Feds Probe Crypto Markets to Trace Fentanyl Traffickers


The Biden administration is focusing on tracing cryptocurrency payments used by some of the most dangerous Mexican drug cartels to buy fentanyl ingredients from Chinese chemical companies, in a renewed attempt to crack down on the multibillion-dollar fentanyl trade that kills thousands of Americans each year.

Data from private crypto-tracking analysis firm Elliptic shows that transactions for fentanyl ingredients surged 450% in the last year through April. To address this, a multi-agency effort is underway to keep pace with the rapidly changing nature of how fentanyl is financed and trafficked into the US. This goes beyond the cartels to include tracking dark-web forums where Americans buy fentanyl.

Current and former law enforcement officials from across the federal government described the digital-first tactics the administration is developing to disrupt the fentanyl trade. The Drug Enforcement Agency is investing in crypto-tracing software and identifying the cartels’ most sophisticated money launderers. The IRS has its most tech-savvy agents tracing payments on dark web forums. And a Department of Homeland Security investigations unit is leading a team of forensic specialists to investigate digital clues from stash houses near the Mexican border.

The two main cartels involved in the fentanyl trade are Sinaloa and Jalisco New Generation Cartel (CJNG). Sinaloa Cartel has developed sophisticated crypto operations to finance its fentanyl business. A US official with knowledge of the matter said “we’re dealing with a Fortune 50 company”.

Cryptocurrency has enhanced cartels’ ability to smuggle fentanyl into the US by allowing them to move vast sums of money instantaneously across a decentralized, digital banking system. But it also leaves a trail that investigators can follow. Federal agents have found cryptocurrency addresses written down on scraps of paper at stash houses in Arizona.

In another case, DHS agents monitored a cartel-connected crypto account for over a year until it sent $200,000 to an accountant they were using to launder money. After the accountant used the money to buy property in the US, federal agents are working to seize the property.

Most of the fentanyl that enters the US comes from ingredients made in China that are then pressed into pills or packed in powder and smuggled in from Mexico by drug cartels. US officials say Chinese companies are still producing and exporting large quantities of fentanyl ingredients. Crypto-based transactions can be traced publicly, giving US officials a much clearer picture of the Mexican cartels’ reliance on Chinese chemical companies to produce fentanyl.

The cartels also use “mixing” services, or publicly available cryptocurrency tools, to try to obscure the source of their digital money.

The Chinese government banned the sale of fentanyl in 2019, but the Biden administration has sanctioned and secured federal indictments against several Chinese companies allegedly involved in the production of fentanyl. To try to pinch off the financial flow to these companies, federal agents are following the money and looking for opportunities to seize it.

To track the cartels, DHS has set up a task force to infiltrate dark-web forums and trace crypto payments. They are also making the most of a huge series of fentanyl busts in Arizona and California this spring, when agents seized nearly five tons of the deadly drug, worth over $100 million. Evidence was quickly shipped to a forensics lab in Northern Virginia, where DHS analysts hunted for digital clues.

US diplomats have made fentanyl a point of emphasis in high-level talks with Mexican and Chinese counterparts, but the impact of the current surge may not be felt for months down the road. Federal agents have a long way to go to catch up with the cartels, who are investing in technology and using money launderers in dozens of countries. But ultimately, they hope to identify the people behind the production and movement of drugs, and disrupt the global network of money launderers.

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