FinCEN: Illicit Crypto Use by Criminals Creates New Detection Opportunities

The world of cryptocurrency, while offering unprecedented opportunities, also presents challenges, particularly regarding illicit activities. FinCEN is raising alarms about the increasing use of crypto by criminals, especially in the fentanyl supply chain. But it’s not all bad news; this also creates new avenues for detection.

FinCEN Sounds the Alarm: Crypto and Criminal Activity

• FinCEN has issued warnings about the rising use of cryptocurrencies by criminal organizations.
• Mexican drug cartels are increasingly using crypto to purchase chemicals for manufacturing fentanyl.
• Popular cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Monero (XMR), and USDT are being used in these illegal transactions.

The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is urging financial firms to be extra vigilant. Criminals are getting more sophisticated, but so can law enforcement.

Opportunities for Detection

While the rise in illicit crypto use is concerning, FinCEN notes that it also presents new opportunities for law enforcement to detect and disrupt criminal activities. Cryptocurrency transactions, despite their complexity, offer a unique trail that can be followed.

“Cryptocurrency transactions present unique challenges, but they also offer new opportunities for detection and disruption of the fentanyl supply chain.”

How Criminals Are Using Crypto

Mexican transnational criminal organizations (TCOs), such as the Sinaloa Cartel and the Jalisco New Generation Cartel (CJNG), are shifting their payment methods. They are increasingly purchasing fentanyl precursor chemicals and manufacturing equipment from suppliers in China, often using digital assets for these transactions.

Funds are often transferred to Chinese suppliers’ wallets hosted by crypto firms, sometimes through secondary money transmitters.

Red Flags to Watch For

FinCEN has identified several red flags associated with the illicit use of cryptocurrencies in the fentanyl supply chain:

• Low-dollar payments to chemical and pharmaceutical industries in the PRC, Hong Kong, or other jurisdictions without apparent legitimate purposes.
• Use of multiple shell companies to obfuscate transaction origins and destinations.

What Financial Institutions Can Do

Financial institutions are urged to incorporate procedures for detecting suspicious crypto transactions into their Anti-Money Laundering (AML) programs. This includes:

• Leveraging blockchain analytics to trace and link virtual currency addresses associated with PRC-based suppliers and Mexico-based TCOs.
• Sharing information through FinCEN Exchange, a public-private partnership initiative.

The Bigger Picture: Combating the Opioid Crisis

This advisory is part of the US government’s broader effort to combat the opioid crisis. President Biden has declared it a national emergency, and the administration is implementing measures to disrupt the fentanyl supply chain.

Fentanyl has become the leading cause of death for individuals aged 18 to 45. The updated FinCEN advisory aims to alert US financial institutions to the complex networks involved in fentanyl production and distribution, emphasizing the need for vigilance and proactive measures.

In Conclusion

The increasing use of crypto in illicit activities, particularly in the fentanyl supply chain, is a serious concern. However, by staying informed, implementing robust AML programs, and leveraging blockchain analytics, financial institutions can play a crucial role in detecting and disrupting these illegal operations. The fight against the opioid crisis requires a collaborative effort, and the crypto community has a vital part to play.