Feds Flag More Bitcoin, Ethereum Addresses Tied to Chinese Fentanyl Trade

The United States Treasury’s Office of Foreign Assets Control (OFAC) added another batch of crypto wallets from individuals and companies to its specially designated nationals (SDN) list on Tuesday, all tied to illegal fentanyl trade.

The drug trafficking network, primarily centered in China, used a variety of cryptocurrencies to facilitate some of its operations. Six entities and their digital wallet addresses have now been flagged by the government, including five individuals and one company—Valerian Labs.

“The addresses identified by OFAC as part of this action collectively received just under $3.8 million worth of cryptocurrency, representing huge quantities of drugs potentially trafficked into the United States and other countries,” wrote blockchain surveillance firm Chainalysis in a blog post on the matter.

A total of 17 wallet addresses were identified in OFAC’s action, spanning networks including Bitcoin, Ethereum, and Tron. Most illicit transactions on the latter two blockchains were received through stablecoins—crypto tokens backed by relatively price-stable fiat currencies, such as U.S. dollars.

Besides Valerian Labs, the five individuals’ wallets are all hosted at the same centralized crypto exchange, where they each received “hundreds of thousands of dollars’ worth of cryptocurrency.” The exchange in question was not identified.

Each wallet received funds through a long series of small transfers in “consistent amounts” from both personal wallets and other mainstream exchanges. For Chainalysis, the pattern of consistent payments was “an indication of the sale of specific goods—in this case, fentanyl and associated precursor chemicals.”

Crypto-based fentanyl sales worldwide are on the rise. In May, Chainalysis published a report finding that China-based fentanyl sellers have received $37.8 million worth of cryptocurrency since 2018.

Though the U.S. Treasury has already sanctioned Bitcoin addresses linked to such suppliers, Tuesday’s action is the first to target addresses on Tron. Last month, OFAC also sanctioned an Ethereum address tied to a member of a Mexican money laundering network who allegedly used crypto to transfer fentanyl proceeds across the border.

“The sanctions against the individuals and businesses associated with this criminal network are an important step in preventing the abuse of cryptocurrency by drug traffickers, as well as a reminder of the depth of the problem,” Chainalysis concluded.