Mexican Cartels Use Crypto to Buy Fentanyl Precursors from China

On March 19, blockchain analytics firm Chainalysis revealed direct financial links between Mexican drug cartels and Chinese suppliers of fentanyl precursors through crypto transactions. This investigation builds on previous findings, where authorities had identified over $37.8 million in suspicious crypto payments from 2018 to 2023 involving China-based chemical traders.

Crypto transactions have become a key tool for purchasing chemical precursors without direct physical interactions. These transactions are part of a larger underground financial network spanning Mexico, the U.S., and China. Chinese money laundering operations, including individuals based in the U.S., are increasingly collaborating with drug trafficking organizations (DTOs), especially Mexican cartels. These partnerships facilitate the laundering of drug proceeds, often through crypto transactions.

China’s strict capital controls limit individuals to purchasing only $50,000 in foreign currency annually, leading to the emergence of underground banking networks tied to the fentanyl trade as an alternative method. Despite China’s ban on cryptocurrency, it remains the leading supplier of fentanyl precursors and related equipment, including TDP die kits. These kits are critical for tablet pressing in pill-making machines and are commonly used by drug traffickers to produce counterfeit pills, including fentanyl-laced tablets.

Mexican cartels, such as the Sinaloa Cartel, rely on these suppliers to produce synthetic opioids like fentanyl, which are trafficked into the U.S. A recent civil forfeiture case in the Eastern District of Wisconsin resulted in the seizure of more than $5.5 million in cryptocurrency. The investigation originated as a money laundering probe into a U.S.-based network linked to a Mexican cartel. Authorities identified crypto transactions involving centralized exchange accounts and digital wallets used to process illicit drug proceeds, primarily from the sale of fentanyl and methamphetamine.

Chainalysis traced these funds back to crypto wallets previously associated with Chinese companies supplying fentanyl precursors. The report noted a stark contrast between cartel-affiliated money launderers and cybercriminal syndicates, such as North Korean state-backed hackers, who employ advanced obfuscation techniques. Cartel-linked actors have operated more openly, moving funds swiftly through centralized exchanges and unhosted wallets, making it easier to track their financial activities.

Mexican and Colombian drug cartels have leaned more heavily on cryptocurrencies in recent years. Among them is the Sinaloa Cartel, which features in both local media reports and Chainalysis’ latest findings. USDT has become their preferred choice. It holds steady against the U.S. dollar, making it easier for traffickers to move money without worrying about price swings. In Mexico, USDT often trades below market value because much of it is tied to drug proceeds. Cartels buy up the discounted tokens, then sell them at a higher price in places like Colombia to turn a profit.

To move funds, these groups use a mix of methods: crypto exchanges, peer-to-peer transfers, and over-the-counter trades. Each step makes it harder for investigators to follow the trail. Last October, U.S. federal investigators opened a case against Tether, the company behind USDT. They looked at whether USDT had been used to break sanctions or skirt anti-money laundering rules, and whether penalties were warranted. USDT trades billions of dollars daily. Its link to the U.S. dollar gives criminal groups a simple workaround in countries where dollars are hard to come by.

In a separate case, a U.S. grand jury indicted nine people last November. They allegedly laundered drug money for Mexican and Colombian cartels between 2020 and mid-2023, using crypto transactions disguised as business deals to avoid detection.

This revelation underscores the evolving tactics of digital money laundering, which challenge outdated controls and hint at a paradigm shift in how illicit funds reshape global finance. The swift, borderless nature of crypto exposes a widening gap between legacy regulations and modern financial crime. These insights push for a proactive overhaul of international oversight, urging tech-driven and collaborative strategies to secure global finance.