For the last three years, DEA investigators in the U.S. and China have been monitoring ShanghaiChemicals, an online market for various opioids and their ingredients. Whilst the site appears to be based in China and claims to sell only for “pharmaceutical and laboratory purposes,” investigators say in a search warrant they’ve found it’s offering to ship illegal substances for producing drugs like deadly narcotic fentanyl to the U.S.
The DEA also believes the site itself may be a scam, tricking American dealers into buying bulk Chinese narcotics without ever sending the product, according to the warrant, which was unsealed last month. In the warrant, investigators detailed how a confidential source attempted to buy 130 grams of fentanyl through a contact on ShanghaiChemicals’ website. They initially paid nearly $2,500 into an American bank account, with some follow-up payments made over bitcoin. Just over two years later, however, the drugs still haven’t arrived, according to the warrant, leading the DEA to conclude that “in addition to the potential sale of illicit narcotics, this website may be involved in fraudulent activity.”
The DOJ declined to comment on the case. A contact email address on ShanghaiChemicals did not respond to a request for comment.
The DEA has continued to investigate through to this year, tracing cryptocurrency accounts used by ShanghaiChemicals. In just 10 months in 2021, a total of $3.5 million in cryptocurrency flowed into one Binance account allegedly connected to the marketplace’s money laundering activities, the DEA said. Almost all of it was likely derived from ShanghaiChemicals sales, the DEA said. Once funds came in, they were swiftly converted into Tether, a cryptocurrency tied to the U.S. dollar, and moved to other accounts, the DEA claimed.
An additional eight accounts tied to the marketplace also handled a significant amount of cryptocurrency. Between December 2017 and January 2022, the wallets handled 77,500 transactions worth over $450 million, though the warrant didn’t specify how much of that money was tied to ShanghaiChemicals. The government has now seized money left in those accounts, worth nearly $210,000.
Given the amounts of money passing through the crypto accounts linked to ShanghaiChemicals, it appears to be one of the more substantial markets. In May last year, cryptocurrency tracing company Elliptic revealed research that showed 90 Chinese companies shipping fentanyl and its base ingredients had made a total of $27 million in crypto transactions. Whilst that wasn’t an astronomical figure, Elliptic said that it was enough to buy chemicals to make enough fentanyl pills with a street value of $54 billion.
Whether ShanghaiChemicals is a fraud, a hugely profitable marketplace, or both, it’s become a target as the Justice Department tries to stem the flow of fentanyl from China to the U.S. and Mexico. Upon indicting a number of similar Chinese opioid marketplaces in October last year, the DOJ noted that two of Mexico’s most infamous cartels— the Sinaloa and the Jalisco New Generation — were buying bulk fentanyl from China before processing and selling it to Americans.
“We know that the global fentanyl supply chain, which ends with the deaths of Americans, often starts with chemical companies in China,” said attorney general Merrick Garland at the time. A month later, China and the U.S. agreed a deal to attempt to stem the flow of fentanyl from Beijing to America.
