Chinese Labs Are Selling Fentanyl Ingredients for Millions in Crypto

FENTANYL HAS LONG been one of the most dangerous wares of the underworld cryptocurrency economy—so dangerous, in fact, that even many dark-web markets have banned it. But new research shows that cryptocurrency is playing a different role in that deadly opioid’s supply chain:
A gloved hand holding a small bag of fentanyl powder

FENTANYL HAS LONG been one of the most dangerous wares of the underworld cryptocurrency economy—so dangerous, in fact, that even many dark-web markets have banned it. But new research shows that cryptocurrency is playing a different role in that deadly opioid’s supply chain: Chinese chemical producers are accepting cryptocurrency as payment for fentanyl ingredients they’re selling to drug operations that mass-produce the narcotic in countries around the world. And they’re offering it not on the dark web, but in full public view.

Cryptocurrency-tracing firms Elliptic and Chainalysis this week both released new findings that offer a glimpse of an underreported role of cryptocurrency in the global fentanyl trade: the wholesale supply of ingredients to fentanyl producers around the world. Researchers at Elliptic found more than 90 Chinese chemical companies that sold fentanyl “precursor” chemicals and advertised their products on the open web, fully 90 percent of which offered to accept payment in cryptocurrencies like Bitcoin and Tether.

A graph showing cryptocurrency payments received by the identified fentanyl precursor suppliers

Monthly cryptocurrency transactions to the Chinese firms selling fentanyl ingredients that Elliptic identified. COURTESY OF ELLIPTIC

Elliptic researchers conducted blockchain analysis to examine the network cryptocurrency addresses those companies shared with prospective customers. The researchers estimate that those addresses received just over $27 million in transactions in the past five years, most since 2021, given that transactions have increased 450 percent in the past year. Chainalysis, using its own methodology, put the number higher, at $37.8 million over the last five years. But the companies warn that these estimates are likely just a fraction of a larger crypto-fueled fentanyl supply chain—and the retail value of fentanyl produced with those precursors is probably thousands of times greater, in the tens of billions of dollars.

“It’s underappreciated how much crypto is accepted by Chinese companies for materials that are used to manufacture these narcotics,” says Tom Robinson, who cofounded Elliptic and leads its research team. (Robinson declined to name any of the companies, though he said Elliptic has shared their names with law enforcement.) “The number of crypto transactions is significant, and you only need a small amount of these materials to produce fentanyl and other narcotics in quantities that both have an extremely high street value and could potentially lead to huge numbers of overdoses.”

The Elliptic report notes that the tens of millions of dollars worth of precursor sales it tracked on blockchains would likely be enough to manufacture enough fentanyl to, if distributed efficiently, kill every person on earth.

The sale of dangerous opioids like fentanyl on dark-web markets like Silk Road and successors like AlphaBay and Hydra has been notorious for well over a decade. But in recent years, dark-web markets have begun instituting bans on the drug, which can be 50 times stronger than heroin. Though these bans are sometimes only loosely enforced, they aim to prevent both the harm the substance brings to customers and the accompanying law enforcement attention. “I knew it was very dangerous,” one dark-web administrator who goes by the name DeSnake told WIRED in a 2021 interview, explaining the fentanyl ban on the AlphaBay dark-web market he’d relaunched at the time. “In a place where no one knows no one, it would be a very, very big mess.”

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 and Chainalysis’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.

Chainalysis separately attempted to measure the geographic flow of products from the Chinese chemical firms it tracked by looking at which cryptocurrency exchanges the buyers and sellers interacted with. The researchers found that the largest fraction of the transactions, about $9 million, appeared to be with Europe, followed by about $8.2 million to North America. The company then went as far as comparing the transaction it tracked over time with drug seizure data from US Customs and Border Protection. It found a correlation between the crypto transactions to the fentanyl precursor shops and fentanyl-related drug seizures at the US southern border a month later. “You could use this for early forecasting for in-flows to American cities, which will correlate with overdoses,” says Eric Jardine, a longtime academic focused on the dark web who now leads a cybercrime research team at Chainalysis. He describes the blockchain data as a potential “early warning system.”

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 and Chainalysis have 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 cryptocurrency-tracing firms to track sales of dangerous and potentially illegal products across blockchains. But Robinson and Jardine say 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.

Update 10 am ET, May 24, 2023: Added details of additional research from Chainalysis.