OFAC designates Chinese network responsible for tons of trafficked drugs

The US Office of Foreign Assets Control (OFAC) has designated 27 China-based entities and individuals involved in a drug trafficking network that globally distributed tons of synthetic drugs and their precursors, including fentanyl. The sanctions also designated one other individual based in Canada for involvement in the same activities.

“Treasury is taking sweeping action with our colleagues in law enforcement to expose and disrupt a network responsible for manufacturing and distributing illicit drugs,” commented Wally Adeyemo, Deputy Secretary of the Treasury. “Today’s action from OFAC and IRS-CI reflects how we will swiftly use all of our tools to counter the global threat posed by the illicit drug trade.”

Anti-drug trafficking initiatives in the Americas

OFAC’s action follows a series of recent US crackdowns and collaborative initiatives on illicit drug proliferation, including the Department of Justice’s (DOJ) June 2023 charges against Chinese fentanyl manufacturers and their employees. On October 3 – the same day the sanctions were announced – the DOJ announced indictments against eight more individuals related to the June charges.

In April 2023, the US, Canada, and Mexico created a North America Trilateral Fentanyl Committee. The committee pledged to “work together to disrupt the global transfer, facilitation, and supply of illicit fentanyl, precursor chemicals, and the equipment (such as pill presses) used in their illicit production” and to “mobilize other countries impacted by synthetic drugs.” Shortly after the committee’s creation, all three countries participated in a trilateral workshop hosted by Mexico’s Unidad de Inteligencia Financiera (UIF), reviewing the opioid problem and its connection to money laundering. As a part of the North American Drug Dialogue (NADD), the event sought to focus cross-border efforts to curb the abuse of the financial system by drug traffickers, including through public-private initiatives.

Disrupting international drug syndicates

OFAC’s recent designations continue this fight through US-based interagency cooperation. Thanks to collaborative efforts from the Internal Revenue Service’s Criminal Investigations (IRS-CI), the Financial Crimes Enforcement Network (FinCEN), the Drug Enforcement Administration (DEA), and the US Department of Homeland Security’s Customs and Border Protection, authorities were able to designate several entities along with critical individuals involved in their activities. This included two syndicate leaders, Wang Shucheng and Du Changgen, several companies owned by Changgen, and three associates that have served as sales touchpoints for the operations. Additional members and associated companies were also designated.

The syndicate has used encrypted messages to facilitate the distribution of synthetic drugs and their precursors, including fentanyl, xylazine, methamphetamine, and MDMA precursors. 

Red flags firms should watch for 

In addition to ensuring their procedures and tools access the most up-to-date sanctions data, firms can study recent materials offering insights into identifying red flags for activity associated with synthetic opioid production. For example, the syndicate in question used several tactics in their operations, which included:

• Exchanging funds via virtual currency and bank transfers.
• Advertising synthetic drug precursor chemicals online.
• Transactions with international drug cartels and dark web vendors.

The illicit entities the syndicate supplied also included US drug traffickers, virtual currency money launderers, and two OFAC-designated Mexico cartels. According to US authorities, the Jalisco New Generation Cartel (CJNG) is a powerful trafficker of fentanyl with a global presence that relies on arms trafficking to further its aims. The US Treasury calls the Sinaloa Cartel “one of the most powerful and pervasive drug trafficking organizations in the world.”

Sales associates working for syndicate-controlled companies also communicated with individuals known to be associated with the Sinaloa Cartel. The complex associations between the syndicate, the organizations it controls, and individuals associated with powerful kingpins highlight the crucial importance of establishing beneficial ownership information (BOI) for business customers. Often, red flags will only be evident once indirect links like these have been established.

On November 30, 2022, the Financial Action Task Force (FATF) issued its inaugural report on money laundering from fentanyl and synthetic opioids. According to the report, criminal groups specializing in synthetic opioid trafficking have been found to move illicit proceeds through bulk cash smuggling, trade-based money laundering (TBML), wire transfers (especially between front and shell companies), cash couriers, funnel accounts, and money brokers. Firms are encouraged to study these typologies in light of their unique operational risks.