The Chapitos Fentanyl Precursor Network. Brokers, Cryptocurrencies and Chinese Chemical Corporations

"Redlogarythm" for Borderland Beat

Special thanks to Huaso and Hearst for the editing, collaboration and advice

Disclaimer: the following report reflects only the author´s personal opinion regarding a subject, the trafficking of fentanyl, which has been and still is subjected to a frantic political debate. Thus, any opinion or statement being done in the following text can only be attributed to its author.

On April 14th, the United States Office of Foreign Assets Control (OFAC) sanctioned five individuals and two companies accusing them of complicity in the supplying of precursor chemicals for the Sinaloa cartel´s "Chapitos" faction. According to American authorities, these individuals and corporate vehicles were integral part of the "Chapito"´s faction fentanyl precursors supply network.

Four of the individuals were Chinese: Hongfei Wang (王洪飞), Yaqin Wu (吴雅琴), Yonghao Wu (吴永昊) and Huatao Yao (姚华涛) and one was Guatemalan: Ana Gabriela Rubio Zea. Both companies were also Chinese: Suzhou Xiaoli Pharmatech Co. Ltd. and Wuhan Shuokang Biological Technology Co. Ltd.

According to a press release made public on the same day, the individuals and companies were sanctioned for their role in the supply of precursor chemicals -specifically N-BOC-4-Piperidone- used for fentanyl manufacturing. In some cases the precursors were shipped from the People´s Republic of Chine (PRC) and shipped firstly to Guadalajara, Jalisco, from where they were re-shipped to the State of Sinaloa. The deals between both parties -Chinese producers and Mexican clients- were facilitated through a Guatemalan intermediator -Ana Gabriela Rubio Zea- who was in charge of introducing the precursors into Mexico hiding them in containers and disguising their illicit nature as if they were part of food and legal chemical shipments.

Interestingly enough, the OFAC also sanctioned a Bitcoin address owned by Wang Hongfei -3PKiHs4GY4rFg8dpppNVPXGPqMX6K2cBML- which was used for receiving payments on the behalf of Mexican clients. This has turned out to be a considerably important event since it is the first time that a specific Bitcoin address is publicly associated to the activity of Mexican organized crime.

Nevertheless, in order to fully understand the complexity and importance of this network we must take a step back and analyze it from a wider perspective, since the OFAC actions are part of a much broader effort by American authorities in their recent offensive against los Chapitos faction which detonated on April 4th when a three different US courts unsealed five indictment one of which included twenty three arrest warrants including Yonghao Wu, Yaqin Wu, Huatao Yao and Ana Gabriela Rubio Zea.

In the current report Borderland Beat tries to dig into how this network -and by extension Mexican organized crime chemical precursor supply networks are managed-. For doing so we have focused not only in the mere logistical aspect of the trade but also in the role played by brokers and intermediaries between parties and the use of cryptocurrency to make quick and easy payments beyond borders. We hope our efforts will add a bit of light into an area -the procurement of chemical precursors- about which too much has been written but very few truths told.

The Chapitos faction: 

The Chapito´s faction within the Sinaloa Cartel is comprised by four of Joaquín Guzmán Loera´s aka "El Chapo" sons. Two of them come from "El Chapo"´s relationship with Alejandrina Salazar Hernández (Jesús Alfredo and Iván Archivaldo Guzmán Salazar) and two others come from his relationship with Griselda López Pérez (Joaquín and Ovidio Guzmán López) There are several other descendants -both males and females- but the truth is that regarding the "Chapitos", only the aforementioned have been labeled as being active in the Sinaloan underworld [A read of a thoughtful article about El Chapo´s closest relatives is highly recommended and can be found here]

Guzmán Salazar and Guzmán López family tree, designed by our comrade Hearst

The role of Joaquín Guzmán Loera´s sons in the management of the loosely tied alliance of family clans composing what has been officially labeled as the “Sinaloa Cartel” began much before the boss was captured for the second time in February 2014.

The so called "Chapitos". From left to right: Iván Archivaldo Guzmán Salazar, Jesús Alfredo Guzmán Salazar, Joaquín Guzmán López and Ovidio Guzmán López. The fact that they are usually treated by the media as "narcojuniors" shouldn´t make us forget that all of them are in their late thirties or early forties

In the case of Ovidio and Iván Archivaldo, for example, they were both sanctioned for the first time in May 2012 by the OFAC as leading figures of the Sinaloa cartel accusing them both of laundering money and dealing in drugs on the behalf of their father. Jesús Alfredo was sanctioned in November 2015 -although he had formally indicted in February 2008- while Joaquín was formally accused along with Ovidio by a District of Columbia US Court on July 6th 2017 on the grounds of drug trafficking before being sanctioned by OFAC on May 9th 2023.

"El Chapo"´s disappearance from the scene after his 2017 extradition to the United States marked the beginning of several internal adaptations inside the Sinaloa Federation. The faction of Ismael Zambada aka "El Mayo" continued with its activity while the sons of the absent "Chapo" inherited his father´s share -this without mentioning the role posed by Aureliano Guzmán aka "Guano", el "Chapo"´s brother, who also manages his own organization-.

Since then several internal conflicts have erupted in the core of the group. Certain internal discrepancies and grievances led to the turf war between a lieutenant called Jesús Alexánder Sánchez Félix aka "El Ruso" -associated to "El Mayo"- and Néstor Isidro García aka "El Nini" -a subordinate working for "Los Chapitos"-. This conflict -which can be traced back to 2015- has resulted in a low intensity war fought indirectly between "Mayo" and "Los Chapitos" that has been characterized by some sort of restraint in the level of aggressivity since it is not seen as a conflict between the two factions but as an internal dispute between two cells associated with those very same factions. In fact the war between "Los Chapitos" and "Los Rusos" -which has already went beyond the borders of Sinaloa- is usually fought through proxies used by each faction -as is the case of "Los Salazar" group in the State of Chihuahua, which is sided with the "Chapitos"-.

"Los Ninis" chain of command 

In the end the conflict between "El Mayo" and "Los Chapitos" has evolved into a war fought through intermediaries which has always had the main objective of securing logistical routes and the establishing of safe points of exit in the American border. The battling between the two Sinaloan factions have extended into multiple Mexican States and the Chapitos group are also engaged in multiple conflicts with other criminal organizations.

Nevertheless, the war has reached particular worrying levels of violence in the northwestern part of Sonora -read more about the northern gulf of California contested areas here- as well as southern Sonora -read more about the Chapitos vs Caborca cartel conflict here- 

Thus, since the definitive extradition of Joaquín Guzmán Loera in January 2017 at least four of his sons -Jesús Alfredo, Ovidio, Joaquín and Iván- inherited a fraction of their father´s empire and went on with their business operations which were already working before "El Chapo"´s definitive demise. 

By 2017 the Guzmán Loera faction was running stable and considerably well developed networks for the importing of cocaine and the domestic production of opioids. These businesses came into the hands of the four brothers which not only went on with their operations -Jesús Alfredo even spent some time in the Colombian city of Medellín managing a cocaine production operation in 2016 after he got out of the hands of the Cártel de Jalisco Nueva Generación which had captured him in Puerto Vallarta- but got also involved into a new illicit market: the one of fentanyl.

An old drug for a new time:

Fentanyl is not a novelty of the 21st century. It is a synthetic opioid which was synthesized for the first time in 1959 by Belgian chemist Paul Janssen and has traditionally been used for medical purposes, mainly as an anesthetic.

Fifty times more powerful than heroin, fentanyl can be deadly if consumed over a dose of 2 milligrams (0.002 grams) These potential hardcore effects are the reason why fentanyl has been used in the world of drugs. Contrary to other substances such as heroin or cocaine , which can be consumed directly, fentanyl is usually used as an additive to further the effects of other drugs. In other words, fentanyl is mostly used as an agonist substance. An agonist drug is a substance used for furthering the effects of the narcotics to which it is added.

The illicit use of fentanyl can be traced back for the first time in history to the 1970s heroin epidemic and to two US domestic overdoses initial crises in the years of 1991 and 2005. Interestingly enough it was in May 2006 that the first fentanyl production laboratory was raided in the Mexican town of Toluca and at the time it was suggested that between 2005 and 2007 nearly 1,000 people had died in the northeastern US coast as a result of the fentanyl produced in this Mexican-based laboratory.

Nevertheless, public concern regarding massive use of fentanyl began in 2017 when the upsurge in lethal overdoses sparked global interest regarding the use and abuse of a drug which has contributed to the death of nearly 100,000 Americans between May 2020 and April 2021.

There has been some sort of tacit consensus that it was during 2017 that criminal organizations working at both sides of the US-Mexico border started mixing fentanyl with their usual products (heroin, cocaine and other chemical substances) in order to spark the addiction of consumers and manage to create a stable client network.

According to professional sources fentanyl entering into the US is mixed with other drugs, particularly heroin in order to achieve more quantity of the product. The drugs laced with fentanyl are then cut in the form of "dedos" or "fingers" each one containing an average of 10 grams. Each "finger" is sold for approximately $200 -it can even reach $800- and can be used for the manufacturing of around 300/330 doses. 

This cutting mechanism is consistent with the available data regarding the purity of fentanyl being analyzed in the US, which has nearly tripled in less than five years. In 2017 the average fentanyl dose had a purity of 5.3% but in 2021 it had already reached a purity of 14.4%.

Another extremely common method of distributing fentanyl is in the form of tablets or pills, which do contain a certain dose of the substance -estimated by the DEA in an astonishing lethal average of 2.2 milligrams of fentanyl per tablet- as well as other adulterants. This aspect of the trade is directly linked to the systematic overprescription of painkillers that the US pharmaceutical sector used since the late 1990s as a market strategy to promote the massive consumption of their own products, a process that is in direct connection with the spark in the demand for opioids, legal or illegal.

There is evidence of criminal organizations having gained access to film coating technology which is used to counterfeit pills and tablets resembling the methods used by legitimate laboratories, an evidence of the degree of sophistication the fentanyl market has reached. Nevertheless, the DEA says that only a few groups have this capability.

Counterfeit fentanyl-laced film coated pills. Designed to resemble legitimated Mallinckrodt M-30 milligrams Oxycodone tablets. Source: DEA

In fact, a great deal of the fentanyl being distributed inside the US adopts the form of counterfeit legal pharmaceutical products, mainly oxycodone. The use of excipients of different colors -blue for Oxycodone, white for Xanax and yellow- is also very common. For example, in one of the latest Mexican great fentanyl laboratory raids 25 kilos of sorbitol -a sweetening excipient used for the production of tablets- were found in Culiacán.

October 2022, Porland, United States. Counterfeit oxycodone pills laced with fentanyl are seized by authorities. The use of false legal pharmaceutical products is one of the main ways of distributing fentanyl

We should acknowledge that the fentanyl crisis that began in 2017 could have been foreseen several years before; at least since 2014/2015. In fact the analysis of data published by DEA´s National Forensic Laboratory Information System (NFLIS) reveals insightful information about when the use of fentanyl started soaring in the US.

The available data can be traced as far back as to 2007 when the number of samples being analyzed by the NFLIS counted for 966; the equivalent to 0.05% of the total drug samples being analyzed by the DEA´s laboratory network. The tendency remained relatively stable -in fact showing a downward trend- until 2012, a year in which according to NFLIS data charts no fentanyl at all was seized (it´s possible that the amount of fentanyl was so minimal that the DEA chose not to include it in the 2012 review)

In 2008, only 543 fentanyl samples were analyzed (0.03%) and by 2011 the proportion remained more or less stable: 648 samples which represented 0.04% of the total.

Nevertheless during these initial "calmed" years the DEA was already feeling the threat of what would later transform into a national tragedy. The DEA´s first Fentanyl Situation Report, dated on June 5th 2006, already warned about "ongoing law enforcement operations indicat[ing] that Mexico likely is the source of the fentanyl associated with these recent overdoses" that had spiked since late 2005 in "the Midwest, Northeast, and Mid-Atlantic Regions".

This very same document established that "clandestinely produced fentanyl powder, fentanyl mixed with heroin, and, to a lesser extent, fentanyl mixed with cocaine have been distributed in the Midwest, Northeast, and Mid-Atlantic Regions. The primary markets have included Chicago (IL), Detroit (MI), and Philadelphia (PA)/Camden (NJ). Overdoses linked to fentanyl have been reported in areas of Delaware, Illinois, Maryland, Michigan, New Jersey, New York, Ohio, Pennsylvania, and Wisconsin"

The report concluded stating that "currently, there are an estimated 800,000 to 1,000,000 hard-core and casual heroin abusers in the United States who constitute the potential fentanyl market"

2013 saw a little increase; 978 samples (0.06%) But 2014 saw a notable increase of 4,697 samples (0.31%) This represented a percentage increase of 79.17%, a considerable rise that should have activated the alarms at the national level.

From 2014 onwards the amount of fentanyl samples being seized and analyzed by DEA´s NFLIS increased exponentially -that same year the State of Massachusetts declared the overdose problem a public safety emergency-.

If 2015 saw 14,440 samples (0.93%) one year later -in 2016- there were 34,204 samples (2.20%) and fentanyl had placed itself as the US 6th most consumed drug only behind Oxycodone.

In 2017, the next year, the amount of samples had increased up to 56,530 (3.57%) and fentanyl became the 5th most popular drug only behind heroin.

The popularity of fentanyl as a street drug was already a priority for the DEA by late 2016, a year which ended with 19,413 deaths related to synthetic opioids overdoses and a total of 24,204 fentanyl samples analyzed by the NFLIS. 

An unclassified DEA bulletin titled "Fentanyl: a Complex and Expanding Threat in the United States" already warned in October 2016 about the increasing trend in fentanyl seizures tracing the usage of this substance to 2015 when according to this document "traffickers expanded the teach of fentanyl beyond traditional white powder heroin markets as evidenced by the increased presence of fentanyl detected in counterfeit prescription pills and the drug has also been manipulated to appear as black tar heroin". This same DEA document warned about how "in the near term [the] fentanyl market will continue to expand as it is introduced to witting and unwitting users". This statement proved prophetic.

Fentanyl seizures (2012-2015) Source: DEA

By 2020, fentanyl had reached 4th place in the list of most popular drugs in the US, only surpassed by cocaine, marijuana and methamphetamine, with the astonishing number of 117,045 samples (9.12%) being analyzed. A year later, 2021, the last year of which we have available NFLIS data, the amount of fentanyl samples had risen again reaching 153,949 (11.61%).

In conclusion, during a time span of 10 years (2013-2022) the US saw a percentage increment in the number of fentanyl related incidents of 99.3647% and the synthetic opioid, which in 2014 was in the 34th place, had reached the 4th place in the top consumed drug list.

As a direct result, the number of synthetic opioid related lethal overdoses skyrocketed. In 2007 only 2,213 people died as a result of synthetic opioids (a mortality rate of 0.7 per 100,000 inhabitants) In 2020 alone 56,516 US citizens perished as a consequence of synthetic opioids overdoses reaching a mortality rate of 17.8 per 100,000 inhabitants.

The analysis of the ways through which fentanyl is produced go beyond the present article´s purpose, but readers should be aware that there are three main methods for the manufacturing of the substance. They are known as the Janssen -a reference to Paul Janssen-, Siegfried and Gupta´s methods, being the former the most popular one. Each method involves the use of different precursor chemicals.

Fentanyl main synthesizing methods. Source: UNODC

According to the DEA´s Fentanyl Profiling Program (FPP) 2021 Report, the average purity of the fentanyl available in the US market orbited around 14.4% with 44% of the samples analyzed presenting a concentration of at least 2 milligrams, a lethal dose.

At the same time, the 2021 FPP Report reveals that US fentanyl is usually found mixed with other substances. These adulterations can be classified in active -when an agonist substance is used- such as heroine or caffeine and inert -when the substance is only used for adding quantity or tasting materials- such as mannitol or xylazine.

The Chinese route: truths and myths

There is an almost international consensus regarding the origin of chemical precursors used to produce fentanyl being situated in the People's Republic of China (PRC) Contrary to the public belief the times when fentanyl was produced inside the PRC and exported internationally are already gone. The PRC has done several efforts to combat its reputation as a drug production hub and has managed to virtually eliminate domestic fentanyl production. It should be remembered that China still uses capital punishment as a resource against drug trafficking.

Internationally, the fight against drug production and its trafficking is structured through the 1988 United Nations Convention Against the Illicit Traffic in Narcotic Drugs and Psychotropic Substances. With its 34 articles, the 1988 Convention tries to be an international law instrument containing the basic rules that any country should apply inside its borders to guarantee a minimum level of efficient anti drug standards. Besides, the Convention contains an annex with two tables -Table I and Table II- labeling the precursor chemicals used to produce drugs regarding which member States must control in its facets of production and distribution. The tables are periodically updated for the sake of preventing newly developed precursors from going underreported.

China has been no exception and signed the Convention on December 20, 1988, becoming a full member on October 25th 1989. The PRC´s experience with drugs -particularly opium and its derivatives- has been historically linked to foreign rule and direct intervention in the country. Not in vain Great Britain invaded the Chinese Empire twice during the XIXth century to assert its dominion over the trade of opium all over Southeast Asia, detonating the so-called Opium Wars which took place between 1939-1842 and 1856-1860.

Furthermore, the much active and very well organized Chinese organized crime -which behaves in the form of secret societies bounded by ties much deep than the mere affiliation sentiment- have traditionally controlled a market -the one of drug trafficking- that has traveled to neighboring countries such as the DPRK, Myanmar or Thailand as a consequence of Chinese Government's deterrence policies.

In the case of fentanyl, PRC´s local production -which had been a constant headache for the countries towards which it was redirected- was tackled effectively on May 1st 2019 when the Chinese Government added the substance to its Catalog of Precursor Chemicals, a list of 32 substances controlled by the Narcotics Control Commission (NNCC), the official agency in charge of fighting drug trafficking inside the PRC.

The answer by Chinese producers was quick and understandable; if they couldn´t manufacture fentanyl because it was a firmly controlled substance according to Chinese regulations they would just produce the ingredients -chemical precursors- used for fentanyl manufacturing. Thus in the chemical facilities of southern China fentanyl precursors started being produced en masse.

It is these chemical precursors the ones later shipped to Mexico through alternative routes -either directly or through transhipment countries such as Guatemala or Germany- before they are domestically used in clandestine Mexican laboratories for the production of pure fentanyl.

The recent discussion between US-Mexican Administrations regarding whether or not Mexico has its own domestic fentanyl production has ended with a tacit recognition by the Mexican Government of Mexico-based manufacturing facilities. Nevertheless, AMLO still rejects the idea of domestically produced fentanyl admitting only that the substance is manipulated inside the country for the elaboration of pills through the use of industrial presses.

It is important to stress the fact that Mexico is not the only port of entry for fentanyl precursor chemicals. The United States and particularly Canada do also receive shipments of fentanyl precursors that are then used locally in clandestine laboratories for manufacturing the drug. This is an aspect of the trade which hasn't been sufficiently analyzed -mainly because it is much easier to focus on Mexico and let the country be blamed for much of the fentanyl being consumed in the US-.

The DEA 2006 Fentanyl Situation Report already mentioned a shipment of 2.6 pounds of 83% pure fentanyl being seized on February 27th near Westmoreland. According to this very same document between 1990 and 2005 at least nine fentanyl laboratories were found inside the United States.

July 16th 2021. Canada Border Services Agency (CBSA) seizes a shipment of 1,500 kilograms of N-Phenetyl-4-Piperidone (NPP) a chemical precursor used for the manufacturing of fentanyl. Interestingly enough this substance by itself cannot be distributed as a drug. This leads to the conclusion that the NPP was going to be transformed into fentanyl inside Canada. According to authorities, such as quantity of NPP could be used for the manufacturing of at least two billion doses

A Portland-based laboratory in which fake Oxycodone pills laced with fentanyl were produced using a pill press or mill. Domestic fentanyl manufacturing has become extremely common both in Canada and the US

The PRC still has a great problem regarding the production of fentanyl chemical precursors. Contrary to some politically-biased approaches which see in the flow of Chinese precursors some sort of evil plan used by the Beijing Government for attacking the United States the truth is that the constant manufacture of fentanyl precursors is provoked by the PRC´s deranged capitalist economy model. Besides, the PRC hosts the world's second biggest pharmaceutical sector only behind the US.

As the US Department of State´s 2022 International Narcotics Control Strategy Reports (INCSR) states there are more than 160,000 chemical companies operating inside the People's Republic of China either legal or illegally. In 2017 China accounted for 37% of the world´s chemical industry while in 2000 it only reached 6%. Chinese companies manufacturing fentanyl precursors do it clandestinely, hiding the shipments under the form of other legal products -food or legal chemicals-.

Contrary to what happens in most countries, in the PRC to disguise a shipment of chemical precursors that may be used for the manufacturing of fentanyl is not labeled as a crime but considered just a civil missconduct punished only with a fine. This is one of the main reasons for fentanyl no longer being produced inside China at a great scale. Why manufacture a drug locally and risk a death sentence when it is possible to produce the chemical precursors and send them abroad without any risk of being convicted for drug trafficking?

As the 2022 INCSR acknowledges, PRC control authorities face two further problems regarding the control of illicit fentanyl precursors production and trafficking. Firstly, the massive volume of imports which make it difficult to spot shipments that are normally around a few kilos of substance. According to a 2020 DEA report -a time in which fentanyl still was produced in China-, the average seizure of fentanyl coming from China averaged less than one kilo and much of it entered into the US through mail delivery systems.

Secondly, Chinese chemical companies involved in the manufacturing of fentanyl precursors adjust their merchandise cataloge to the existing controlled substances. This means that producers elaborate precursors that are not included in the NNCC substances catalogu thus benefiting from the loopholes of a legislation that is always a step behind the capabilities of a chemical sector that is able to create multiple precursor derivatives still not controlled nationally or internationally. These new substances receive the name of "indirect precursors" or "pre-precursors".

This is just what happened when the PRC included two chemical precursors -N-Phenetyl-4-Piperidone (NPP) and 4-Anilino-N-Phenethyl Piperidine (4-ANPP)- in the Catalog of Precursor Chemicals. What the companies involved in the trade did was to switch to the manufacturing of N-Phenyl-4-Piperidinamine (4-AP) which was not at the time a NNCC controlled substance. Finally, in April 2022 the UNODC included the 4-AP in the list of controlled substances, but by that time a new indirect precursor (4-Anilino-1-Boc-Piperidine) had already been developed, although it was soon controlled too.

Such new chemical development processes are part of the wider phenomenon of the increasing popularity of design drugs; substances that require a considerable degree of expertise to be manufactured and involve the use of specific substances and equipment. According to the United Nations Office for Drug and Crime (UNODC) the number of New Psychoactive Substances (NPS) exceeds one thousand. In the case of fentanyl alone its analogue substances exceed several thousands.

Another aspect regarding China's role in the fentanyl market is it´s responsibility for manufacturing much of the machines -pressing mills particularly- which are then exported to the US and Mexico for their local use in the production of the drug.

According to US regulations the importation or exportation of tableting and encapsulating machinery requires a formal notification to the DEA. Nevertheless it is a fact that it is possible to purchase and acquire such machines through the black market. According to a 2022 report elaborated by the International Narcotics Control Board, cooperation between the DEA and the CBA led to the seizure of 2,305 encapsulating machines and 37 illegally imported tableting machines in 2021 alone.

August 2022, Texas, United States. A Chinese pill press seized from a network which used it for manufacturing fake Oxycodone pills laced with fentanyl. An example of how Chinese pharmaceutical machinery is used for the production of the drug

The Mexican Panorama: Laboratories and Export

It is important to understand what kind of role does Mexico play in the largely unexplored market of fentanyl trafficking. This is a topic -it is important to understand it- which is permanently subjected to exaggerations and deliberate distortion of the truth as a consequence of political interests.

On the one hand US authorities tend to blame Mexico for its inability to effectively tackling the domestic production and smuggling of fentanyl forgetting the fact that its country has already developed a formidable domestic production market, that it´s American consumers the ones demanding the product and that in most cases it is native criminal organizations -not Mexican- the ones distributing the drug locally.

On the other hand AMLO´s Administration has embarked itself on a stubborn strategy of denying any formal implication of the Aztec country in the manufacturing of fentanyl -a blatantly false statement- and of not recognizing that it shares a common responsibility for not being able to effectively tackle the massive import of chemical precursors from Southeast Asia. This strategy has led some Mexican Government officials -AMLO included- to state ridiculous ideas, such as the one linked to the denial of a relevant Mexican drug consumption issue.

Political rhetoric aside, the truth is that Mexico poses a significant role in the fentanyl pipeline towards the United States. According to the 2022 INCSR of all the fentanyl seized by the Customs and Border Agency (CBA) 98% had its origin in Mexico. Although this data doesn´t take into account fentanyl seizures happening inside the United States it reflects the importance of Mexico as a transshipment and production hub.

The available data regarding Mexican operations against fentanyl production facilities as well as seizures by State and Federal authorities also bring some light into how this drug has become an integral part of the native criminal organizations portfolios. During the three years between 2019-2021 the number of fentanyl seizures in Mexico increased a 525% in comparison to the 2016-2018 timeframe.

The scope of the Mexican side of the problem is even wider when we consider that despite being a transshipment country Mexico is developing a domestic market for the drugs that are transported through the country; fentanyl included. As it has happened in other countries that have been used as logistical platforms for drug trafficking -such as happened with Colombia and Brazil regarding coca base paste or "basuco"- during the last decade an increasing size of the drugs heading north are being diverted and used for the satisfaction of domestic demand.

A 2022 article published in the Drug and Alcohol Dependence Report revealed that an upsurge in the number of reported fentanyl related overdoses during the Covid pandemic in northern Mexico, particularly Mexicali. According to this study -conducted by Mexican and American sanitary professionals- "between 1 June 2019 and 31 May 2021, there were 464 overdoses reported" revealing a 30% increase in comparison with the pre-Covid levels.

Combining the number of overdoses being reported as well as the use of Naloxone -a powerful Fentanyl antagonist- the report assures that fentanyl is currently becoming popular among Mexican drug consumers.

Overdoses reported in Mexicali -a plaza being disputed by "Los Chapito"s and "El Mayo" proxies- between 2019 and 2021. Notice how sharply the levels of fentanyl increased in November 2020. Source: Impact of an overdose reversal program in the context of a safe consumption site in Northern Mexico

Map reflecting the overdoses being reported in Mexicali between 2019 and 2021 (not all of them fentanyl-related incidents) Notice the concentration of overdoses near the international border. Source: Impact of an overdose reversal program in the context of a safe consumption site in Northern Mexico

And even though AMLO has understandably attracted considerable attention due to his confusing and childish statements about fentanyl not being produced inside Mexico there is proof that Mexican authorities are trying to crack domestic drug production.

Contrary to other Mexican Administration, AMLO´s Government has undertaken certain efforts in order to show some sort of muscle against a wide range of criminal organizations. Years of failed war against organized crime have left a legacy of inconstant efforts against criminal groups that do reflect imperfect results. Nevertheless during AMLO´s tenure the rate of capture of high level bosses as well as the level of seizures has increased exponentially. Between 2019 and 2021 alone, there are reports about 635 synthetic drug laboratories being seized by Mexican authorities, a 83.62% increase in comparison with the Peña Nieto´s Administration numbers which reflected only 104 laboratory seizures. In 2022 alone, Reuters published that nearly 500 laboratories had been seized; the highest number in all Mexico´s recent history.

We should take this data with care though because AMLO´s Administration, as the Calderón one did, likes to use statistical info in order to create the illusion of an active and effective counter organized crime activity. As the Guacamaya Leaks revealed, in June 2022 the SEDENA started including in its reports inactive laboratories as part of the seized infrastructure. This is the main reason for the incredible increase in seizure reports. Besides, there is no official data about the exact number of seized laboratories where fentanyl was specifically manufactured.

In the specific case of fentanyl, the number of laboratory seizures is paradigmatic. Although Mexican Defense Secretary Luis Crescencio Sandoval explained on April 18th that 37 labs had been seized inside the country there is no official list of raided facilities.

Since 2006 Borderland Beat has reported at least 17 different events in which laboratories used for the manufacture of fentanyl or the production of fentanyl pills have been found: 10 of them of them in Culiacán, two in Tijuana, one in Nuevo León, one in Mexico City, one in Guamuchil, one in Mexicali and one in Toluca.

The quantities of seized fentanyl have also increased exponentially. According to Mexico´s 2020 Security and Defense Atlas the first report of a fentanyl seizure dates back to 2013 in the States of Baja California Sur -454 grams- and Sinaloa -440 grams-. In the next year -2014- fentanyl seizures had risen exponentially reaching 27 kilograms in Sinaloa, 24 kilograms in Mexico City and 15.9 kilograms in Baja California.

That same document states that between January 2017 and August 2019 220 fentanyl seizures were reported in Mexico with 88.95% of the total seizures being concentrated in five States: Baja California (35.45%), Sonora (25%), Mexico City (12.27%), Sinaloa (10.91%) and Baja California Sur (10.91%)

Mexican authorities have also undertaken certain legislative efforts in order to tackle the illicit importation of chemical precursors. Traditionally Mexico controlled six fentanyl precursors: N-Phenyl-4-Piperidinamine, 4-AP-Dihyrdochloride, Propionic Anhydride, Propionyl Chloride, N-Phenetyl-4-Piperidone and 4-Anilino-N-PhenethylPiperidine. But on April 15th 2021 through the Acuerdo CSG CCC 4/15.04.2021 Mexico added fourteen new precursors that may be used for the production of synthetic drugs, among them piperidine, a wide term for several fentanyl-related chemical substances.

But how did Mexico get involved into the fentanyl market and how does this market work?

The first reference regarding a fentanyl laboratory can be traced back to late 2005 and 2006, when a criminal organization acting from Toluca -State of Mexico- was caught managing a local laboratory which processed fentanyl and imported it to the US where it was distributed in Chicago all along with different drugs.

Regarding the US, we have to wait until 2016 to hear about the first fentanyl distribution operation linked to the Sinaloa Cartel. On August 9th 2016, the US Department of Justice formally announced charges against 17 individuals for their role in the so-called Gil/Aguirre Drug Trafficking Organization (DTO); a criminal conglomerate that was operative between June 2013 and September 2015 and played a major role in the distribution of marihuana, cocaine, heroin and -most importantly- fentanyl in the cities of Niagara Falls and Lockport using the city of Buffalo, New York, as a stashing area.

    Overall structure of the Gil/Aguirre DTO

Interestingly enough the Gil/Aguirre DTO developed a considerably stable and professional operating mechanism. Drugs were introduced into the United States through the Californian border disguised inside shipments of frozen sea cucumbers which were transported in containers that had been sealed using polyurethane foam to prevent any odor detection by customs agents. Once in the US they were transported by air to the eastern coast where the drugs were sold in the street using a network of US native distributors.

An extract of the Gil/Aguirre DTO operational frame

The money obtained was then channeled back to the south through the use of four corporate vehicles -companies- which used their bank accounts to launder at least 20 million dollars in one year alone.

The link between the Buffalo-based criminal organization and the Sinaloa Cartel were the two Mexican individuals leading the group; Herman E. Aguirre and José Rubén Gil. The former had been mayor of the town of Izúcar de Matamoros, Puebla, for 40 days in 2008 before he was arrested in Los Angeles and charged with smuggling 11 kilos of cocaine into the US. After that he was released and began the building of the Buffalo-based DTO that was tackled in 2016. It was this last group, the one buying drugs from the Sinaloa Cartel, which was in turn paid with the money flow originated in the eastern US coast.

We must understand that the links between the Gil/Aguirre DTO and the Sinaloa cartel are similar to those existing between any retail client and its provider. Due to its small size and reduced membership groups such as the Gil/Aguirre DTO don´t have enough capacity to import chemical precursors and drugs from outside Mexico. That is why they have to rely on the services of bigger and more diversified organizations from which they buy the products, but it doesn't mean that the distribution cells operating inside the US do belong to a Mexican cartel.

Here is where groups such as the Sinaloa Cartel or the CJNG play the role of supplying smaller structures with the product that is then smuggled through the border and distributed inside the US. Obviously, American authorities like to tie the seizures and busts happening on their side of the border to big Mexican criminal conglomerates, but the truth is that most of the time the relationship between US-based criminal groups and big Mexican "cartels" is simply based in a provider-client role.

Since the 2016 Gil/Aguirre DTO issue busts other fentanyl distribution networks operating in the US have been linked to the Sinaloa cartel and even to the Jalisco New Generation Cartel (CJNG) which happens to have developed ties with border-based criminal gangs. On June 1st 2021 32 members of the Norteños gang were charged with distributing drugs supplied by CJNG. During the operation 5,000 fentanyl pills were seized.

More recently, on April 5th 2023, the DEA announced the conclusion of Operation Last Mile, a coordinated investigation into the Sinaloa Cartel and CJNG-linked fentanyl distribution operations inside the United States. According to data released by the DEA both criminal organizations rely in individual dealers as well as in street gangs to distribute their product all along the United States and use social media apps -Facebook, Facebook Messenger, Instagram, Snapchat and TikTok- and encrypted message platforms -WhatsApp, Signal, Telegram, Wickr and Wire- to coordinate shipments and dealings.

Operation Last Mile, the latest DEA´s coordinated effort aimed at tackling CDS and CJNG´s fentanyl distribution rings inside the US. Source: DEA

Operation Last Mile has resulted according to the DEA in the seizure of 2,969 kilos of fentanyl and 43,616,361 fentanyl pills

But how do Mexican criminal groups obtain precursors and elaborate fentanyl inside the Aztec country? Too much has been said and written about this topic but at the end of the day most available information limitates itself to cite the number of seizures being publicly reported as well as mentioning the indisputable fact regarding most precursors coming from the PRC.

In fact, much of the trade between Chinese precursor producers and Mexican organized criminality takes place indirectly through the services of brokers and intermediators. It is important to understand the role played by these indirect parties since they are the key, the link, connecting Mexico and Southeast Asia. As a matter of fact the "broker" figure has been increasingly used in the world of organized crime for the management of stable drug trafficking routes; specially in the case of cocaine.

When a Mexican criminal organization wanting to import high quantities of chemical precursors needs to get the product it gets in contact with a broker, whose main role is to seek and find Chinese chemical companies with the capacity of supplying it. This individual does not belong to the Mexican organization but is an independent party providing purely logistical services.

The broker doesn´t enter into negotiations -which include the quantity and the price- with the Chinese producers directly but through an intermediator. This individual is used as a middleman by the chemical companies in order to avoid detection by Chinese authorities, receiving a payment for acting as such.

Once the Chinese companies produce the precursors the broker manages to export them overseas disguised as legitimate cargo. It must be stressed that contrary to popular belief, these cargoes do not always enter into the US directly but do sometimes take alternative and long routes in order not to raise alarms. For example, it is known that the Guatemalan broker used by the "Chapitos" bought precursor chemicals in China and directed them to Germany before shipping them to the US.

Flux diagram showing how Mexican criminal organizations obtain chemical precursors from Chinese chemical companies

In a recent event, Guatemalan authorities seized in the port of Puerto Barrios a shipment of 120 barrels containing fentanyl chemical precursors which was coming from Turkey and had been previously gone through France.

In the case of the "Chapitos", the indictment unsealed on April 14th by New York´s Southern District Court provides insightful information regarding the role of one of their brokers. Ana Gabriela Rubio Zea aka Gaby, born in 1990, is a Guatemalan businesswoman who made herself a reputation as the executive director of I-Eco/Igigi Technologies, a Guatemala-based company with a Chinese subsidiary in Guangzhou. She would be detained 72 hours later, on April 17th by Guatemalan authorities.

According Igigi´s Facebook account -the most recent content of which was eliminated on April 16th, 48 hours after the Chapitos indictment was unsealed- the corporate goal was the manufacturing of 100% biodegradable plastic bags. Rubio Zea herself appears on YouTube promoting Igigi´s product.

Ana Gabriela Rubio Zea in one of her social media pictures

The lavish lifestyle of Rubio Zea, which she constantly posted in her TikTok profile has created a needless debate over the life and times of an individual who is seen more as a curiosity than as a vital link in the importation of a considerably high amount of fentanyl precursors.

April 17th 2023. 72 hours after the "Chapitos" indictments were unsealed Guatemalan authorities captured Ana Gabriela Rubio Zea while driving her car in Guatemala City

According to the April 14th New York indictment Ana Gabriela Rubio Zea was since 2014 in constant contact with Chinese chemical manufacturers with whom he communicated through encrypted message applications. In one of these messages she is quoted telling Yonghao Wu, a representative of Wuhan Shuokang Biological Technology Co. Ltd: "We are the biggest... We are the biggest in Mexico so we can purchase a lot [of precursor chemicals"].

Also according to the indictment, it was Rubio Zea the one in charge of getting the precursors, hidden within legitimate cargo, through customs. Sometimes he used indirect shipping methods and on other occasions he just bribed border authorities.

One specific shipment took place in September 2021 when Rubio Zea purchased approximately 25 kilos of fentanyl precursor chemicals from Suzhou Xiaoli Pharmatech Co. Ltd. which were later seized on September 2nd 2021 in Guadalajara´s international airport.

September 2nd 2021. 25 kilos of fentanyl precursor chemicals seized by Mexican authorities in Guadalajara. They had been bought by Rubio Zea directly from a Chinese chemical company

It is important to understand that these brokers not only work for the Chapitos but for multiple criminal organizations as the April 14th New York indictment recognizes. For example, on March 18th, Humberto Beltrán Cuen, a Mexican national was detained by Guatemalan authorities. He has been charged as an individual brokering the shipment of fentanyl chemical precursors and high caliber weapons for the Leonardo and Martín García Corrales brothers, two criminal bosses known to have been close associates of Ismael "El Mayo" Zambada and Joaquín Guzmán Loera "El Chapo"

Regarding the Chinese suppliers, their operational methods fit into the classical handbook of the PRC´s illicit fentanyl precursor chemical producer. There were two Chinese companies - Wuhan Shuokang Biological Technology Co. Ltd. and Suzhou Xiaoli Pharmatech Co. Ltd.- dealing with Rubio Zea through middlemen.

Diagram of the Chinese companies supplying Los Chapitos with fentanyl precursor chemicals

Kun Jiang acted as middleman for Suzhou Xiaoli Pharmatech Co. Ltd. while Yonghao Wu acted as middleman for Wuhan Shuokang Biological Technology Co. Ltd.

In the case of the former company, it sent chemical precursors to Mexico through air shipping, an extremely common method which has left a recent trail of seizures in Mexican airports, specially in Tijuana and Mexico City.

June 23rd 2022, Tijuana International airport. 10 kilos of piperidine -a fentanyl precursor- is seized by Mexican authorities. The product was inside a package being sent from Hong Kong and had as destination a Culiacán-based address

In the case of Wuhan Suokang Biological Technology Co. Ltd. its shipping strategies involved the sending of the precursors to Mexico using the port of Mazatlán as entry point and sometimes using Germany as transhipment hub. Interestingly enough this company -owned by Huatao Yao- sometimes used cryptocurrency transactions through a wallet owned by Hongfei Wang as a means of payment.

The role of Wuhan Suokang Biological Technology Co. Lmtd. and its personnel goes beyond the mere precursor providing. According to the April 14th New York indictment the Chinese nationals advised Mexican clients with the development of "efficient preparation methods for fentanyl manufacturing, including by providing information about exactly what other chemicals are needed to mix with the precursor chemicals in order to produce finished fentanyl for distribution". In the case of Yaquin Wu -a Wuhan Suokang employee- on December 19th 2022 she was caught providing her opinion regarding "the most cost-effective starting material" for the manufacturing of fentanyl "detailing how the particular chemicals she offered could be used for fentanyl synthesis".

In other words, in this case the role of the Chinese suppliers was not the mere product importation but also the advising regarding specific fentanyl synthesization techniques. This indicates that the company had already been immersed in the manufacturing of the drug or te least its personnel had experience in this particular field.

Flux diagram showing the overall structure of Los Chapitos precursor chemicals procurement network

Borderland Beat has been investigating both companies and despite the efforts of its owners for diluting most of the available information -specially through the elimination of some web pages once used by the companies- has found enough evidence of fentanyl precursors being sold by at least Wuhan Suokang Biological Technology Co. Ltd. on the internet.

In fact, this company offers among its products Xylazine Hydrochloride, a sedative and pain reliever used by veterinarians and recently found in fentanyl samples seized in 48 of the 50 US States as the FDA mentioned in a 2022 statement.

Xylazine Hydrochloride offered by Wuhan Suokang on a Chinese chemical procurement website. The substance, an extremely powerful pain reliever used in the veterinary industry, is one of the typical products with which fentanyl is mixed. It is extremely dangerous since it has the capacity of halting the effects of Naloxone, fentanyl´s most common antagonist substance

At the same time, the company offers among its stock high quantities of 1-Boc-4- (4-Fluoro-Phenylamino)-Piperidine a chemical derivative of some of the precursors being used for manufacturing fentanyl, although we must admit there is no evidence this particular substance is currently used for the synthesization of the drug.

An example of how easy it is to obtain fentanyl "pre-precursors" in Chinese online chemical catalogs

The April 14th New York indictment suggests that "Los Chapitos" started manufacturing fentanyl in 2014 in a Culiacán-based modest laboratory. According to the document precursors were guarded in safe places and transported to the lab from where the manufactured drug was later shipped to Tijuana in order to be smuggled into the US. 

The indictment also offers an overview of how fentanyl production is managed by the "Chapitos" faction of the Sinaloa Cartel. To say that the sons of "El Chapo" directly control the production of fentanyl in the State of Sinaloa is blatantly false. The truth is that despite directly controlling some laboratories and certain shipments heading north "Los Chapitos" have a complex network of subordinates all of whom manage their own fentanyl operations without reporting back to "El Chapo"´s sons.

The myth regarding "Los Chapitos" as being the masterminds behind each gram of fentanyl being manufactured in Sinaloa is the logic consequence of the official "cartel rhetoric", a school of thought that presents Mexican criminal organizations as monolithic and well structured entities rather than as a loosely tied network of family clans and factions that although using a common front name and sharing a specific leaderships do have a great degree of freedom regarding their operations.

This is one of the reasons behind "Los Chapitos" recent open letter in which they pose themselves as a plural scapegoat stressing the fact that the laboratories being discovered in Culiacán are not theirs -a blatantly false statement-.

As the indictment reveals, much of the fentanyl lab infrastructure operating in Culiacán is run by individuals that do not act directly under the orders of Los Chapitos. Thus, Carlos Limón Vásquez, Jesús Tirado Andrade, Carlos Omar Félix Gutiérrez and Silvano Francisco Mariano aka "Rayo" are mentioned as independent traffickers which are allowed by Los Chapitos to run their own fentanyl operations.

Individuals in charge of fentanyl laboratories according to the April 14th indictment. They act both as "Chapitos"-affiliated members and as independent producers. Source: DEA

This being said, it would be false to assume that Los Chapitos don´t manage their own fentanyl laboratories as they vehemently defend in their recent open letter. They are possibly the ones in charge of managing the most efficient laboratories being discovered in Sinaloa during the last four years. In fact, as the indictment mentions, it was Ovidio Guzmán himself the one who created a wholesale fentanyl distribution platform in Mexico City from which heroin traffickers bought the product in order to mix the drugs.

Furthermore, it is indisputable that "Los Chapitos" do have their own personal laboratories. They control several of them are managed by Néstor Isidro Pérez Salas aka "Nini" -who acts at the orders of Óscar Noé Medina González aka "Panu", current Badiraguato plaza boss- and by his deputy Jorge Humberto Figueroa Benítez aka "27".

Not in vain, OFAC has recently acted against some of Los Chapitos laboratory infrastructure by sanctioning a family set of businesses -owned by the Zamudio Lermas in charge of precursor procurement- and a company used for the procurement of laboratory equipment: Sumilab SA de CV.

Individuals in charge of transporting fentanyl on the behalf of Los Chapitos. Source: DEA

The topic of fentanyl laboratories being seized in the State of Sinaloa and by extension in the rest of Mexico has been subjected to an extensive and very toxic debate regarding the true nature of the operations being conducted in them. While the Biden Administration assures that fentanyl is being synthesized in these laboratories AMLO and Mexican authorities insist that these facilities only play a role in the pressurization of fentanyl into table/pill form.

We must acknowledge that both theses do present based grounds. Regarding the Mexican point, there is virtually no evidence of a fentanyl synthesization laboratory being seized. Borderland Beat has tracked the seizure of at least ten different fentanyl manufacturing labs in the Culiacán area between 2019 and 2023 in most of which different chemical substances have been found all along with fentanyl in the form of pills and powder. But it is important to stress the fact that such substances are not fentanyl chemical precursors but rather excipients and several other agents used for cutting the substance.

For example, on October 28th 2021 a fentanyl laboratory managed by Armando Bátiz Camarena aka "El Inge", a Mayo Zambada lieutenant, was seized by Mexican security forces in Culiacán. 18 kilos of pure fentanyl were found along with 2 kilos of inositol, a substance which is not a chemical precursor but a cutting agent with which fentanyl is mixed to increase its effects.

In another event, on November 16th 2022, a Culiacán fentanyl laboratory was seized and several products were discovered. Among them 43 kilos of fentanyl and several substances wrongly cited as fentanyl precursors. For example on that occasion several quantities of tartaric acid and magnesium were found. These products are used for the manufacturing of methamphetamine -of which 40 kilos were also found- not fentanyl. It was also cited that 1,160 liters of tetrahydrofuran were found in the place. This substance, which is a solvent, has been used for the manufacturing of tetrahydrofuran fentanyl, which is a fentanyl strain labeled as New Psychoactive Substance (NPS). Interestingly enough no infrastructure for the synthesization of fentanyl was seized on that occasion.

In a more recent occasion, on February 14th 2023, authorities seized two drug laboratories in the Culiacán area. One of them -located in the city of Culiacán- contained 196 kilos of fentanyl and among other substances 275 kilos of mannitol, a very popular excipient but not a precursor itself.

One of these labs has become the subject of over exaggeration due to its considerable big size and the ostentatious characteristics of the infrastructure which included several artisanal boiling artifacts.

Infrastructure seized on February 14th in the Pueblos Unidos-based clandestine drug laboratory. It was a meth manufacturing site, no fentanyl was found in it

It has been said that this laboratory contained infrastructure for fentanyl manufacturing but it must be acknowledged though that the boiling artifacts and chemical precursors seen in the images are used for methamphetamine -not fentanyl- manufacturing. Not surprisingly in the place authorities seized nearly 100 kilos of methamphetamine.

The laboratory seized on February 14th containing fentanyl wasn´t the one in Pueblos Unidos but in the Culiacán metropolitan area and like every single fentanyl laboratory seized in Sinaloa was not a synthesization facility but a place where already produced fentanyl was pressed into pills/tablets.

AMLO in one of his "mañaneras" explaining the February 14th raids. He has been insisting on the fact that in every single raided laboratory where fentanyl has been found no synthesization infrastructure has been located. A valid point despite the strong evidence regarding local fentanyl manufacturing

It must be stressed that regarding Mexican fentanyl laboratories being seized there is only evidence of pill manufacturing infrastructure. In these places fentanyl powder is transformed into pills most of which resemble the form of legal Oxycodone tablets.

                      An example of a Culiacán-based fentanyl manufacturing laboratory. No synthesization operations are undertaken in these places. Just the production of fentanyl-laced pills

       

These Culiacán-based facilities are places where already synthesized fentanyl is taken in order to be transformed into its final form: pills and tablets. The sites are run by individuals which run a detailed accountability keeping track of shipments, dates and quantity.

  Accounting records found inside a Culiacán-based laboratory. They reveal an almost daily production ranging from 7 to 26 kilos

Regarding the American authorities´ points, there is no doubt that Mexican native criminal organizations are already manufacturing fentanyl in Mexican soil. The times when Chinese chemical companies shipped fentanyl directly or indirectly to Mexico through online platforms are already gone; a fact conveniently stressed by Chinese authorities.

The April 14th New York indictment also contains information regarding laboratories operating in Sinaloa where synthesization operations do take place. According to this document somewhere in the State there is an underground facility with an elevator where chemical precursors are transformed into fentanyl powder.

Another reason that leads us to determine that fentanyl synthesization is currently taking place in Mexican soil is the astonishing quantities of chemical precursors entering into the country. Why would such products be smuggled through Mexican customs if they were not used for manufacturing fentanyl?

AMLO´s administration has denied this fact constantly and has conducted public actions in order to defend this claim. For example, on March 22nd AMLO sent a letter to Chinese President Xi Jinping in which he claimed that no fentanyl was manufactured in Mexico and that his country was accountable for only 30% of the drug entering into the United States.

The Chinese Government answered this letter publicly at the beginning of April claiming that no fentanyl was being produced in China -a certain fact- and blaming the United States as the main cause of the problem.

More recently AMLO has given inconsistent signals regarding the domestic fentanyl manufacturing issue. On March 16th AMLO acknowledged that fentanyl laboratories existed inside Mexico although they were only aimed at the transformation of fentanyl powder into pills, the same argument used by SEDENA´s Secretary Luís Crescencio Sandoval on April 18th when he stated that 37 fentanyl pill-pressing laboratories had been seized.

Paradoxically, on that same press conference, the SEDENA secretary admitted fentanyl native manufacturing when he said that "these places are facilities sites mainly in urban areas with tables, presses and recipients to mix the precursor chemical known as ANPP [4-Anilino-N-Phenethyl Piperidine] with a catalyst known such as chlorhydric acid".

This literal recognition of Mexican fentanyl manufacturing was again denied by AMLO in the May 5th conference when he stated that a new load of precursor chemicals -600 packages containing 35 kilos of an unidentified "fuel resin"- had been seized in the port of Lázaro Cárdenas (Michoacán) coming from the Chinese port of Qingdao having been reshipped through the Korean port of Busan.

Again, the Mexican president forgets that what is entering into Mexico is not fentanyl but the substances used to produce it. This reluctance to recognize what is obvious was recently labeled by the Chicago Tribune as the actions of a "delusional leader, who recently barked out a whopper of an untruth"

In conclusion, the absence of fentanyl synthesizing laboratory raids should not lead us to conclude that fentanyl is not produced inside Mexico. The volume of chemical precursors being shipped to Mexico makes the native fentanyl manufacturing an indisputable fact. If AMLO´s Administration hasn not recognized this it is because by doing so they would be sharing some degree of responsibility over an issue that they want to be seen as an American problem.

The use of cryptocurrencies for purchasing chemical precursors: Truth and Myth

Since their popularization as a viable payment instrument during the early 2010s, cryptocurrencies have been subjected to a high degree of speculation and banalization regarding their use for illicit purposes.

It is undeniable that cryptocurrencies whose main characteristic is their decentralization and the absence of controls regarding its use do facilitate the purchase of goods and services that can be both legal and illegal.

The European Union has identified cryptocurrencies as potential risk factor regarding "the absence of governing stable structures, [...], juridical insecurity and the possibilities of conducting black market operations, money laundering, terrorist financing, fraud and tax evasion [...]"

The story of the criminal usage of digital currencies is long, tracing as far back as 2007 when E-Gold currency was used to pay for child pornography files.

Nevertheless it should be noted that certain cryptocurrencies -among them Bitcoin- have transformed themselves into very reliable instruments for the perpetration of specific crimes, specially for the laundering of ill-gotten gains arising from online criminal activities.

In the case of Mexico the rumor regarding the use of Bitcoin and several other cryptocurrencies by criminal organizations has been frequent during the last three years. It was mentioned, for example, that CJNG and the Sinaloa Cartel had started using cryptocurrencies massively for money laundering purposes, but only certain cases -none of which involved major criminal groups but rather individuals acting by their own- were publicized.

The only known case regarding cryptocurrency usage by an important criminal entity involved human trafficker which recruited nearly 2,000 women for prostitution purposes -some of whom were managed by the Unión Tepito criminal gang- acquired around $22,000 with his sister, clearly a personal action and not part of a unified money laundering process.

Some of the public awareness regarding illicit use of virtual currencies by organized criminality was one of the reasons behind Mexico´s "Ley para Regular las Instituciones de Tecnología Financiera" a law created in March 2018 which has become a revolutionary instrument in a region -Latin America- which still lacks legislative efforts to tackle money laundering through virtual currencies.

But until now the specific use of cryptocurrencies by major Mexican criminal organizations was nothing but mere speculation and rumors. Nevertheless the April 14th indictment reveals exactly how members of the Chapitos faction of the Sinaloa cartel used Bitcoins to pay for some loads of fentanyl precursor chemicals.

In the case of the Chapitos indictment, it mentions how Bitcoins were used both by money launderers associated with the Mexican leaders and by certain individuals linked to one of the Chinese chemical companies alongside other laundering methods consisting in classical wire transfers and more elaborated schemes based in trade-based strategies.

It was the case of Mario Alberto Jiménez Castro aka Kastor and Sergio Duarte Frías, two money launderers acting on the behalf of Iván Archivlado Guzmán Salazar. According to the April 14th indictment these two individuals coordinated the pickup of bulk cash collected in the cities of New York, Denver, Boston, Omaha, Nashville and Salt Lake City and exchanged it for cryptocurrencies held inside wallets controlled among others by Duarte Frías himself. The cryptocurrencies were then again exchanged for fiat money which was redirected towards higher echelons of the organization.

There are specific examples of such operations. For example on August 25th 2022 around $20,900 were picked up in Denver and transformed into cryptocurrencies. Between September 14th/28th and October 5th similar operations took place in Nashville and Denver. On December 5th 2022 a courier picked up $80,000 in Manhattan and transformed it into cryptocurrency. In each one of these operations the transformed drug proceeds were held in crypto wallets held by Sergio Duarte Frías. Between August 2022 and February 2023 the scheme was able to launder at least $869,000.

Money launderers working for "Los Chapitos" in the US and Mexico. One of them -Duarte Frías- held several cryptocurrency wallets with which he both received and made transfers. Source: DEA

The cryptocurrencies were also used for paying some loads of Chinese precursor chemicals. For example, in the context of a negotiation for the shipment of precursor chemicals to a Manhattan-based client that started around February 2023, Yaqin Wu -a Wuhan Shuokang Biological Technology Co., Ltd representative- a Bitcoin payment was agreed. The transaction took place on February 26th when $5,000 in Bitcoins were transferred to Yaquin Wu and Huatao Yao in exchange for 5 kilos of precursor chemicals that were shipped to Manhattan on March 14th and seized by the DEA.

The April 14th indictment contains no more information regarding the use of cryptocurrencies either by individuals affiliated to or close to Los Chapitos faction nor by their Chinese providers. Nevertheless by combining this data with the sanctions published by the OFAC that very same date more interesting facts can be understood.

One of the individuals sanctioned by the Treasury Department is Wang Hongfei, who was labeled as a Wuhan Shuokang Biological Technology Co., Ltd who held a cryptocurrency wallet to which Bitcoins used by Mexican criminal groups to pay for precursors were sent. Interestingly enough among other Hongfei´s personal data OFAC included the bitcoin address associated with his specific wallet: 3PKiHs4GY4rFg8dpppNVPXGPqMX6K2cBML.

Due to the nature of the Bitcoin system each transaction conducted since the birth of the currency can be consulted in its open ledger or blockchain -a fact that those defending Bitcoin´s complete opacity and anonymity should never forget-. 

Borderland Beat has tracked the Bitcoin address owned by Wang Hongfei and found that it is still fully operational. The first operations regarding the wallet date back from February 2022 and during its nearly 1 year of operational use Hongfei´s wallet was used in a total of 193 transactions receiving a total of 15.24498106 Bitcoins -$420,789- and sending a total of 14.46089860 Bitcoins -$399,147-.

By May 9th 2023 the wallet contained 0.78408246 Bitcoins -the equivalent of $21,637.56- and had conducted its last operation on May 6th when it wired 0.064 Bitcoins -$706.61-.

According to the April 14th indictment on February 26th 2023 Yaqin Wu and Huatao Yao, on behalf of the Manhattan-based client that started around February 2023, Yaqin Wu -a Wuhan Shuokang Biological Technology Co., Ltd., received approximately $5,000 dollars as compensation for a load of fentanyl precursor chemicals that had been purchased from Manhattan, New York.

Borderland Beat has tracked each one of the inputs -a Bitcoin transaction is composed by two basic movements; an input representing the address receiving the currency and an output representing the address sending the currency- of the address associated to Hongfei Wang and has found that on February 25th 2023 it received a transfer for 0.19 Bitcoins -$5,272.30- at 10:20:34 am.

Bitcoin´s public blockchain. Input (in red) and outputs (in green) regarding the February 25th transaction

The date of the transfer -not even 24 hours before the date stated by April 14th indictment- as well as the amount of the transaction -nearly $5,000- indicate a high degree of possibility of it being the one indicated by the April 14th indictment.

Interestingly enough the February 25th 10:20:34 am transaction was not only directed towards Wang Hongfei´s wallet. In total 0.4347 Bitcoins were transferred from the address bc1q8pfz3v58lq2z7zq7zq965yyk4cf2u72cn22re3 to two other addresses: the one of Wang Hongfei´s -which received 0.19 Bitcoins- and address bc1qk5sep0nlr73ac8cuc5ndpkhcpmprx3lxe4mwef -which received 0.24467 Bitcoins-.

The input address bc1q8pfz3v58lq2z7zq7zq965yyk4cf2u72cn22re3 -the one sending the transfer- was possibly a bogus address created for the purposes of creating a paper trail and disguise the transaction since it only made to moves: first to receive the 0.4347 Bitcoins it sent to the other two addresses and then the final transfer. 

There was also another transfer, which took place on February 27th at 2:35:32 am, in which 0.20769921 Bitcoins -$5,713.09- were received at Wang Hongfei´s address. It is also possible that the April 14th indictment refers to this transfer as the one regarding the precursor chemicals payment.

In both cases the funds were immediately transferred to other wallets. The 0.19 Bitcoins transferred on February 25th at 10:20:34 am were wired an hour later -at 10:54:04 am- while the Bitcoins transferred on February 27th at 2:35:32 am were transferred again at 3:52:14 am.

Section of Wang Hongfei´s Bitcoin address, extracted from Bitcoin´s public ledger/blockchain. In green two nearly $5,000 inputs that took place on February 25th and 27th respectively. In red the same amounts transferred just hours later. One of these two transfers was probably the one named at the April 17th indictment

Borderland Beat has investigated the addresses successively used for funneling the Bitcoins received by the address from which the February 25th transfer was made to Wang Hongfei´s wallet and has checked that they all are disposable addresses used only twice each: to receive the Bitcoins and to send them to the next address. 

This technique, which consists in the overlapping of multiple addresses between the initial sender and final destination, is aimed at obscuring the structure of the movement through a paper trail and indicates that the use of Bitcoins for paying the Chinese providers was not a last minute decision but rather a carefully staged movement which has possibly been repeated in other occasions.

In the case of the  February 27th transfer, the address funneling the Bitcoins to Wang Hongfei´s wallet had wired the Bitcoins as part of a wider wiring operation involving 31 different addresses. In turn, the wiring address had received the funds as part of another wiring operation involving 600 addresses. The number of transactions appearing when tracking this series of operations increase exponentially and make it extremely difficult to track the exact origin of the Bitcoins being received by Wang Hongfei. This could indicate the use of an  online Bitcoin plural wallet or the hiring of Exchanger´s services.

Readers shouldn´t be surprised by the fact that an individual linked to a Chinese chemical company would be using Bitcoin transactions for receiving payments in the current year of 2023-.

It is true that the PRC authorities banned the mining and usage of digital currencies in September 2021. They did so not as part of a wider effort to tackle money laundering by native organized crime -which was and still is rampant- but because Xi Jinping´s administration saw virtual currencies as a potential source of financial risk and instability and an obstacle for the People´s Bank of China official digital currency, the e-CNY.

But it has become evident that Chinese citizens still use virtual currencies. It is obvious in a country where technological devices and online platforms have become an integral part of daily life. 

Not surprisingly, many of the chemical corporations promoting their products in online portals do accept Bitcoin as a means of payment.

Wuhan Shuokang Biological Technology Company Co. Ltd.´s online catalog. It includes Bitcoin as a mean of payment which can be used to purchase its products

In conclusion, with this article Borderland Beat has tried to analyze the origins and present conditions of the fentanyl market. From its beginnings as a minor drug produced in Southeast Asia it has transformed into one of the most interesting products for Mexican and US organized criminality and is not currently produced in the RPC but their precursors exported to Canada, Mexico and the US where local synthesis takes place.

Another vital point to understand the fentanyl market is to focus on the key role that brokers play when connecting both sides of the Pacific and intermediating in the purchase of illicit products, precursor chemicals included.

Furthermore, the April 14th indictment provides a very important insight into the use of cryptocurrencies by Mexican criminal organizations. This topic, largely obscured by myth and over exaggeration, has proved to be real: a faction of the Sinaloa cartel has used virtual currencies to pay not only for precursor chemicals but also for long term money laundering strategies.

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