On Jun. 20, FinCEN advised financial entities on supply chain trends.
FinCEN issued a supplemental advisory on the illicit procurement of fentanyl precursor chemicals and manufacturing equipment to alert US financial institutions to new trends
The agency urged financial institutions be vigilant in identifying, reporting suspicious activity associated with Mexico-based transnational criminal organizations (TCOs).
Concurrent with US Treasury Yellen remarks on actions US to combat the opioid crisis.
Also concurrent with US Treasury announcement of OFAC sanctions against top leaders of Mexico’s La Nueva Familia Michoacana Drug Cartel for trafficking fentanyl, #216511.
Advisory Overview
FinCEN advisory entitled Procurement of precursor chemicals and manufacturing equipment used for the synthesis of illicit fentanyl and other synthetic opioids.
Advisory highlights new trends in fentanyl supply chain since FinCEN’s 2019 advisory on illicit financial schemes and methods related to the trafficking of fentanyl, #64082.
The 2019 Fentanyl Advisory and the typologies and red flags therein remain valid.
New advisory highlights how Mexico-based TCOs buy fentanyl precursor chemicals, pill presses, die molds, and other manufacturing equipment (precursors/equipment).
Primarily originating from companies located in the People’s Republic of China (PRC).
TCOs use precursors/equipment to synthesize illicit fentanyl and other synthetic opioids in Mexico before the substances enter the illicit drug market in the US.
The advisory also includes typologies and red flags associated with the purchase of precursors/equipment to assist firms in identifying and reporting suspicious activity.
Illicit Fentanyl Supply Chain Shift
US law enforcement has observed a big shift in fentanyl supply chain in recent years.
Previously, complicit chemical and pharmaceutical companies in PRC directly shipped illicit fentanyl to US-based individuals for personal consumption/domestic distribution.
In addition, they shipped fentanyl to TCOs and smaller criminal networks in Mexico.
From Mexico trafficked into the United States across the US southwest border.
The PRC government scheduled all fentanyl-related substances as class in May 2019.
So, he direct purchase and shipment from PRC-based suppliers declined substantially.
Since 2019, Mexico-based TCOs, such as the Sinaloa Cartel and the Jalisco New Generation Cartel (CJNG), have become the predominant traffickers of illicit fentanyl.
The TCOs purchase precursors/equipment primarily from PRC-based suppliers. to
Synthesize illicit fentanyl and other synthetic opioids in clandestine labs in Mexico.
After the TCOs use precursors/equipment to synthesize illicit fentanyl and others in Mexico, the illicit drugs are typically smuggled across the US southwest border.
Smuggle it as a powder, adulterant in other drugs, or pressed or encapsulated into counterfeit medication; sold to American consumers via person-to-person drug sales.
Also sold to consumers via mail from e-commerce marketplaces and darknet vendors, as well as through in-person deliveries that are arranged on social media platforms.
Current Typologies
Advisory informs on typologies associated with procurement of precursors/equipment.
Chemical brokers often serve as middlemen for precursors/equipment procurement.
These brokers may represent multiple PRC-based suppliers and Mexico-based TCOs.
They can be based in Mexico, PRC, or other jurisdictions, and leverage connections in mainland PRC and Mexico to connect the PRC-based suppliers and Mexico-based TCOs.
Through these connections, brokers can sell and buy precursors/equipment on behalf of their clients and ultimately obfuscate the illicit diversion from mainland PRC to MEX.
PRC-based suppliers and chemical brokers may explicitly advertise in English language the sale precursors/equipment on chemical and pharmaceutical company websites.
Also, on e-commerce marketplaces, social media platforms, and the darknet.
Precursors are often marketed in advertisements through their associated Chemical Abstracts Service (CAS) number for ease of reference to potential illicit buyers.
Advertisements may prominently feature shipping services uncharacteristic of a legit supplier, such as explicitly offering to provide exit and entry customs clearance.
The term exit and entry customs clearance is a euphemism for disguising and mislabeling the shipments to avoid scrutiny by law enforcement and customs officials.
Such ads may signal or direct Mexico-based TCOs and other illicit buyers to contact a sales representative of the supplier or their chemical broker to negotiate the sale.
Payments
Payments for precursors/equipment in single or multiple transactions from MEX, US.
Structured through multiple senders and beneficiaries to evade BSA requirements.
Payments often involve low-dollar amounts, but can result in significant amounts.
Often use money transfers through banks, MSBs, and online payment processors.
These transactions may be sent from Mexico or the United States to mainland PRC (including via Hong Kong and other jurisdictions) to individuals and shell and fronts.
Individuals, companies associated with a PRC-based supplier or a chemical broker.
Virtual currency, including bitcoin, ether, monero, and tether, among others, also used.
Shell and Front Companies
Shell and front companies are used to create opaque layers of corporate ownership.
Obfuscate the source of activity, appearing to be legitimate Chinese exporters or Mexican importers in the chemical manufacturing and pharmaceutical industries.
In some instances, these shell and front companies may also appear to be associated with entirely unrelated business sectors such as textiles, food, or electronics industry.
PRC-based suppliers generally sell precursors/equipment to shell and front companies
The shells or fronts are under their control to create the façade of legitimate activity.
They ultimately sell the precursors/equipment to Mexico-based TCOs, often utilizing chemical brokers that control other shell and front companies to further obfuscate.
Red Flag Indicators
FinCEN has identified red flags to help firms detect, prevent, report suspicious activity.
Including that A customer or counterparty has previous drug-related convictions.
Open-source reporting indicates customer's connections to clandestine lab operations.
Chemical or pharmaceutical company in the PRC, Hong Kong, or another jurisdiction with a residential address or a business address shared with other similar businesses.
Has no physical presence or shows other indicators of possible illicit shell company.
A counterparty, with no supposed affiliation with the PRC, uses a PRC-based phone.
Uses IP address of website of Chinese chemical or pharma pharmaceutical company.
A customer or counterparty is a vendor on an e-commerce or darknet marketplace.
Advertises the sale of precursor chemicals (using chemical names, abbreviations, or CAS numbers in the advertisement) and manufacturing equipment used for synthesis.
Mexican company that, according to open-source and commercially available reporting, is importing shipments of precursors/equipment without appropriate importing licenses
A Mexican company with little or no online presence and is involved in their import.
Multiple, seemingly unrelated Mexican importing companies share phone numbers, email addresses, or physical addresses and transact with the same PRC-based firms.
Mexican importing company that predominantly transacts only with chemical or pharmaceutical companies in the PRC or Hong Kong for no apparent legitimate reason.
Suspicious Activity Reporting
FinCEN requested suspicious activity report (SAR) filings by financial institutions should reference this supplemental advisory in SAR field 2 (Filing Institution Note to FinCEN).
In addition, the narrative by including the key term: “FENTANYL FIN-2024-A002”.
Yellen Remarks
Combatting the trafficking of fentanyl is a significant challenge, not solved overnight.
US Treasury’s recently established Counter-Fentanyl Strike Force will help coordinate efforts and make sure leveraging all authorities; will continue to work with all partners.
Regulators
FinCEN; US Treasury
Entity Types
B/D; Bank; BS; Corp; IA; Ins; Inv Co; MSB
Reference
FinCEN: PR, Adv FIN-2024-A002, 6/20/2024; US Treasury: Sp, 6/20/2024
