U.S. Sanctions Highlight Crypto’s Role in Drug Trafficking Network

• On October 3, 2023, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) imposed sanctions.
• These sanctions targeted individuals and companies involved in manufacturing and distributing dangerous drugs, including fentanyl and precursor chemicals.
• Notably, the sanctions also extended to cryptocurrency addresses associated with the sanctioned entities.

The U.S. Treasury’s Office of Foreign Assets Control (OFAC) announced sanctions on October 3, 2023. The sanctions targeted several individuals and companies involved in the manufacturing and distribution of dangerous drugs, including fentanyl and precursor chemicals. Notably, these sanctions also extended to cryptocurrency addresses associated with the sanctioned entities.

Blockchain analytics firm Chainalysis published a report analyzing cryptocurrency activity related to recent US sanctions against a China-based drug trafficking network.

The entities at the center of the OFAC’s action form a sprawling drug trafficking network, based in China and involving one Canadian national and two Canadian businesses under their ownership.

According to the report, one striking aspect of this OFAC action is the connection between cryptocurrency and the drug trade. The cryptocurrency addresses associated with the sanctioned individuals and companies spanned the Bitcoin, Ethereum, and Tron blockchains. Notably, addresses on Ethereum and Tron primarily received stablecoins like USDT and USDC, aligning with the trend of using stablecoins for illicit transactions.

With the exception of addresses linked to a Valerian Labs, a Canadian company that describes itself as a  “manufacturing facility that manufactures and bottles all types of beverages”, all of these addresses were hosted on a mainstream exchange referred to here as “Core Exchange.” Funds flowed into these addresses from both personal wallets and other mainstream exchanges, primarily six different ones.

According to the report, each of the five individuals received substantial sums of cryptocurrency, typically in consistent amounts. This pattern strongly suggests the sale of specific goods, in this case, fentanyl and its precursor chemicals.

For instance, a close examination of deposit addresses associated with Shen Xianbiao, one of the sanctioned individuals and a part-owner of Jinhu Minsheng Pharmaceutical Machinery, revealed that most transactions from personal wallets fell within the narrow range of $5,000 to $5,500 worth of cryptocurrency.

Furthermore, these addresses received substantial amounts from darknet markets, indicating that they may represent vendors purchasing drugs or precursor chemicals from these labs for subsequent resale.