The U.S. Department of the Treasury announced new measures last week to support the whole-of-government effort to combat the influx of illicit fentanyl entering the U.S. market. The Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions highlighting emerging trends and warning signs associated with the illegal fentanyl trade.
The advisory, which builds off the agency’s 2019 guidance, identifies new trends, typologies, and red flags of suspicious activities linked to the procurement of fentanyl precursor chemicals by Mexico-based transnational criminal organizations (TCOs). It specifically focuses on the role that shell and front companies in China and Mexico play in the fentanyl trade.
The guidance provides details on ways Mexico-based TCOs acquire fentanyl precursor chemicals, pill presses, die molds, and other manufacturing equipment from suppliers based primarily in China. The TCOs then use the materials to synthesize illegal drugs and synthetic opioids in clandestine labs in Mexico before selling them in the U.S. market.
FinCEN noted that this is a “significant shift” from 2019, at which time illicit fentanyl and other synthetic opioids were mostly shipped directly from Chinese companies to “U.S.-based individuals for personal consumption or domestic distribution.”
The agency also highlighted the various financial mechanisms enabling the illicit trade of fentanyl. Those mechanisms include the use of shell companies, money transfers through banks, money services businesses (MSBs), online payment processors, and transactions using virtual currencies.
FinCEN also noted that shell and front companies are “used to create opaque layers of corporate ownership and obfuscate the source of activity [and] may appear to be legitimate Chinese exporters or Mexican importers in the chemical manufacturing and pharmaceutical industries.”
In other instances, these shell and front companies may also appear to be tied to entirely different industries, such as textiles, food, or the electronics sector.
The new advisory also builds upon other U.S. agencies’ efforts to combat the fentanyl supply chain, including sanctions imposed by the Treasury Department’s Office of Foreign Assets Control (OFAC), investigations led by the Drug Enforcement Administration (DEA), and indictments announced by the U.S. Department of Justice (DOJ).
Specifically, FinCEN advised financial institutions on ways to detect possible illicit activity and conduct enhanced due diligence through open-source information, pointing to the use of e-commerce marketplaces, social media platforms, and the Darknet run by China-based suppliers to advertise the sale of illicit fentanyl precursors and manufacturing equipment.
FinCEN also identified a list of new red flags related to the procurement of illicit fentanyl chemicals and manufacturing equipment to assist financial institutions in detecting suspicious activity and filing suspicious activity reports (SARs). These include situations where a customer or counterparty:
- Has connections to clandestine lab operations based on open-source reporting.
- Is a vendor on an e-commerce marketplace that advertises the sale of illicit precursor chemicals and manufacturing equipment.
- Is a chemical or pharmaceutical company in China or an importing company in Mexico that shares physical addresses, phone numbers, or email addresses with businesses that show indicators of possible illicit shell company activity.
The opioid crisis has become a serious threat to the U.S. in recent years. In 2023 alone, there were over 100,000 cases of overdose deaths. Of those deaths, 74,000 were linked to synthetic opioids, mainly manufactured fentanyl.
“Drug traffickers and their organizations operate in many respects like legitimate businesses, relying on access to banking systems and to the U.S. dollar to operate day-to-day,” said Treasury Secretary Janet Yellen in a recent op-ed.
In her op-ed and in remarks delivered last week in Atlanta, Secretary Yellen emphasized Treasury’s engagement with the private sector to follow the money and target the financial flows of the illicit fentanyl networks that contribute to the crisis.