Good day everyone,
I hope you are all having a good day, welcome to CryptoGod-1's blog on all things crypto. In this post I will be looking at the recent revelation from Chainalysis that crypto is being used by Mexican Drug Cartels and Chinese Labs.
Crypto Transactions Linked to Drug Cartels and Chinese Labs
The blockchain analytics firm Chainalysis have reported their findings on direct financial connections between Mexican drug cartels and Chinese fentanyl precursor suppliers who have been making transactions thanks to the use of cryptocurrency. According to the report, released on Wednesday, cryptocurrency has become "increasingly interwoven into the illicit drug trade." While this may not be new news for a lot of people given crypto has also been associated with illegal activity, the report states that the "on-chain fentanyl trade" includes a "broad array" of players.
As part of the report they managed to track a civil forfeiture case in Wisconsin which resulted in the seizure of $5.5 million in crypto. This case exposed how cartel-affiliated money was laundered in the United States and the funds were transferred directly to Chinese chemical manufacturers. While China maintains a ban on crypto, the Chinese manufacturers work around this and continue to be the primary source of fentanyl precursors, pill presses, and counterfeiting equipment worldwide. The documented transactions show that Mexican cartels are the primary buyers.
The United States is currently going through a synthetic opioid crisis which is contributing to tens of thousands of deaths annually. At the centre of the crisis is Fentanyl, a topic which President Trump has taken a harsh stance on. While in times gone by the transnational drug trafficking organizations (DTOs), which include those in Mexico, have focused on drugs such as cocaine they are now focusing their efforts into the transnational illicit fentanyl trade. The ecosystem is intertwined with crypto as online vendors and darknet marketplaces (DNMs) also play a role in the fentanyl trade.
The report from Chainalysis shows how Chinese nationals are "prohibited from buying more than $50,000 in foreign currency" and therefore they turn to alternative methods for financial transactions, such as crypto and underground banking networks. These underground financial networks span Mexico, the U.S., and China. The partnerships forged to facilitate the laundering of drug proceeds often sees that cartel-affiliated networks operate using relatively unsophisticated crypto techniques. This involves moving funds quickly through centralised exchanges and unhosted wallets.
The operation shows that they prefer speed to security and the method used makes the transactions "straightforward but effective" while also rendering them more visible to investigators. Mexican organisations, primarily the Sinaloa Cartel and Cartel Jalisco Nueva Generación, use China as their source for precursors to manufacture synthetic opioids, including fentanyl, for U.S. distribution. China is the leading supplier of fentanyl precursors and related equipment, including TDP die kits. These kits are used for tablet pressing in pill-making machines and consist of moulds and punches that shape powder into solid tablets. There are legitimate uses for these kits in pharmaceutical production but they are also a common use by drug traffickers to produce counterfeit pills, including fentanyl-laced tablets. The payment methods used to acquire these precursors are what authorities describe as "bulk cash-to-crypto pipelines" to facilitate payments.
The law enforcement officials have noted that there are multiple components in this crypto-enabled supply chain. These include Chinese precursor manufacturers who openly advertise online, postage services accepting crypto, and darknet markets that facilitate transactions. Chainalysis previously flagged more than $37.8 million in suspicious crypto transactions related to suspected China-based chemical traders. The on-chain link confirmed a direct financial relationship between cartel-linked money launderers and suppliers overseas as shown below.
The unsophisticated yet large-scale nature of the money laundering operation is unlike those associated with cybercriminal syndicates such as North Korean hackers. They make use of advanced on-chain obfuscation techniques to great effect, compared to the blasé and open nature of the Mexican cartels. The speed, low transaction fees, and cross-border efficiency ensures the cartel have been successful thus far, but investigators have been able to trace these transactions more easily than would have been possible with traditional cash-based money laundering. It also allows for greater disruptive potential as central exchanges have the ability to freeze assets.
There has also been a growing reliance by Mexican and Colombian drug cartels to make use of USDT as their preferred crypto. This is because USDT is a stablecoin and its value holds steady against the U.S. dollar, therefore making it easier to move without worrying about price swings. However, USDT in Mexico often trades below its market value due to the majority of it being associated with drug proceeds. Cartels then purchase the discounted tokens before selling them at a higher price in places like Colombia to turn a profit. USDT trades billions of dollars daily and its link to the U.S. dollar gives criminal groups a simple workaround in countries where dollars are hard to come by.
Have a great day.
Peace. CryptoGod-1.
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