Michael Brown
To effectively undermine the cartels and curtail the flow of fentanyl, it is crucial to disrupt their financial supply chain.
In 2022, there was a slight increase in drug overdose deaths in the US following two significant spikes during the pandemic. The Centers for Disease Control and Prevention officials report that the numbers remained stable for the majority of the year. It is uncertain whether this indicates that the deadliest drug overdose crisis in US history is approaching its peak, or if it will resemble previous periods of stability followed by new surges in fatalities.
According to the CDC’s latest data, an estimated 109,680 overdose deaths occurred last year which is approximately 2% higher than the 107,622 overdose deaths in 2021.
Throughout the year, fentanyl and other synthetic opioids continued to be the primary cause of most overdose deaths. Furthermore, authorities highlight that inexpensive fentanyl is increasingly being mixed into other drugs, often unbeknownst to the buyers.
Narcotic-related law enforcement efforts are largely focused on stopping fentanyl from being sold on the street, coupled with arresting gang and cartel members involved in the process. But, the best way to degrade the cartels and put a dent in the fentanyl trade is to disrupt their money supply chain and seize financial assets.
For every fentanyl sale which occurs, someone is being paid. The money is not going into local bank accounts. It is being “laundered” using a number of digital and physical methods to hide it. According to the US State Department, an estimated $154 billion in illicit funds pass through China alone each year as part of money laundering.
Unfortunately, efforts to disrupt the cartel money laundering supply chain, and, thereby, disable the relationship with fentanyl precursors and distribution networks, has had spotty success.
To change that scenario, law enforcement needs to aggressively adopt advanced technologies which can better collect relevant financial and other data, analyze it and drive action on it. The key phrase to describe these efforts is “actionable intelligence.”
The Supply Chains Which Bring Fentanyl to American Users
For the fentanyl trade to yield its millions in profits, the narcotic and the precursor chemicals which constitute it must move through two separate, but interdependent, supply chains. These include the precursor supply chain and the distribution supply chain.
Fentanyl begins its journey in the precursor supply chain which starts in China. This is where the elements which go into the manufacture of fentanyl are produced. When Mexican cartels reach out to their organized crime contacts in China to help with producing more fentanyl, those contacts in turn work with the proxies in Mexico to receive shipments of chemical agents needed.
The base elements are then shipped to Mexico, usually through international parcel cargo or on container ships. They are gathered at centralized locations, sent out to various labs and manufactured as fentanyl in either pill form or as powder. From there, the drugs are smuggled across the border, entering the US in modified vehicles, by small plane or boat, or with human “mules.” Fentanyl is then distributed to various dealers for sale to “consumers.”
Once fentanyl has been sold, the proceeds of the sale move down the money supply chain.
How the Chinese Money Operations Work
In order for the cartels to get paid for their fentanyl production and distribution, they now typically operate large money laundering operations involving Chinese Transnational Organized Crime (TOC) groups in the US and in China.
Small cells of Chinese criminals have largely displaced the Mexican and Columbian money men who have dominated the trade in the past. These groups move millions in hard currency without one dollar actually crossing an international border. They digitally transfer drug proceeds using encrypted apps on their burner cell phones.
Typically, they make one call and then throw the phone away. Even if investigators do get a bead on a burner phone, it can take up to two weeks to obtain a warrant to go after the phone’s “owner.”
TOC actors have perfected the art of mirrored remittance. This involves breaking large payments down to small amounts and distributing them to many individuals who then transfer the funds directly to numerous overseas accounts in China. From there, the business owners will wire money transfers to Mexican accounts from which the cartels will get paid.
These steps mirror a traditional movement of large sums of cash, but do so without going through the US banking system and activating anti-money laundering safeguards. Such safeguards typically look for large sums changing hands and frequent sending or receiving of sums of money by individuals or organizations.
Bypassing money laundering regulations is fairly straightforward. For example, if the Latin Kings or Crips gangs purchase fentanyl from the cartels in Mexico, all the cartels need to do is to make payments in the US at a business which will launder the money. The gang members would take the money they owe, say $100,000, to an establishment which would break the large amount down into small allotments and spread payments out through numerous criminal contacts within the local Chinese community. These contacts typically have legal establishments, such as dry cleaners, hair salons or restaurants, as part of their network.
The money laundering actions of these TOC groups have definitely gotten the attention of law enforcement, with such activity said to be a major threat to global economies. The Chinese role in both providing precursor elements used in the manufacturing of fentanyl, as well as in laundering money critical to the trade, has also added to political tensions between the United States and China.
Keeping Supply Chain Payments Out of Sight, if Not Out of Mind
One of the primary reasons cartels work closely with Chinese organized crime units is simply to avoid the prying eyes of US law enforcement. DEA efforts to investigate drug trafficking operations had improved, especially with the wide scale use of undercover agents. So, the cartels took their distribution and money laundering efforts offshore – where it was largely out of sight, if not out of mind.
Chinese brokers are very effective in avoiding US and Mexican formal banking systems and, thus, avoiding anti-money laundering measures. Unfortunately for investigators, the more steps in the process – or supply chain – which happen in China, the harder it is for US officials to know about it or interdict.
Cartels are also returning more to face-to-face interaction in order to protect transactions. Before they will do business with someone, they want to see with whom they are dealing. One favorite way of doing this is to direct a dealer to a contact in New York, for example, who will collect payment. The dealer will be given one half of a $100 bill and the contact in New York will have the other half. Only when the two meet, and they confirm that the two halves match, will they continue the transaction.
Data Sources Provide a Treasure Trove of Leads for Investigators
Because drug dealers are getting more careful with whom they do “live” transactions, law enforcement is relying more heavily on crime statistics analysis and financial intelligence from a few sources to generate leads to degrade the money supply chain. Relevant financial data can be obtained from the IRS and other records and from wire intercepts. The IRS can target suspicious organizations in the US owned by Chinese corporations or individuals and review offshore transactions with a fine-tooth comb. The IRS obviously has access to enormous amounts of financial information and can often spot irregularities.
Bank alerts of large wire transactions can be helpful, especially if a single account holder sends or receives many $9,999 transfers. When a financial institution receives suspicious activity reports, it can examine who wire remittances are going to and from. They would check if a suspect account holder has a business; the days and times when transfers are done; and if the transfer amounts seem appropriate for the type of receiver on the other end.
Human sources remain the best source of data intelligence. They typically have direct knowledge of criminal activity and can identify key players; how operations work; and, sometimes, how money changes hands. Human sources are often key providers of intelligence during plea deals. In order to avoid or reduce potential prison sentences, many will provide incriminating information on others.
One challenge which impacts the quality of leads for investigators is the growing number of “Jack and Jill” dealers working out of their own homes across America. They are not visible to police because they are not dealing on the streets which means there is a lower arrest rate against this “market sector.” This growing cottage industry is also an active contributor to the illicit money supply chain and, in many cases, investigators would need to receive a tipoff from human sources to commence an investigation.
Using Data to Drive Action in the War on Drugs
One of the most effective strategies for curbing the fentanyl drug trade in this country is digital technology. Advanced analytics tools and artificial intelligence can enable law enforcement to spot suspicious activity; make assessments of who is involved at each step in the narcotics journey wherever they may be; to track shipments of base elements used in manufacturing narcotics; and to monitor how and where money transactions related to the sale of drugs are happening.
Human investigators can’t reasonably deal with all of the data which is potentially available. Advanced analytics tools are definitely needed to do the job. Data analysts can use advanced analytics tools to seek needles in haystacks when it comes to drug trafficking information. They can help identify key individuals and networks and provide organizational “flow charts.” Such flow charts will identify in graphic terms the links and nodes which make up a drug trafficking network. Nodes refers to a specific task which is done at any point in the network. Links are all of the other nodes which are interconnected to it and to other nodes. Taken as a whole, this would map out the fentanyl journey from China, to Mexico, and then to the US, and who is involved at each step along the way.
Network mapping is very important in an investigation since it identifies all potential targets and (hopefully) cooperating witnesses. Most importantly, these tools enable investigators to gather and monitor key financial data which provide predictions as to where money laundering is taking place.
Equally important are gathering data related to illicit drug operations and sharing that data with other law enforcement agencies. Federal, state and local police need to work together and with state attorneys general to share resources and assets. There is definitely strength in numbers.
The sharing of this data is especially important in the current political and social climate, when there are often calls to “defund the police.” Law enforcement agencies will have a difficult time making many large-scale technology investments. The solution is to combine efforts and obtain shared digital resources.
All of these groups typically see the same types of drug use and, often, the same people. Because of this, shared tools and information become important for targeting the upper level of drug trafficking organizations, understanding what they are doing, and dismantling their operations.
Conclusion
Despite the best efforts of all law enforcement agencies, drug manufacturers, distributors and dealers always seem to be one step ahead. Human resources alone won’t turn the tide in this war.
Advanced analytics and AI can provide investigators with the tools they need to greatly degrade the Mexican cartels and Chinese money launderers. Law enforcement agencies should embrace these technologies and work together to enable the means of acquiring and acting on them.
As they do, it is important for law enforcement to incorporate new metrics which reflects their ability to degrade the digital aspect of trafficking in conjunction with drug seizures and arrests. Fewer low level street dealers are being arrested, but the more significant impact on the cartels will be made through targeting their digital money supply chain.
Michael W. Brown is the global director for counter-narcotics technology at Rigaku Analytical Devices. He has a distinguished career spanning more than 32 years as a Special Agent for the Drug Enforcement Administration (DEA). Most recently, he was the DEA Headquarters staff coordinator for the Office of Foreign Operations for the Middle East-Europe-Afghanistan-India. Prior to that, he served as the country attaché in India and Myanmar providing foreign advisory support for counter-narcotic enforcement. He also spent ten years in Pakistan as a special advisor to the US Embassy on various law enforcement issues. Michael is a graduate of the United States Ranger Training Battalion and has a master’s degree in Interdisciplinary Technology and Management from the University of Eastern Michigan. Contact him at michael.brown@rigaku.com