27 Aug 2019
Sanctions Imposed on Mainland Chinese Persons for Fentanyl Trafficking
On 21 August, the White House and the U.S. Treasury Department announced the addition of two entities (Qinsheng Pharmaceutical Technology Co. Ltd. and Zheng Drug Trafficking Organization) and three individuals of mainland China to the Specially Designated Nationals and Blocked Persons List for trafficking fentanyl to the United States. As a result, all property and interests in property subject to U.S. jurisdiction of these entities and persons are blocked and U.S. persons are generally prohibited from engaging in transactions with them.
The announcement by the Treasury Department indicated that the Zheng Drug Trafficking Organization laundered its drug proceeds in part by using digital currency such as bitcoin, transmitted drug proceeds into and out of bank accounts in mainland China and Hong Kong, and by-passed currency restrictions and reporting requirements. Qinsheng Pharmaceutical Co. Ltd. was targeted for being “owned or controlled by Fujing Zheng.”
OFAC is identifying bitcoin addresses associated with alleged drug traffickers to disrupt their financial dealings. All property and interests in property of these individuals and entities that are in the United States or in the possession or control of U.S. persons must be blocked and reported to the Office of Foreign Assets Control. OFAC regulations prohibit all dealings by U.S. persons or within (including transiting) the United States that involve any property of blocked or designated persons. Penalties for violations of the Kingpin Act range from civil penalties of up to US$1,503,470 per violation to more severe criminal penalties. Criminal penalties for corporate officers may include up to 30 years in prison and fines up to US$5 million, while criminal fines for corporations may reach US$10 million.
Treasury’s Financial Crimes Enforcement Network and the White House Office of Drug Control Policy, working with other agencies, have issued a series of advisories to alert legitimate firms of red flags related to the trafficking of fentanyl and other synthetic opioids. In all cases, reports of suspicious activities may be sent to the U.S. Drug Enforcement Administration and the Federal Bureau of Investigations. In some cases, it may be more convenient for firms to report to agencies with whom they work regularly, as noted below.
The 13-page “manufacturing advisory” warns chemical companies to “exercise caution when dealing with new customers or abnormal attempts to acquire the combination of chemicals used to synthesize fentanyl in a clandestine laboratory” and lists 30 precursor chemicals along with suspicious drug manufacturing equipment purchases. Suspicious activities can be reported to the U.S. Food and Drug Administration as well as to the agencies noted above.
The 11-page “marketing advisory” warns social media companies and e-commerce platforms to be aware of websites that may market fentanyl products, precursors or equipment. The advisory includes a list of red flags such as “street names” commonly used for fentanyl as well as examples of dark-web activity and law enforcement actions taken.
The 11-page “movement advisory” is aimed at international mail and express consignment carriers, e-commerce platforms, international maritime organisations and other supply chain firms. It explains how fentanyl products enter the United States and move to their end users, including via the U.S. Postal Service. The advisory notes that many shipments transit through Mexico and other Latin American countries. Some shipments have been disguised as legitimate pharmaceutical or consumer goods shipments, so U.S. authorities are encouraging shippers to be aware of any red flags, such as incomplete documentation, that may indicate that a shipment to the United States or Latin America might actually be fentanyl. Suspicious behaviour can be reported to U.S. Customs and Border Protection or the U.S. Postal Service, as well as to the agencies noted above.
A 19-page “monetary advisory”, meanwhile, warns financial institutions to be aware of money laundering using money services businesses, convertible virtual currency (such as bitcoin, bitcoin cash, ethereum or monero), shell companies, or other suspicious bank transfers or payments through on-line payment processors. The advisory references suspicious “trade-based money laundering” and “funnel accounts” that seek to transform drug-based cash into transferrable assets. Financial institutions are encouraged to file a Treasury suspicious activity report and reference this advisory.