US says cartels are using Bitcoin and other crypto to produce fentanyl

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The U.S. Treasury Department’s Financial Crimes and Enforcement Network (FinCEN) alleges that several Mexican cartels are now using digital cryptocurrencies to purchase fentanyl manufacturing materials. A FinCEN advisory suggests the cartels can avoid detection by using crypto in their trade with suppliers in the People’s Republic of China (PRC).

Crypto has gained popularity in many ways, mainly as a store of value and a medium of exchange. While some people use cryptocurrencies for payments and investments, others prefer to bet with Bitcoin (BTC), Ether (ETH), Solana (SOL), and several other digital assets in casinos such as listed by cryptocasinos.ltd. These online casinos offer players the same excitement and variety of land-based casinos in the online space, enhanced by the security of blockchain technology. They are also increasingly being used for international transactions, with low transaction fees and fast transfer times making them more attractive than traditional bank transfer methods.

Unfortunately, the benefits of cryptocurrencies are sometimes abused for illegal activities.

FinCEN’s advice is as follows: “TCOs (transnational criminal organizations) in Mexico are increasingly purchasing fentanyl precursor chemicals and production equipment from PRC suppliers in virtual currencies, including Bitcoin, Ether, Monero, and Tether. Payments in virtual currencies are often sent to individuals affiliated with PRC suppliers or to secondary money transmitters with hosted wallets with virtual asset providers.”

FinCEN’s advisory contains a few transactional red flags. According to the publication, users could be sending crypto payments to chemical manufacturing or pharmaceutical industries in Hong Kong, China, or other jurisdictions “without an apparent legitimate purpose.” Other examples include multiple senders to these recipients, or an entity from an unrelated industry in Mexico transacting with pharmaceutical or chemical companies in China.

FinCEN believes that in addition to trading cryptocurrencies, these cartels are also using shell companies to avoid detection. The companies help TCOs create layers of fake corporate ownership and obscure the source of financial activity. FinCEN wrote that the shell company may appear to be a legitimate Mexican company in the chemical or pharmaceutical industry, or an unrelated entity in the electronics, food, or textile industries. Either way, the suppliers sell these fentanyl precursor materials to the shell companies to obscure the source. The companies then sell the chemicals to cartels in Mexico to obscure the supply chain.

Last October, the U.S. Department of Justice (DoJ) charged several China-based chemical manufacturing companies and individuals with smuggling fentanyl precursor materials into the United States. According to a DoJ announcement, the charges include the production of fentanyl and methamphetamine, in addition to the distribution of synthetic opioids and crimes related to the sale of the precursor chemicals.

In a press release following the indictment, Deputy Finance Minister Adewale “Wally” Adeyemo said 28 individuals and entities in China and Canada were involved. Adeyemo said the Treasury Department plans to expand its efforts to include friends, family members and acquaintances of the individuals and entities involved due to the large-scale nature of the crime. According to the deputy minister, the Treasury Department has blocked more than a dozen crypto wallets associated with the indicted individuals and entities. The wallets are believed to have received millions of dollars in hundreds of deposits.

Despite the criminal use of digital assets by some entities, others are calling for more crypto involvement. Recently, billionaire chairman of the Salinas Group, Ricardo Salinas Pliego, made a case for Bitcoin. According to Mexico’s third-richest man, more people should hold Bitcoin as a store of value and a hedge against fiat currency devaluation.

Salinas was responding to an X-post highlighting the devaluation of the Nigerian Naira. The tweet announced that the Naira had fallen so much that one Naira was now worth less than one Satoshi. A Satoshi is the smallest unit of Bitcoin on the Bitcoin blockchain, equal to one hundred millionth of a Bitcoin (0.00000001 BTC). Salinas quoted the post as saying, “Buy Bitcoin and hold them, take note!!!.”

While cryptocurrencies are not illegal, Mexico does not recognize digital currencies as legal tender. However, Mexican law supports taxing crypto profits on centralized exchanges. This stance is unlikely to change after the recent election of Claudia Sheinbaum as the new president. Many in the crypto community believe that Sheinbaum will likely continue Andres Obrador’s policies, as she in line with his principles and they are from the same party. Apart from the 20% tax on crypto profits, the party has not introduced a robust set of rules or frameworks for the cryptocurrency sector. The lack of comprehensive laws negatively impacts the likelihood of crypto adoption, making entrepreneurs more reluctant to develop crypto-focused solutions such as payment gateways, remittance services, and crypto gambling platforms.

While it may be too early to conclude, the Morena party’s stance on the relationship does not indicate support. Nevertheless, cryptocurrency is an essential option for many, as Mexico is the largest market for US remittances. According to research, about 95% of the total remittances received by Mexicans come from the US.

In March, Congressman Jesús Roberto Briano Borunda proposed to reform and adapt Mexican law to allow for the increased use of blockchain in the country. According to reports, the proposal of the congressman from the Morena party aims to modify articles 2, 48 and 56 of the Financial Institutions Regulation Law (ITF). Among the various proposals, the National Banking and Securities Commission and the Bank of Mexico will jointly formulate rules regarding registration and confidentiality to protect the use of blockchain in finance.