The United States Treasury Department’s Financial Crimes and Enforcement Network (FinCEN) claims that several Mexican cartels now use digital cryptocurrencies to buy manufacturing materials for fentanyl production. A FinCEN advisory suggests that the cartels are able to avoid detection using crypto in their trades with suppliers from the People’s Republic of China (PRC).
Crypto has gained popularity in many ways, mainly as a store of value and a medium of exchange. While some people use cryptocurrencies for payments and investments, others prefer to bet using Bitcoin (BTC), Ether (ETH), Solana (SOL), and several other digital assets at casinos like those listed by cryptocasinos.ltd. These online casinos bring players the same excitement and game variety from physical casinos to the online space, strengthened by the security of blockchain technology. They are also increasingly used for international transactions, where the low transaction fees and fast transfer times make them preferable compared to traditional remittance methods.
Unfortunately, the perks of crypto use are sometimes exploited for illegal activity.
FinCEN’s advisory states: “Mexico-based TCOs (transnational criminal organizations) are increasingly purchasing fentanyl precursor chemicals and manufacturing equipment from PRC-based suppliers in virtual currency, including Bitcoin, Ether, Monero, and Tether, among others. Virtual currency payments are often sent to persons affiliated with PRC-based suppliers or secondary money transmitters with hosted wallets at virtual asset service providers.”
FinCEN’s advisory includes a few transactional red flags. According to the publication, users may send crypto payments to chemical manufacturing or pharmaceutical industries in Hong Kong, China, or other jurisdictions, “for no apparent legitimate purpose.” Other examples include multiple senders to these recipients or an entity from an unrelated industry in Mexico transacting with pharmaceutical or chemical-based companies in China.
FinCEN believes that in addition to trading via cryptocurrencies, these cartels also use shell companies to avoid detection. The companies help TCOs create layers of fake corporate ownership and muddle the source of financial activities. FinCEN wrote that the shell company may appear to be a legitimate Mexican business in the chemical or pharmaceutical industries, or an unrelated entity in the electronics, food, or textile sectors. Either way, the suppliers sell these fentanyl precursor materials to the shell companies to obfuscate the source. The companies then sell the chemicals to cartels in Mexico to obscure the supply chain.
Last October, the US Department of Justice (DoJ) charged several China-based chemical manufacturing companies and individuals for trafficking fentanyl precursor materials into the United States. According to a DoJ announcement, the charges include fentanyl and methamphetamine production, in addition to distributing synthetic opioids and crimes relating to sales of the precursor chemicals.
In a press release following the indictment, Deputy Secretary of the Treasury Adewale “Wally” Adeyemo said 28 individuals and entities in China and Canada are involved. Adeyemo said the plan is to expand the Treasury’s approach to include friends, family members, and associates of the involved persons and entities because of the large-scale nature of the crime. According to the Deputy Secretary, the Treasury has blocked more than a dozen crypto wallets associated with the indicted persons and entities. The wallets reportedly received several millions of dollars over hundreds of deposits.
Despite the criminal use of digital assets by some entities, others are calling for more crypto involvement. Recently, billionaire Chairman of the Salinas group, Ricardo Salinas Pliego, advocated in favor of Bitcoin. According to Mexico’s third-richest man, more people should keep Bitcoin as a store of value and a hedge against fiat currency devaluation.
Salinas responded to an X post highlighting the devaluation of the Nigerian Naira. The tweet announced that the Naira had fallen so much that one Naira is now worth less than one Satoshi. A Satoshi is the smallest unit of Bitcoin on the Bitcoin blockchain, equal to one hundred millionth of a Bitcoin (0.00000001 BTC). Quoting the post, Salinas said: “Buy Bitcoin and keep them, pay attention!!!.”
While cryptocurrencies are not illegal, Mexico does not recognize digital currencies as legal tender. However, Mexican law supports the taxation of crypto profits on centralized exchanges. This position is unlikely to change following the recent election of Claudia Sheinbaum as the incoming president. Many in the crypto community believe that Sheinbaum is likely to continue Andres Obrador’s policy since she is aligned with his principles and they are of the same party. Apart from the 20% tax on crypto gains, the party has not introduced any robust set of rules or framework for the cryptocurrency sector. The lack of comprehensive laws negatively affects the likelihood of crypto use, increasing reluctance among entrepreneurs willing to develop crypto-focused solutions like payment gateways, remittance services, and crypto gambling platforms.
While it might still be too early to conclude, the Morena party’s stance towards the relationship does not indicate support. Nonetheless, cryptocurrency is an essential option for many, as Mexico is the largest market for US remittances. According to research, about 95% of total remittances Mexicans receive are from the US.
In March, Congressman Jesús Roberto Briano Borunda proposed reforming and modifying Mexican law to accommodate increased blockchain use in the country. According to reports, the Morena party Congressman’s proposal seeks to modify articles 2, 48, and 56 of the Law to Regulate Financial Institutions (ITF). Among several suggestions, the National Banking and Securities Commission and the Bank of Mexico will jointly formulate rules regarding registration and confidentiality to protect blockchain use in finance.
