Key Points
- Chinese drug precursor manufacturers received over $26 million in crypto in 2023, with Bitcoin making up around 60%.
- Crypto deposits into wallets linked to these entities increased sixfold from 2022 to 2023.
In 2023, blockchain intelligence company TRM Labs reported that drug precursor manufacturers in China received more than $26 million in cryptocurrency. Around 60% of these payments were made in Bitcoin.
Crypto as a Preferred Payment Method
TRM Labs, backed by JPMorgan Chase, Visa, Citi, and PayPal, observed a sixfold increase in crypto deposits into wallets linked to Chinese drug manufacturers from 2022 to 2023. The firm’s research showed that these deposits more than doubled in the first four months of 2024 compared to the same period in 2023.
In 2023, 11 manufacturers accounted for over 70% of all crypto-denominated sales of drug precursors. The funds sent to these manufacturers primarily came from unhosted wallets, cryptocurrency exchanges, and payment services. The majority of the manufacturers’ wallets were hosted at exchanges.
Breakdown of Crypto Payments
The data revealed that approximately 60% of crypto payment volume to Chinese precursor manufacturers was in Bitcoin, followed by 30% on the TRON blockchain and about 6% on the Ethereum blockchain. Despite the increase in crypto payments, these manufacturers also accepted payments in fiat currencies through PayPal, MoneyGram, Western Union, and bank transfers.
According to the study, Chinese drug precursors mainly targeted Canada, the Netherlands, Australia, Germany, and the U.S. for shipping. Advertisements were also seen targeting Russia and neighboring countries for mephedrone precursors.
In April, a U.S. congressional committee reported that China subsidizes the production of illicit fentanyl precursors, contributing to the U.S. opioid crisis. The committee found that China offers value-added tax rebates to companies manufacturing fentanyl analogs, precursors, and other synthetic narcotics, provided they sell them outside China.
As noted by another blockchain intelligence firm, Elliptic, fentanyl is favored by drug cartels due to its lower production cost compared to heroin and its potency, which is 50 times stronger, making it the leading cause of death for Americans aged 18-45.
