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U.S. Treasury Targets Crypto Wallets Linked to Illegal Fentanyl Trade – Here’s What You Need to Know

The U.S. Treasury’s Office of Foreign Assets Control (OFAC) has taken action against several cryptocurrency wallets linked to the prohibited fentanyl trade.

On Tuesday, the OFAC expanded its specially designated nationals (SDN) list to include a fresh batch of cryptocurrency wallets. These are associated with a drug trafficking ring, predominantly based in China.

These wallets played a role in the illicit activities of six entities: five individuals and a company named Valerian Labs.

In this crackdown, the government pinpointed 17 wallet addresses across various blockchain networks, including Bitcoin (BTC), Ethereum, and Tron.

It’s noteworthy that a majority of the prohibited transactions carried out on the Ethereum (ETH) and TRON (TRX) networks utilized stablecoins. These are types of cryptocurrency tokens underpinned by fiat currencies with relatively stable prices, such as the U.S. dollar.

The wallets linked to these individuals, with the exception of Valerian Labs, were housed on a centralized cryptocurrency exchange. Through this platform, these wallets amassed cryptocurrency equating to hundreds of thousands of dollars. The name or details of this particular exchange, however, were not made public.

Chainalysis, a blockchain monitoring company, provided further insights into this situation in a recent blog post. They approximated that the combined value of cryptocurrency received by these wallets amounted to roughly $3.8 million. This significant sum potentially corresponds to a large volume of drugs smuggled into the United States and other nations.

The post further elaborated, “The entities facing these sanctions form a drug trafficking web predominantly based in China. This network also has ties to Canada, encompassing one individual from Canada and two businesses situated in Canada, both owned by the same person.”

Wallets Received Funds in Small Amounts

Chainalysis’ deep dive into the matter unearthed that these sanctioned wallets accrued funds through a succession of minor transfers. These transfers, notable for their regularity and consistency in amounts, originated from individual wallets as well as other leading exchanges.

The firm observed that the regularity of these payments suggests they are tied to the sale of specific items. Based on their patterns, it’s inferred these sales likely pertain to fentanyl and related precursor chemicals.

The global rise of fentanyl sales facilitated through cryptocurrency is alarming. Chainalysis underscored this growing concern in a separate report, pinpointing that sellers based in China alone have amassed an estimated $37.8 million in cryptocurrency from the sale of fentanyl since 2018.

The U.S. Treasury has a history of sanctioning Bitcoin addresses linked to such nefarious suppliers, but this recent move is notable as it’s the inaugural time Tron blockchain addresses have come under the scanner.

Moreover, in the preceding month, OFAC took action against an Ethereum address, alleging its ties to a member of a Mexican money-laundering syndicate. This individual is suspected of utilizing cryptocurrency to facilitate the cross-border transfer of proceeds from fentanyl sales.

Highlighting the potential threats of cryptocurrency in such illicit activities, US Senator Elizabeth Warren raised concerns about crypto’s involvement in fentanyl transactions during a congressional hearing in May. Senator Warren, a known critic of digital currencies and a Democratic representative from Massachusetts, championed her bill, the Digital Asset Anti-Money Laundering Act. She articulated that her proposed legislation aims to mend existing gaps “in our anti-money laundering regulations.” Its objective is to deter drug suppliers and cartels from leveraging cryptocurrency to perpetuate their illicit operations.

During a Senate Banking Committee hearing, Senator Warren emphatically stated, “Crypto is aiding the fentanyl trade. We possess the means to halt this, and the time to act is now.”

Fentanyl is a medically prescribed synthetic opioid analgesic, akin to morphine but packing a potency up to 100 times greater. While physicians prescribe it for managing severe pain conditions, such as those faced by cancer patients, there’s a darker side to this drug.

Illegally manufactured fentanyl has become a recreational drug of choice for some, driven by its intense effects on the user. This illicit usage has entrenched fentanyl as one of the most perilous commodities within the shadowy realms of the cryptocurrency-driven black market.

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Cryptocurrency is essentially virtual money that operates in a decentralized manner, not through a bank but directly on multiple independent computers.

Every cryptocurrency has two main components: the units of digital exchange called “coins” and the network within which the exchange takes place. These units can be transferred between wallets and exchanged on exchanges. The networks in which these coins exist are called blockchains, which translates to “chains of blocks.”

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