Chinese Labs Are Selling Fentanyl Ingredients for Millions in Crypto

Despite that trend away from dark-web fentanyl sales, four members of the US Congress this week reintroduced a bill called the Dark Web Interdiction Act to increase the sentences for dark-web drug dealers, focusing specifically on fentanyl. The bill would also strengthen and make permanent the Joint Criminal Opioid and Darknet Enforcement task force that has helped coordinate law enforcement takedowns of hundreds of alleged dark-web drug sellers and administrators in recent years.

But even as the dark-web retail cryptocurrency trade in fentanyl has been restricted, and as law enforcement units crack down on what remains of it, Elliptic’s research shows that cryptocurrency-based wholesaling of fentanyl ingredients to drug cartels—who then manufacture the synthetic opioid and smuggle it into the US and other countries to be sold in the physical world—continues. In its study of precursor-selling chemical labs, Elliptic notes that several of the websites it surveyed specifically mentioned that they shipped to customers in Mexico, and 17 of the labs also sold finished fentanyl and other even more powerful opioids.

Those Chinese chemical companies do in some cases sell products other than fentanyl precursors, Elliptic’s Robinson notes, and he concedes that blockchain analysis can’t tell the difference between those sales and the sales of fentanyl ingredients. Some also sold precursors to amphetamines, methamphetamines, and other opioids. But Elliptic’s researchers saw companies advertising that fentanyl precursors were their best-selling product, in some cases. Robinson also notes that Elliptic isn’t claiming to have measured the entire crypto-based fentanyl supply chain, but only taken a “snapshot” of transactions it could identify. This suggests its $27 million estimate is likely lower than the total amount of fentanyl precursor sales over the past half-decade.

The US government may be increasingly aware of the activity of fentanyl precursor sellers in China and of cryptocurrency’s role, but so far the US has acted on a scale far smaller than the industry Elliptic has uncovered. The US Treasury Department last month levied sanctions against 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 indicted in absentia. The fourth, according to Treasury’s announcement, was an associate who had accepted cryptocurrency payments on behalf of one of the two companies.

The Chinese chemical firms’ decision to accept cryptocurrency for their fentanyl ingredient sales may seem counterintuitive, given the ability of companies like Elliptic and other cryptocurrency-tracing firms to track sales of dangerous and potentially illegal products across blockchains. But Robinson says the Chinese firms are likely using crypto because it’s hard to seize or block—and they may not particularly care that the money can be traced by Western companies and law enforcement as long as they can still find a cryptocurrency exchange willing to cash it out. “If a company in China wants to accept crypto payments, no one can prevent that from occurring,” Robinson says.

But traceability also creates an opportunity to pressure cryptocurrency exchanges to cut off the accounts of fentanyl precursor sellers Elliptic has identified. Elliptic, in fact, notified exchanges of hundreds of addresses it linked to the Chinese chemical companies. “There’s definitely a role for those services to clamp down on this,” Robinson says. And exploiting that crypto choke point could perhaps cut off at least a fraction of the lethal flow of fentanyl worldwide—not at its destination, but at its source.