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Crypto is enabling billions worth of Chinese fentanyl to flood the U.S. - reports

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(Kitco News) - Two new reports released on Tuesday and Wednesday show how Chinese chemical companies and drug cartels have used crypto to produce well over $50 billion worth of illegal fentanyl around the world, with much of it ending up in the United States.

Researchers at blockchain analytics firm Elliptic published a report on May 23 demonstrating how willing and able Chinese chemical and pharmaceutical manufacturers were to sell fentanyl precursors in bulk.

“Elliptic researchers received offers from more than 90 China-based companies to supply fentanyl precursors, 90% of which accepted cryptocurrency payments,” they wrote. Crypto has been illegal in China since 2019, but the chemicals used to manufacture fentanyl are not illegal nor even controlled in the country.

Elliptic’s blockchain analysis shows that the cryptocurrency wallets used by these companies received thousands of payments, with the number of transactions rising by 450% year-over-year. The total value of these transactions was $27 million, which would purchase enough precursors to produce $54 billion worth of fentanyl at U.S. street prices.

Elliptic said that these companies were willing to ship industrial amounts of these precursors, including chemicals with no other industrial uses.

“Our researchers received offers to supply large quantities of one particular fentanyl precursor,” they wrote. “This chemical is not used in the manufacture of any other products, and is a controlled substance in most countries. However, it remains unregulated in China.”

The analytics firm said that the suppliers “showed no concerns about how the chemical would be used, with some explaining that it was their best-selling product and could be used to produce fentanyl.”

Elliptic said that 17 of the 90 suppliers who contacted them were even willing to ship finished fentanyl itself, despite this also being illegal under Chinese law since 2019.

The second report was released by blockchain data platform Chainalysis on May 24. Chainalysis used on-chain data to identify several of the cryptocurrency wallet addresses of Chinese fentanyl precursor suppliers.

The White House published a fact sheet on April 11 announcing the Biden administration’s intention to “expand its efforts to disrupt the illicit financial activities that fund these criminals by increasing accountability measures, including financial sanctions.”

On April 14, 2023, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned a number of individuals and entities who used crypto wallet addresses to sell fentanyl and other drugs, including Wuhan Shuokang Biological Technology (WSBT) and Suzhou Xiaoli Pharmatech (SXPC).

“These two chemical labs sold fentanyl precursors to brokers in Latin America, who sold them to drug cartels in Mexico,” the researchers wrote. “The drug cartels then created fentanyl products and shipped them into the U.S.”

Both WSBT and SXPC also accepted Bitcoin as payment, making many transactions public and traceable. Chainalysis compiled the total monthly flows to these companies’ wallets since January 2018. “As of April 2023, inflows have totaled approximately $38 million,” they wrote.

Using their own methodology, the researchers were able to estimate the “regional origins” of much of the crypto paid to these addresses during the time period. The data showed that more than half of these regionalized payments, representing over $14 million worth of fentanyl precursor chemicals, went to buyers in North America and Western Europe.

According to the U.S. Drug Enforcement Agency (DEA), since 2019, most fentanyl trafficked in the United States has been made from precursor chemicals imported from Chinese suppliers.

Fentanyl overdose has been the leading cause of death among those aged 18-45 in the United States since 2019.

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