasury announcement, was an associate who had accepted cryptocurrency payments on behalf of one of the two companies.

Exactly why Chinese chemical companies are accepting cryptocurrency for their fentanyl ingredient sales might seem counterintuitive, given the ability of companies like Elliptic and other cryptocurrency tracing companies to track. their sales of dangerous and potentially illegal products through blockchains. But Robinson says Chinese companies are likely using crypto because it’s difficult to seize or block — and they may not particularly care that the money can be tracked down by Western companies and security forces. the order as long as they can still find a cryptocurrency exchange willing to cash it out. out. “If a business in China wants to accept crypto payments, no one can prevent that from happening,” Robinson says.

But this traceability also means that it is possible to pressure cryptocurrency exchanges to cut off the accounts of sellers of fentanyl precursors that Elliptic has identified. Elliptic, in fact, notified exchanges of hundreds of addresses that it linked to Chinese chemical companies. “These services certainly have a role to play in suppressing that,” Robinson said. And exploiting this crypto chokepoint could perhaps cut off at least a fraction of the lethal flow of fentanyl into the world, not at its destination, but at its source.

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