Mexico’s navy warned of an increase in the use of less regulated chemicals for methamphetamine production this week, confirming an innovative trend emerging from the criminal organizations behind synthetic drug manufacturing.

Officials from Mexico’s Navy Secretariat (Secretaría de Marina – Semar) interviewed in the port of Manzanillo, told the La Jornada newspaper on July 6 that Mexican criminal groups are producing their own precursor chemicals to make methamphetamine, rather than importing them from abroad.

Precursor chemicals are the main ingredient in the synthetic drug production process and, in the case of Mexican methamphetamine, the most common ones are 1-phenyl-2-propanone (P2P) and methylamine.

SEE ALSO: Making Synthetic Drugs: A Primer*

To manufacture both, producers use pre-precursors and other essential chemicals such as solvents, catalysts, and binders, which are dual-use substances. These chemicals, in addition to being used for illicit purposes, are widely traded legally to supply a variety of industries, including pharmaceuticals, petrochemicals, cosmetics, food, and cleaning products.

According to Semar sources who spoke to La Jornada in the port, they have detected an increase in the importation of dual-use chemicals since around 2022. At the same time, imports of precursor chemicals have dropped.

“There are records that give us certainty that these substances are used in the manufacture of chemical precursors for illicit drugs,” a naval official told La Jornada.

The statement came just days after the seizure of 88 tons of acetic acid in Manzanillo, which sits on the Pacific coast in the state of Colima. The substance is mainly used to produce vinegar but can also be used as a pre-precursor in the production of methamphetamine.

As a result, the importation and sale of acetic acid is monitored in Mexico, which means that companies must justify their intended use to the authorities and make their supply chain transparent. According to Semar, the seizure in Manzanillo occurred after the importer failed to justify the substance’s place of origin.

InSight Crime Analysis

Semar’s recent comments are in line with InSight Crime’s research into Mexico’s precursor chemical supply chain, which found that the methamphetamine production process in Mexico has become more sophisticated.

Initially, Mexican producers used ephedrine as the main precursor for methamphetamine, but following the Mexican government’s imposition of stricter controls on the substance in 2008, they migrated to the P2P and the methylamine method. This method is complicated, according to several specialists consulted by InSight Crime, but allows for a greater diversity of chemical synthesis routes, making it easier for producers to substitute substances they don’t have access to.

SEE ALSO: How Precursor Chemicals Sustain Mexico’s Synthetic Drug Trade

Today, P2P and methylamine are strictly controlled. Mexican producers have stopped importing them from China – one of the main countries supplying the substances – and have learned to synthesize them in the same clandestine laboratories in which they make methamphetamine from pre-precursors legally marketed in Mexico. 

So far, this trend isn’t evident in fentanyl production, mainly because fentanyl pre-precursors have few legal uses. However, it’s something that could happen if producers begin to access less regulated substances from which they can synthesize pre-precursors and subsequently precursors.

*Sara García, Parker Asmann, and Beatriz Vicent contributed to the reporting for this article.

Featured image: Containers in the port of Manzanillo, Colima, México. Credit: Victoria Dittmar/InSight Crime

The post Mexico’s Meth Producers Are Making Their Own Precursors, Government Says appeared first on InSight Crime.

The United Nations Office on Drugs and Crime (UNODC) released its annual drug report, highlighting the manifold destruction caused by a surging cocaine industry.

The World Drug Report 2024, published June 26, takes a look at global data over recent years to analyze the trends around illicit substances. It focuses on broader global trends, especially concerning the cultivation of crops and the production of synthetic drugs, while also examining the impact the illicit drug industry has on society and institutions.

“The drug problem is expanding both from the use side and from the supply side. There is more production, more trafficking, and also complexity, so more substances,” Angela Me, the UNODC’s head of research, told InSight Crime.

SEE ALSO: South America’s Cocaine Supply Boom Shows Up in European Wastewater Analysis

The report details the rise of cocaine production and its devastating effects on populations and the environment. Drug-related destruction is a global phenomenon, and in Latin America, it is often the young that are most affected.

Drug trafficking continues to expand globally, while consumption of drugs is rising. While opium production is falling, other drugs may be taking its place, as organized crime groups continue to explore novel illicit industries. 

Here, InSight Crime breaks down the most important findings for Latin American organized crime.

Cocaine Production Wreaks Violence and Environmental Destruction

Drug trafficking groups have violently expanded amid historic levels of cocaine production, wreaking ecological havoc and expanding into other criminal economies.

Production of cocaine and the growing of coca bush have been steadily rising for decades, but 2022 saw a dramatic uptick. The report estimates that 2,757 tons of cocaine were produced globally in 2022, a 20% increase from the year before, and three times as much as was made nearly a decade ago. These volumes of cocaine were propelled by 355,000 hectares of coca bush cultivated in 2022, up 21% in one year.

Booming cocaine production has led to a rise in violence and displacements in Colombia, the world’s number one cocaine exporter. The country’s Pacific region has been particularly affected as armed groups wage war over drug trafficking.

But no country has suffered the impact of the cocaine boom as much as Ecuador. There, local gangs have been turbocharged by the inflow of cocaine and now work with Colombian, Mexican, and Balkan organizations to move the drug along Ecuador’s waterways and to its international ports. As conflict over the routes has worsened, homicides have soared, politicians and political candidates have been assassinated, and the country has fallen into a near-permanent state of emergency. 

In the Caribbean, where island nations are used as a stopping point to move cocaine to North America and Europe, local gangs have unleashed fighting to establish and defend their territory, and homicides have risen.

As cocaine has traveled across oceans, killings have followed. 

“Startling levels of violence associated with cocaine trafficking and competition between criminal groups and gangs are affecting Latin America and the Caribbean, as well as countries in Western Europe,” the report stated.

Routes between South America and Europe have become well established, with Ecuador, the Southern Cone, and Brazil being the major exit hubs. The North Sea has become the primary entry point, the report found. 

The rise in cocaine production is also fuelling the destruction of the environment. In Bolivia, traffickers continue to expand, moving into the Amazon, and contributing to deforestation. And on the Peru-Colombia-Brazil border, increased coca cultivation has spurred illegal deforestation, timber trafficking, and illegal gold mining.

“There are three border areas [in South America] that have been captured by organized crime. And it’s not only drugs. The issue is that they enter with drugs and then they start environmental crime,” said Me.

Drug Trade Hits Latin American Youth

Consumption of drugs is increasingly affecting youth in Latin America, the report found.

Central America and the Caribbean is the region with the highest proportion of under 18s seeking treatment for drug addiction, with South American a close second.

“Drug use disorders at a young age are particularly concerning because they can lead to a vicious circle involving lower educational attainment and impaired chances of social reintegration,” the report said.

Organized crime groups can use drugs to create a cycle, selling drugs to make money, and recruiting those that become addicted, according to the report. 

“We cannot think about the drug problem without thinking about organized crime more holistically,” Me explained. “The cycle is not just about drugs – it’s about organized crime.”

Drug addiction in the region has been exploited by organized crime groups. In Mexico, addiction to synthetic drugs, like methamphetamine, is on the rise, hitting the country’s youth particularly hard. Organized crime groups have recruited from rehabilitation centers, exploiting the state’s incapacity to turn patients into lookouts, dealers, and killers.

Opium Falls but Synthetics Are on the Rise

A ban on opium in Afghanistan has forced traffickers to dip into stockpiles to move heroin, but new synthetic opiates are emerging. 

The cultivation of opium, the base ingredient for heroin, has plummeted by 95% in Afghanistan, the world’s major opium supplier, following an April 2022 ban by the Taliban. Opium production dropped 70% around the world between 2022 and 2023. Previous reports by the UNODC estimated that Afghanistan produced up to 88% of the world’s opium. 

Though production is down, opium seizures remain steady, indicating that traffickers are dipping into stockpiles to make up for the decrease. If heroin supply dries up, synthetic drugs may fill the demand in the world’s major markets, including the United States and Europe.

SEE ALSO: How Precursor Chemicals Sustain Mexico’s Synthetic Drug Trade

“The production of synthetic opioids can be cheaper, faster, and more profitable than heroin and can open up opportunities to new groups without links to the Balkan route or lead old groups to diversify and modify their supply chains,” said the report. 

Synthetic opioids have decimated North America, with the hyper-potent drug, fentanyl, largely replacing heroin. A new, even stronger group of synthetic opiates, nitazenes, are also showing up around the world, according to the UNODC. 

Methamphetamine is also on the rise, with traffickers potentially shifting to new drugs to replace their profits from heroin. In February, Andrew Cunningham of the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA) told InSight Crime that methamphetamine and other synthetic cathinone stimulants could be replacements for heroin among Europe’s users should the supply of the drug run dry.

Feature image: The headquarters of the UNODC in Vienna, Austria. Credit: UNODC

The post Cocaine Surge Fuels Violence as Opium Falls: UN Drug Report 2024 appeared first on InSight Crime.

The production of fentanyl and methamphetamine requires key ingredients known as precursor chemicals. Because of their illicit uses, these substances are highly regulated around the world.  

Yet synthetic drug producers in Mexico have found ways to circumvent regulations to obtain the precursor chemicals, and a sophisticated network of brokers has allowed them to find and buy pre-precursors, less regulated chemicals used at an earlier stage of the production process for methamphetamine and fentanyl. These drugs are then transported across the border by groups like the Sinaloa Cartel and the Jalisco Cartel New Generation (Cartel Jalisco Nueva Generación – CJNG).

In this two-year investigation, InSight Crime breaks down the different stages of the supply chain for these synthetic drugs. We look at the chemical companies manufacturing and selling the precursors in China and India, the transnational network of buyers sourcing the precursors, and the chemists and cooks synthesizing the drugs in Mexico. The report also assesses the effectiveness of current regulatory and law enforcement efforts on this issue and offers a series of recommendations aimed at governments, multilateral organizations, and other decision-makers.

The post How Precursor Chemicals Sustain Mexico’s Synthetic Drug Trade appeared first on InSight Crime.

It was days before Super Bowl LVI in February 2022, the biggest guacamole day of the year in the United States, when a threatening call came into the government-issued cell phone of a US agricultural safety inspector working in Michoacán, Mexico.

Michoacán is the heart of the $4 billion avocado industry. To facilitate cross-border trade, the US Department of Agriculture sends inspectors like this one that make sure the avocados are not carrying diseases or insects that may hurt US production.  

Michoacán is also a prominent hub for organized crime groups, whose business ventures range from extortion of all types of economic activities to the production and trafficking of synthetic drugs. 

*This article is part of a two-year investigation that tracked the supply chain of precursor chemicals that aid in the production of methamphetamine and fentanyl in Mexico. Read the other articles of the investigation here and the full report here.

Mexico’s Ministry of Agriculture and Rural Development, which first reported the news in a press release, did not specify what was said to the inspector over the phone, but the words were enough for the US government to abruptly halt avocado exports until further security measures could be enacted. 

Panicked by the possibility they would not be able to access the huge market of hungry American football fans, the private growers, united through the Association of Exporting Avocado Producers and Packers (Asociación de Productores y Empacadores Exportadores de Aguacate de México – APEAM) since 1997, reached out to their government. Less than a week later, the US government announced that exports had resumed.

In some ways, the case was a warning. Mexican criminal groups exert an enormous amount of pressure on businesses across the country. Avocado-growers, for instance, are regularly extorted based on their acreage and production. 

But in other ways, it was an illustration of how trade can be a useful leaver to press Mexico’s security forces into action. When pressed and suitably motivated by the private sector, the Mexican government could act in the face of a criminal threat. 

In that way, the avocado example stands in sharp contrast to how Mexico is dealing with another threat: the illicit production of fentanyl and methamphetamine. Mexico is the key provider of these synthetic drugs to the United States, where tens of thousands overdose every year, especially on fentanyl. The effects of this trade are also experienced in Mexico. Violence over the control of these markets contributes to tens of thousands of homicides and disappearances, while the country is increasingly experiencing public health constraints due to growing domestic consumption.

Yet, the efforts to slow diversion of the chemical substances used to make synthetic drugs in clandestine laboratories have, so far, not been effective, and illicit producers continue to access them with relative ease.

“We usually get the chemicals from companies in Mexico, which have all the permits to access them,” said one of many methamphetamine producers in Michoacán who spoke to InSight Crime, expressing a common sentiment during the two years we studied precursor chemical flows through the country.

SEE ALSO: Beyond China: How Other Countries Provide Precursor Chemicals to Mexico

Given the mutability of methamphetamine and fentanyl and the relatively small amounts of chemicals required to produce them – several of which have various legal uses – the Mexican government would need to receive industry help to regulate the substances or else enact a fully prohibitionist regime that would disrupt licit trade. 

To avoid the latter option, the private sector should play a cooperative role in the regulation of these chemicals, effectively “co-producing” security and law enforcement benefits. To be sure, public-private partnerships (PPPs) are part of the relative success of the avocado industry, where the growers, the Mexican government, and the US government all work in concert to mitigate security risks.

And in a variety of worldwide circumstances, the private sector and government have worked together to fight elements of transnational organized crime that endanger lives and the licit economy, using best practices for PPPs, some of which are outlined below. 

Still, similar efforts that might mitigate the negative impact of synthetic drug trafficking have yet to have any real impact. And – according to numerous industry sources, government officials, multilateral experts, and business experts who spoke to InSight Crime on condition of anonymity given the sensitivity of the topic – until both Mexico’s private sector and its government feel a sense of urgency, this existing state of affairs looks set to continue. 

Motivating a Collective Response – The European Example

Urgency comes in many forms. In Europe during the mid-2010s, it came following a series of terrorist attacks in many of their storied cities. One such attack involved sulfuric acid and ammonium nitrate. The chemicals were used to make what Palestinian insurgents once dubbed “The Mother of Satan.”

The Mother of Satan was triacetone triperoxide, or TATP, an explosive powder that terrorists in Belgium manufactured in an empty apartment building in a middle-class neighborhood in Brussels in preparation for a series of suicide bombings in the city’s metro and airport on March 22, 2016. The attacks killed 32 people. 

The terrorists had purchased some of the chemicals locally, a pattern seen in other high-profile attacks between 2015 and 2019 in Paris, Brussels, Manchester, and Lyon, with homemade explosives believed to come from local hardware stores and other innocuous purveyors.

Following the terrorist acts, the European Union (EU) worked diligently to create a common threat assessment regarding precursor chemicals used to create bombs. To start, the European Commission held an Open Public Consultation, which received input from industry and academic groups, including the European Chemical Society.

In 2019, following this consultation, the EU passed wide-ranging regulations of such chemicals, amending less-stringent ones enacted six years earlier. The reforms relied on strengthening the distinctions between professional users and the general public when it came to availability of materials; requiring that transaction data be kept for a long time given patterns of delay in bomb making; and including online marketplaces and the “dark web,” among other changes. 

The EU Commission also created a Standing Committee on Precursors composed of member states and industry associations to help with implementation of the new rules across the EU’s multiple jurisdictions. Reporting requirements now include the responsibility to determine if an intending customer was acting in a “suspicious” way by purchasing material they did not seem to understand, in quantities that were “uncommon for legitimate use,” or was unwilling to provide their proof of identity. National contact points with 24/7 availability were mandated to manage industry reporting of such customers. 

Despite the inconveniences of having to accede to new regulations, including these significant reporting requirements, the companies appear to have bought into the program, even in countries that are not part of the EU. One Norwegian food export company, for example, highlighted the EU’s reasoning on its website, noting the new legislation’s goal of keeping dangerous materials out of the hands of terrorists and the company’s intention to comply through appropriate reporting as a part of the supply chain.While a variety of factors can explain the phenomenon, the number of terror attacks – and, within those, bombings – has since declined, according to the 2023 European Union Terrorism Situation and Trend report. What’s more, terror groups are advising each other online, according to the report, on how to try to evade the restrictions on bomb precursors.

Collective Action, Positive Incentives, and Toolkits  

Successful PPPs require more than just motivation regarding earnings and reputation. In order to be sustainable over time, both parties must provide benefits and incentives that keep each other engaged.

For instance, activists and government regulators worldwide have found that anti-corruption efforts engaging the private sector need to take a “collective action” approach – defined as one where all private participants in an industry seek and agree to act in concert. This is imperative since, as the United Nations Office on Drugs and Crime (UNODC) notes in a workbook on corruption, the “prevailing sentiment is that if one company does not bribe, the competitors will.” 

That zero-sum sentiment was at least part of the challenge the United Kingdom had to overcome when the government created the National Economic Crime Centre (NECC). Established in 2018, the NECC is intended to coordinate and amplify the combined efforts of several government ministries and the private sector to combat organized economic crime, protect the public, and safeguard the “prosperity and reputation of the UK as a financial cent[er].”

The government sold its efforts by pointing to rising levels of economic crime, as well as highlighting the importance of maintaining the UK’s reputation as a safe and respected international banking hub. This task force concept includes working together to prioritize investigations, both civil and criminal, to achieve maximum positive impact on the sector. 

As an example of its work, in April 2023, the NECC was part of a coordinated effort by the government and the banking industry to establish new procedures protecting banking transactions taking place at post offices. The NECC was also instrumental in Operation Henhouse, a set of massive fraud seizures in May 2023. 

In other cases, companies took collective action because of a threat from the state. In Argentina, for example, government inspectors were eliciting bribes from shipping companies to clear them from an arduous inspection process. Refusing to pay could cost the companies tens of thousands of dollars a day in lost revenue, as the inspectors had the power to simply delay unloading the cargo. According to the organization that unearthed the corruption scheme, the Maritime Anti-Corruption Network (MACN), as much as $30 million per year was paid to corrupt inspectors and their accomplices.

In response, MACN partnered with a local organization to investigate the root cause of the problem, which included dozens of interviews with stakeholders and government officials. It then devised a solution – a modernized, transparent process that was less discretionary – and the means by which it could be implemented. In all, the process took three years but resulted in a new regulatory framework that was collectively implemented by private and state actors alike.   

Positive incentives are also important. Tax breaks, reputational boosts, or consumer enhancements like the highly influential US Environmental Protection Agency’s “Energy Star” certification for energy-efficiency, applicable to a range of items like buildings, appliances, technology, and lighting, can be the difference between widespread buy-in and a floundering government-led PPP-initiative.

Governments have their own positive incentives to seek partnerships with the private sector. A PPP can help diversify and pinpoint the enforcement toolkit, such as using technology which may be more advanced within an industry than the government. This is the case with efforts to fight human trafficking worldwide. The UNODC, for example, has noted that private companies have the capacity to address labor trafficking and exploitation by better oversight of their supply chain and procurement processes. And the US Chamber of Commerce underscored the important role in fighting human trafficking played by the group “Truckers Against Trafficking,” convenience store owners, and Uber drivers. 

One of the most promising examples of this type of multi-sectoral task force happened in Mexico following a UNODC-hosted Regional Experts Group Meeting in 2020, which brought together governments, banks, NGOs, transportation, and technology representatives. Since that meeting, Truckers Against Trafficking has partnered with the Mexican government, the Mexican trucking association, and a Mexican non-governmental organization, Consejo Ciudadano, which runs the national human trafficking hotline and a project known as Guardianes del Asfalto, to provide training to drivers of trucks and taxis. Truckers Against Trafficking and Guardianes del Asfalto also received a commitment from the national bus association to launch a major public awareness campaign at bus terminals throughout Mexico.

How PPPs Work – or Don’t – in Mexico

In Mexico, PPP arrangements exist in many areas, such as international trade, consumer safety, and infrastructure, constituting efforts to “co-create” public goods of prosperity and citizen protection against violence, illegal trafficking, and corruption. These partnerships often falter, however, due to systemic national weaknesses. Private backers of political parties and candidates often have anti-regulatory agendas; initiatives face issues of sustainability during total political changeovers removing government figures whose personal contribution was vital to the PPP dynamic; and some in Mexico resist seeing the role of policing illegal activities as anything other than the job of the government.

Many Mexican private sector actors told InSight Crime that their business compliance responsibilities are managed by multiple government partners, sometimes at bureaucratic war with each other, making cooperation nearly impossible. Without a coordination mechanism or single point of contact for inquiries, government entities may end up issuing multiple regulations on the same private businesses, failing to keep up to date on the concerns or proposed solutions suggested by industry, or ignoring the problem because the responsibility is formally designated elsewhere.

In this regard, the avocado industry may be the exception to the rule. There are several reasons for this. To begin with, there are clear incentives. The avocado industry creates almost 400,000 direct and indirect jobs in Mexico and accounts for billions in trade.

There are also clear goals. The chapter on phytosanitary measures in the United States-Mexico-Canada Agreement (USMCA), for instance, includes an up-front set of definitions of the common goal among the trade agreement parties that justifies the extraordinarily tough and detailed regulations which follow: to “protect human, animal, or plant life or health in the territories of the Parties while facilitating trade between them.”

The regulations are backed up by a program of extraterritorial enforcement by US Agriculture and Plant Health Inspection Service (APHIS), which is paid for by a $0.04 per kilogram export tax, Jesús Moreno, a member of the Mexican avocado industry’s trade organization, told InSight Crime. 

There is also strong local participation in the process. Moreno noted that there is an active working group, which facilitates communication between the industry and the government, informing the industry about changing regulations under the USMCA (for example, regarding fertilizer use) – though in fact, the industry is often more up to date than the government. 

Finally, the Mexican government and industry work closely to mitigate security issues affecting APHIS inspectors and farmers in Mexico, the importance of which was demonstrated by that brief pre-2022 Super Bowl trade shutdown by the United States.

PPPs have tackled difficult security problems in other parts of the country as well. Businesspeople in many of Mexico’s major cities, for example, have participated in a range of “mesas de seguridad,” or security working groups, along with municipal government counterparts, using joint action to push back dangerous levels of crime threatening lives and the economy. 

Examples include the Todos Somos Juarez effort of the early 2010’s; the Monterrey business community’s support from 2011 of the Fuerzas Civiles (including successful efforts to recruit police from cities throughout Mexico); Alto a Secuestro efforts in Guadalajara; and on-and-off again working groups in Tijuana, begun in 2008, and recently restarted in April 2023. 

SEE ALSO: A Look From Within: Navigating Extreme Violence in Ciudad Juárez, Mexico

Common to these efforts were initially agreed-upon aspects of the security problems to be solved – usually those most visible or upsetting to the wealthiest inhabitants of the city – and efforts by wealthy citizens to unilaterally augment the cities’ budgets. While often effective at first, these efforts face issues of sustainability, including loss of interest by the private sector and the aforementioned turnover in government personnel who had established relationships. 

Other initiatives have also sputtered. For example, Mexico’s efforts at instilling a reporting system under the Credit Law (Article 115) to comply with requirements of the Financial Action Task Force (FATF), the international regulatory body that oversees money laundering compliance, have been a “failure,” according to three anti-money laundering experts in Mexico, including two retired officials from the country’s financial intelligence unit, who spoke with InSight Crime.  

The FATF most recently graded Mexico as having “low compliance” on the requirement of “assessing risks and applying a risk-based approach.” Specifically, the 2023 FATF report noted that countries usually no longer need an “enhanced follow-up” of their technical compliance deficiencies more than three years after a non-compliant grade; Mexico is now in its fifth year of such follow-up, which could lead to being “grey listed” along with other countries who are not meeting their anti-money laundering/countering terrorist financing (AML-CFT) obligations. Grey-listing can have serious implications for Mexico’s cross-border trade, credit, and investment.

PPPs and the Mexican Chemical Industry

As it relates to the chemical industry in Mexico, attempts at PPPs have also largely failed. And sources within the chemical industry told InSight Crime that most efforts to protect companies from diversion and other potentially illicit activities have come from voluntary self-regulation initiatives. 

The National Chemical Industry Association (Asociación Nacional de la Industria Química – ANIQ), for example, requires all of its member companies to conduct due diligence on their suppliers and customers, perform risk assessments, and maintain records demonstrating compliance with national and international standards. However, the government has yet to endorse this scheme or provide positive incentives for non-ANIQ affiliated companies in the chemical sector to participate.

“We hope that a potential endorsement will come along with more trust between the government and our industry,” said a source working in the chemical industry who did not want to be named.

To be sure, based on our conversations with a range of practitioners and observers of the Mexican chemical industry, there appear to be three main impediments for PPP’s to be constructive in the country. First, there’s a stark disparity in how both parties define the problem and perceive its scale. While private industry acknowledges the existence of diversion for synthetic drug production, many companies tend to deflect responsibility, attributing the issue to a minority presumably engaging in illicit activities. 

Conversely, numerous experts, including current and former law enforcement officials consulted by InSight Crime, said the government has predominantly downplayed the issue, shifting blame onto US consumers and chemical companies in China. This obstinance starts at the top: Outgoing President Andrés Manuel López Obrador, or AMLO, as he is popularly known, has denied Mexico is a major producer of illicit fentanyl in spite of widespread evidence to the contrary. 

“It increasingly feels like the door for dialogue with authorities is shut,” said the chemical industry source. 

That door may remain shut for a while. Claudia Sheinbaum, who is running under AMLO’s Morena party banner, is expected to win the June 2 election. So far, she has argued that she will maintain the president’s stance on a number of issues.

Secondly, a lack of trust impacts information sharing, reporting illicit activities, or participating in working groups  with the private sector. Sources in the chemical industry told InSight Crime that workers have been kidnapped, extorted, and threatened by criminal actors, making companies extremely wary of sharing sensitive information about their clients or colleagues with potentially corrupt government entities. The continued lack of coordination among Mexican government institutions, which appear to operate in isolation from each other, also impacts the potential for successful PPP’s. 

In particular, acting and retired government officials consulted by InSight Crime, as well as members of the chemical industry, expressed concern about the Mexican Navy’s leading role in port security due to a lack of  sufficient training and guidance on best practices for handling and maintaining sensitive data. Having a single, civilian, senior point of contact in the government is a best practice that could increase trust; at the very least a coordinating body should ensure bureaucratic coherence.

The third barrier is the perception of overly general regulations and the need for an industry-informed, risk-based approach. Chemical industry representatives claim to be “strangled” by regulations, while noting that those who may engage in diversion can find legal loopholes or operate outside the legal framework altogether. 

SEE ALSO: Mexico’s Laws to Regulate Chemicals Work on Paper But Not in Practice

To address this, several experts consulted by InSight Crime flagged the importance of working with the industry to determine the highest-risk chemicals and most probable methods of illegal importation or diversion, rather than treating all trade as worth regulating equally. Such an approach would also target, for example, shipping companies, customs agents, e-commerce, and small- or medium-sized enterprises most likely to be used as front companies. Businesses could produce risk maps which result in specific chemicals being treated with the same regulatory restrictions used to detect money laundering, while other chemicals should be deregulated if they are not truly harmful. 

A Global Challenge

Mexico is not alone in its struggles to motivate the chemical industry to self-regulate or establish effective PPPs. In spite of the surge in overdose deaths in the United States, authorities in the United States have struggled to promulgate their own PPPs to help them update the regulatory framework for chemical companies. 

The framework explicitly identifies a few specific government points of contact to receive and respond to industry concerns, giving office numbers and contact emails for the Food and Drug Administration (FDA), the Environmental Protection Agency (EPA), the Drug Enforcement Administration (DEA), and the Federal Bureau of Investigation (FBI). But it offers companies few incentives or motivation to act. 

Indeed, a relatively unexplored area of cooperation for the chemical industry and government to fight chemical diversion would be the avenue of creating positive incentives for businesses that are compliant and transparent – a whitelist rather than a blacklist approach. Some tools might be a voluntary code of best practices, business integrity labeling and other public relations practices, a public campaign on the danger of synthetic drugs and the role of business, and tax incentives. 

Overall, this approach would require communication and constructive dialogue, possibly at formalized public-private working groups, without either side branding the other as irredeemably corrupt or non-compliant. It also would require members of the public sector to face negative consequences for not working cooperatively with industry.

Until then, in synthetic drug production zones like Michoacán, the same area where criminal groups were threatening the 2022 Super Bowl guacamole supply chain, independent producers will have few problems sourcing their chemicals on an international or local level.

When we asked one clandestine producer during a recent visit to the area where he got his raw materials to make methamphetamine, he blurted out his supplier’s name – it was a medium-sized Mexican company about 300 kilometers away.   

*Steven Dudley, Victoria Dittmar, Sara García, Parker Asmann, Jorge Lara, and Jaime López contributed to the reporting of this article. The findings are also based on consultations with a group of experts including members of the chemical industry, academics, NGO representatives, officials from multilateral agencies, diplomatic staff, and active and retired Mexican government officials.

The post In Battle to Slow Precursor Chemicals in Mexico, Public-Private Partnerships Are a Path Not Taken appeared first on InSight Crime.

Significant methamphetamine seizures in Europe demonstrate how Mexican criminal organizations are expanding their transit points and circle of clients into more lucrative markets.

On May 16, the Spanish National Police reported that agents had dismantled a drug trafficking network and seized 1,800 kilograms of methamphetamine in the Valencian Community, Spain.

SEE ALSO: Methamphetamine Traffickers in Mexico Become Global Wholesalers

The five arrested include one person allegedly associated with the Sinaloa Cartel and four transporters, reportedly hired to move the product to other European countries.

“The main supply point for synthetic drugs in European territory, which operated from Tenerife, Madrid, Valencia and Alicante, has been dismantled,” authorities announced in a press release.

There have been similarly large seizures in other European countries recently. In February, Irish authorities seized 500 kilograms of methamphetamine in the port of Cork, also allegedly linked to the Sinaloa Cartel, and bound for Australia as the final destination.

In 2020, authorities found 1.5 tons of Mexican methamphetamine trafficked to Slovakia via Croatia, and in 2019 a similar shipment of 1.9 tons was seized in Rotterdam. 

Then in 2021, Spanish authorities and Europol dismantled a drug trafficking network operating in Spain and the Netherlands, which was accused of trafficking 2.5 tons of methamphetamine and 1.3 tons of cocaine. According to the investigation, the shipment was linked to Mexico’s Beltran Leyva Organization in an attempt to generate European demand for methamphetamine. 

InSight Crime Analysis

Mexican methamphetamine has made strong inroads into the Oceania market in recent years, making Europe a valuable transit point and a potential market for expansion.

In April, the Australian Federal Police (AFP) estimated that, for the first time, North American methamphetamine production, the vast majority of which comes from Mexico, surpassed that of South Asia. 

“The AFP estimates that at least 70% of the Australian methamphetamine market is currently supplied from North American production sources,” reported a police statement.

SEE ALSO: Size and Scope of the Meth Industry in Mexico

Between 2022 and 2023, the AFP and its foreign partners seized more than 23.6 tons of methamphetamine produced in North America destined for the Australian market. Of this amount, 4.36 tons of methamphetamine were seized in Australia and 19.33 tons abroad, including European countries.

Driving these operations is a significant price differential. While a kilogram of methamphetamine sells for as little as $656 in Mexico City, according to Australian intelligence sources, and for $5,000 in the United States, the price can reach $20,000 in European countries, and up to $190,000 in Oceania.

Europe has increasingly become one of the favored routes for methamphetamine bound for the lucrative Oceania market, according to reports from EMCDDA, Europol, and the DEA. 

Methamphetamine use in Europe has also increased slightly in recent years. EMCDDA’s wastewater analysis revealed that two-thirds of the 59 European cities studied in 2021 and 2022 saw an increase in methamphetamine waste.

But the demand for other drugs such as cocaine or amphetamines, another less potent stimulant, remains much higher, and the methamphetamine market remains very small, UNODC research officer Thomas Pietschmann told InSight Crime. 

“Europe is still a continent of amphetamines, not methamphetamines, but the proportion of methamphetamines has been increasing,” he added.

Most of the methamphetamine sold in the European Union is produced in European countries such as Holland, Belgium or the Czech Republic, creating competition for the Mexican product. 

Although an increase in consumption would not necessarily imply a change in the European criminal landscape, it could offer new business opportunities for Mexican wholesalers.

“If there is a growth in demand for this drug, it seems more plausible to me that there will be a growth in local production and/or a growth in imports, but in the hands of European groups that are already bringing in, for example, cocaine,” Damian Zaitch, an associate professor at Utrecht University, told InSight Crime. “Both can continue to coexist.”

*Marío Saiz contributed to the reporting of this article.

Featured image: Spanish National Police display part of the 1,800 kilograms of methamphetamine seized on May 16. Credit: Manu Fernández / Associated Press.

The post Mexican Methamphetamine Increasingly Moving Through Europe appeared first on InSight Crime.

Mexico’s extradition of a chemical broker to the United States marks a significant step against these middlemen, who occupy an essential but often overlooked position in the synthetic drug pipeline.

In early May, Mexican authorities extradited Francisco Pulido Coracero, alias “Don Puli” or “Pepino,” to the United States. He is accused of acting as a broker of precursor chemicals and other chemical substances used to produce methamphetamine. Don Puli is allegedly part of the Algredo broker network, whose clients include the Jalisco Cartel New Generation (Cartel Jalisco Nueva Generación – CJNG) and other criminal organizations in Michoacán.

SEE ALSO: How Precursor Chemicals Sustain Mexico’s Synthetic Drug Trade

“Precursor chemicals are the lifeblood of the Jalisco Cartel’s deadly drug trafficking operation,” said Attorney General Merrick B. Garland in the US Department of Justice (DOJ) press release announcing Don Puli’s extradition.

The Algredo network was led by Javier Algredo Vázquez, who was sentenced to 18 years and eight months in prison in February 2024, and his brother, Carlos, who was named as a co-conspirator alongside Don Puli and arrested in November 2023. His extradition to the United States is pending, the DOJ said.

According to court documents from Javier Algredo’s case, the Algredo precursor chemical network provided 1,453 tons of chemical substances for methamphetamine production to Mexican clients, mainly the CJNG, between 2018 and 2021. In addition, it supplied 1,848 tons of substances used to improve methamphetamine potency and a further 44.1 tons of chemicals for fentanyl production, the potent synthetic opioid that is behind thousands of drug overdoses in the United States and Canada.

Don Puli’s links to CJNG leaders in Michoacán, a key state for methamphetamine production, have also been documented by intelligence reports from Mexico’s Defense Ministry (Secretaría de la Defensa Nacional – SEDENA) obtained by InSight Crime. 

The reports allege Don Puli delivered chemicals to Juan Carlos Bañuelos Ramírez, alias “Pistones,” a CJNG cell leader who produced methamphetamine for local and international markets, and José Antonio Arroyo Otuño, alias “Toño,” a leader of a CJNG cell in Apatzingán, Michoacán. In June 2021, authorities seized 350 kilograms of methamphetamine in the town.

Synthetic drugs remain a leading cause of drug-related deaths in the United States and help fan criminal violence and forced disappearances across Mexico.

In its recently published National Drug Threat Assessment 2024 report, the Drug Enforcement Administration (DEA) found that synthetic drugs including methamphetamine and fentanyl were responsible for “nearly all of the fatal drug poisonings” in the United States last year. Over 107,000 drug overdose deaths were recorded in 2023, according to preliminary data released by the Centers for Disease Control and Prevention.

InSight Crime Analysis

Don Puli’s extradition is a milestone in US authorities’ attacks on the synthetic drug supply chain, demonstrating official efforts to target chemical brokers in Mexico as well as individual traffickers and the Chinese chemical producers they buy from.

According to InSight Crime’s open-source research, there have been at least three criminal cases against brokers operating in Mexico, including the one against the Algredo network. While US government sanctions against these networks have been more frequent, their impact has been limited. 

“The United States is expanding its strategy, going beyond the traditional identification of the leaders of criminal organizations and the designation of companies and sanctions against certain individuals,” Dr. Yadira Gálvez Salvador, a professor at Mexico’s National Autonomous University (UNAM) and national security expert, told InSight Crime. “Going further down the network generates pressure on chemical brokers, and this is the critical part of the [supply] chain.”

SEE ALSO: Brokers: Lynchpins of the Precursor Chemical Flow to Mexico

Precursor chemical broker networks fulfill a vital role in the synthetic drugs pipeline, connecting essential substances for the production of methamphetamine and fentanyl from suppliers, often in China, to drug producers in Mexico. Without the chemicals they facilitate, the entire industry grinds to a halt.

As in the Algredo case, these networks often use front businesses in the pharmaceutical or chemical industries, or the import-export business, to obtain chemicals, stockpile them, and then sell them to criminal groups. The volume of chemical products that networks can facilitate means they usually require larger investments into their operations than individual brokers, who only have the capacity to import small amounts of product.

In the past, US authorities have sanctioned several Chinese companies and brokers for allegedly trafficking precursor chemicals into the United States and Mexico.

They have also targeted individual importers of precursor chemicals, such as Ana Gabriela Rubio Zea, who Guatemalan authorities extradited to the United States in July 2023. She is now in US custody, accused of acting as a chemical broker to supply substances to the Chapitos faction of the Sinaloa Cartel and other clients for the production of fentanyl. 

Featured image: Crystal methamphetamine. Source:  National Institute on Drug Abuse. 

The post Extradition of Precursor Chemical Broker Hits Heart of Synthetic Drug Trade appeared first on InSight Crime.

In 2021, Mexican authorities captured an Asian-Mexican businessman at a Mexican port and seized 23 tons of drugs. The shipping manifest said the businessman was importing “calcium chloride,” but lab results later showed that part of the cargo was fentanyl, the deadly synthetic opioid responsible for tens of thousands of overdoses per year in North America. 

Authorities said they also found cocaine, marijuana, and methamphetamine, as well as other types of unspecified items. And although they did not disclose the amount of each drug they seized, investigators from Mexico’s Financial Intelligence Unit (Unidad de Inteligencia Financiera – UIF) said the network included the businessman, his wife, his daughter, and a series of associates spread across a wide geographic swath.

The businessman was part-owner of a women’s handbag company, as well as two other companies, which the UIF identified simply as company X and company Y. Red flags went up because the handbag company had no employees on its payroll, and between 2015 and 2016, it registered close to $140,000 in deposits, 98% of which were connected to currency exchange operations.

*This article is part of a two-year investigation that tracked the supply chain of precursor chemicals that aid in the production of methamphetamine and fentanyl in Mexico. Read the other articles of the investigation here and the full report here.

Intrigued, the UIF dug further and found that the handbag company had also “coordinated the shipment” of 16 tons of precursor chemicals to an “agro-industrial company.” The agro-industrial company, they found, had three owners, who the UIF believed were front-people working directly with the Asian-Mexican businessman. 

In all, the UIF tracked hundreds of check and cash deposits, as well as hundreds of withdrawals and transfers among and between these different companies in what authorities believed was an effort to shield their illicit imports and launder their proceeds. 

Eventually, they filed charges against the trafficker, his wife, his daughter, and the three third-party owners of the agro-industrial company. They also shut down the companies and seized the assets of 51 bank accounts associated with them.

This should have been a landmark case in Mexico. The problem was that the case was not real. It was part of a case-study, or what they called a “typology,” that the UIF was using to illustrate money laundering related to the synthetic drug industry. 

The irony is that — while this case appears to be based, at least in part, on a real investigation — Mexican authorities have never identified any money laundering cases related to synthetic drugs or precursors in Mexico, according to our public records requests and interviews with officials. Nor were there any cases that had led to asset seizures or forfeitures. 

“I checked everything,” a source in the Attorney General’s Office told InSight Crime in a text message. “There is not a single case.”     

On one level, the dearth of cases is stunning. The United States has been pressuring Mexico to focus more on slowing the flow of illicit synthetic drugs, above all fentanyl. And targeting the flow of money to pay for precursors, as well as the proceeds that synthetic drugs generate, would appear to be an important priority for US investigators, especially given the drug flows emanating from China, the world’s preeminent chemical supplier. Since 2008, the United States has spent over $3 billion in training and equipping Mexican authorities, including helping to stand up the UIF.

But on another level, it has become commonplace for the current Mexican government to downplay the impact of synthetic drugs at home and abroad. While the Attorney General’s Office has publicly recognized the problem, President Andrés Manuel López Obrador and the head of the Ministry of Public Security have consistently denied that fentanyl is produced clandestinely in Mexico, despite ample evidence to suggest otherwise. The government has also downplayed the rising use of synthetic drugs in Mexico, particularly methamphetamine, but also fentanyl.

That attitude seems to have permeated other institutions. In its most recent annual risk report — issued in November 2023 — the Finance Ministry did not highlight any concern regarding the flow of money for precursors, fentanyl, or methamphetamine, or the proceeds obtained therein. 

It was as if the problem did not exist. 

Don’t Follow the Money

It is an overused axiom to say authorities should follow the money. However, the money, in the case of precursor chemicals, is relatively small. 

InSight Crime estimates that synthetic drug manufacturers in Mexico produce a maximum of 4.5 tons of pure fentanyl every given year, and a maximum of 434 tons of methamphetamine to meet the demand of the US consumption market. Based on our interviews with fentanyl and methamphetamine producers in Sinaloa and Michoacán, we estimate that the costs of the chemical substances required to produce these quantities run between $9 million and $22.5 million for fentanyl, and between $83.3 million and $126.5 million for methamphetamine.

Net earnings from synthetic drug sales are also relatively small. InSight Crime estimates the wholesale market for fentanyl in Mexico is between $15.7 million and $40.5 million; the wholesale market for methamphetamine in Mexico is closer to $330 million. Once these drugs cross the border, the prices go up significantly — between $27 million and $67.5 million for the US wholesale fentanyl market; and up to $1 billion for the US methamphetamine wholesale market — but not in relative terms compared to other criminal markets. For example, Mexico’s National Institute of Statistics and Geography (Sistema Nacional de Información Estadística y Geográfica — INEGI) estimates that corruption in Mexico is worth some $700 million. And Global Financial Integrity says criminal activity of all types in Mexico could be worth as much as $62 billion, of which $44 billion may be laundered in Mexico.

Even if Mexico wanted to pursue that $44 billion, it would be difficult. Few governments have the capacity, resources, and stamina to actually do these types of investigations. Even in the United States, where the axiom regarding following the money has been ground to dust, money laundering is not prosecuted often and when it is, few of these cases are related to drug trafficking.

In 2022, the last year for which there is data, the US Sentencing Commission said the US federal courts had prosecuted 1,001 individuals for money laundering. But just 17% of these individuals were charged for laundering proceeds earned from “controlled substances, violence, weapons, national security, or the sexual exploitation of a minor.”

Even big cases that get prosecuted seem to fizzle. In March 2010, Wachovia Bank, which Wells Fargo had recently acquired, paid the federal government a $160 million fine for potentially laundering a staggering $420 billion in drug trafficking proceeds from Mexico through currency exchange centers between 2003 and 2008. But no one from the bank was prosecuted. 

In 2012, the US government levied over $2 billion in fines and penalties from HSBC, a London-based bank, for failing “to monitor” over $670 billion in wire transfers to and from Mexico between 2006 and 2010. And while the company “clawed back” bonuses given to its “most senior AML [Anti-Money Laundering] and compliance officers,” no one was prosecuted.  

In sum, although US agents counted over $1 trillion in potentially laundered funds in that eight-year period, no one saw the inside of a jail cell. 

This problem also arises when investigating precursor chemical flows. A former DEA investigator for Diversion Control, who spoke to InSight Crime on condition of anonymity because they were not authorized to speak, said that financial analysis was almost always done in a reactive way. And when it came to investigating Chinese companies that operate through the dark web or use cryptocurrencies — a mainstay of the precursor chemical and synthetic drug market writ large — US authorities had limited to no visibility.

“It’s like going into a dark wall,” the investigator said.

SEE ALSO: Corruption, Crypto Test LatAm Money Laundering Laws

In Mexico, the record is arguably worse. A 2018 evaluation by the Financial Action Task Force (FATF), an international inter-government watchdog, found that, while the government has a strong AML regime and a good understanding of the threats of money laundering, “it is nonetheless confronted with significant risk of money laundering,” stemming principally from organized crime-related activities. 

Specifically, the FATF noted that the UIF — the intelligence agency responsible for identifying anomalies in earnings statements, financial transactions, company registries, and other means of obfuscating or camouflaging illicit — was not generating a sufficient “volume” of information for the Attorney General’s Office, the government body responsible for carrying out the judicial inquiries. 

For its part, the Attorney General’s Office also came up short. According to the FATF, money laundering “is not investigated in a proactive and systematic fashion, but rather, on a reactive, case-by-case basis.”

The result is the above-mentioned dearth in investigations. Between 2013 and 2016, the FATF cataloged 339 cases. Of these, 103 resulted in the conviction of just 53 people. 

“The figures call into question the effectiveness of investigations,” the FAFT wrote, perhaps understating Mexico’s glaring shortcoming in its efforts to follow the money. 

Money Flows to China: The Prevalence of Cryptocurrencies

One positive the FATF noted in its 2018 report was the UIF’s cooperation with foreign governments in their investigations. At least one of these investigations, a US-led prosecution of a China-based clan, offers a glimpse of how multi-layered synthetic drug networks buy precursor chemicals from China.

In 2018, the US government filed a lengthy indictment against Fujing Zheng and his father, Guanghua Zheng, who are at the top of what it called the “Zheng drug trafficking organization” (DTO), outlining the network’s activities across the globe. The network advertised “custom synthesis” of chemicals and synthetic drugs, and the regular export of at least 36 synthetic drugs and precursor chemicals, including fentanyl, fentanyl analogues, and other synthetic opioids.  

While the indictment did not mention Mexico, Mexican newspaper El Heraldo, citing a leaked intelligence document, reported that the UIF had also investigated the Zheng network.

Through our own research, we found numerous connections between Zheng-owned companies and Mexico. Specifically — via an analysis of supply-chain data using Altana, a company that provides a dynamic map of global supply chains — we tracked one company listed on the indictment, Global United Holdings, that registered small shipments of textiles to two companies in Mexico and one in the United States. 

Another, Shanghai Pharmaceutical Company, which the US indictment identified as the “legitimate face” of the DTO, shipped lab equipment and medical instruments to five different Mexico-based companies, research using Altana shows. This included a vial-pressing machine, a “powder-mixing machine,” pill presses, and chemical mixers. 

Altana’s platform also registered small transactions from another company, Cambridge Chemicals, of bentonite, phosphorous acid, sodium laureth sulfate, and sugar — substances that can be used as essential chemicals or mixers in the production of fentanyl pills — to four Mexico-based companies. 

The indictment briefly mentions the methods the network used to receive money. Initially, payments for the chemical substances and synthetic drugs were made via regular bank transfers, but increased surveillance from the Chinese government over its financial institutions allegedly forced the Zheng clan to switch to cryptocurrencies, such as Bitcoin. 

In and of themselves, cryptocurrency transactions are not illegal, but some of what the Zheng DTO did could be illegal. For example, the indictment claimed it “misrepresented fund transfers and directed customers to misrepresent fund transfers”; it used “structured transactions,” so it would not trip the wires that require institutional and record-keeping safeguards; and it “bypassed Chinese restrictions and reporting requirements on fiat currency entering and leaving” China. 

Our research corroborated some of these patterns, especially those related to the use of cryptocurrency to pay Chinese vendors. Several independent, Mexico-based fentanyl and methamphetamine producers told InSight Crime that chemical vendors in China seemed to prefer cryptocurrency for small-level transactions; the second option was bank transfers. And in our interactions with chemical purveyors on the Clearnet and dark web regarding fentanyl precursors, we found they leaned towards cryptocurrencies, specifically Bitcoin. 

These methods were also evident in a recent series of indictments released in June 2023 by the US Justice Department. In one of the charging documents, prosecutors described a China-based chemical company receiving payments via “cryptocurrency” before sending fentanyl precursor chemicals to Mexico and the United States.  

The June 2023 indictment does not specify which cryptocurrency was used or how the transactions were made, but investigators and prosecutors contacted by InSight Crime said the use of cryptocurrency by criminal networks is evolving. While the Zheng network used Bitcoin and did little to hide these transactions, according to one investigator who worked on that case, more recently criminal networks have trended towards the use of Tether and may be employing applications such as “blenders” or “mixers,” which mix transactions to muddy the crypto trail. 

With a market cap of over $100 billion, Tether is one of the most-traded cryptocurrencies in the world and the most-traded “stablecoin” — i.e., pegged to the US dollar. It is appealing to traffickers for various reasons. In a report published in January, the United Nations noted that Tether had become “a preferred choice for crypto money launderers in East and Southeast Asia due to its stability and the ease, anonymity, and low fees of its transactions.” 

The cryptocurrency is traded in such large amounts, it may also be servicing industrial-sized customers. In April, Reuters reported that Venezuela’s state oil company, PDVSA, was using Tether to sidestep US sanctions. And one investigator, who monitors large-scale illegal drug transactions in the millions of dollars, told InSight Crime that he had noted trading of large amounts of Tether. 

The trading platform may also matter. The investigator cited above said the traffickers were using Tron, a decentralized blockchain-based operating system. It was founded in Singapore and has operational nodes across the globe, with its greatest concentration of nodes in China, according to Messari, a market-research firm. And the investigator said it is an attractive platform for criminal organizations because Tron is mostly based outside the United States and can help them avoid scrutiny by US investigators. 

Another investigator we contacted who had examined the synthetic drug supply chain emanating from China noted that, in addition to Tron, traffickers were using Ethereum, a different blockchain-based operating system. The investigator surmised that this was because the criminal networks would “pay less of a fee” to China-affiliated exchanges such as Binance for these transactions. 

At least one application on Ethereum has faced scrutiny. In August 2022, the US Treasury Department sanctioned Tornado Cash, a blender that was operating on the Ethereum platform. The blender, according to the Treasury Department, facilitated “anonymous transactions by obfuscating their origin, destination, and counterparties.” And in August 2023, the US Justice Department indicted Tornado Cash’s creator, claiming he had facilitated the laundering of up to $1 billion in criminal proceeds. 

This was the second major effort to crackdown on blenders. But the proverbial game of whack-a-mole is difficult, in part because of the decentralized nature of the crypto business. For its part, Tether responded to the UN report, saying it was “disappointed” in the agency’s assessment and that its monitoring systems far surpassed those of traditional banks. It also said it had frozen $300 million in recent months, and in May, the company announced a partnership with the blockchain analysis firm, Chainalysis, to develop a “customized solution” for tracking illicit money flows.

Right Hand Not Talking to the Left

There are many reasons that Mexico has no cases related to financing precursor chemicals or laundering synthetic drug proceeds. It begins with poor data. There are no good estimates, for example, as to the size and scope of money laundering in Mexico. As the UIF itself points out in its National Money Laundering and Terrorism Financing Assessment 2023, “The Mexican State does not have an established methodology or guidelines that allow it to accurately measure the volume of illicit resources generated in the country because producing a document of this nature could contain unreliable variables.”

The UIF does provide statistics regarding criminal complaints — 166 in 2023 — and individuals and entities whose accounts have been included in the “blocked list” — 6,969 individuals or entities and 45,342 frozen accounts, totaling $4.45 billion pesos (around $262 million) in blocked funds as of February 2024. However, it is not possible to know how many of the criminal complaints have resulted in a prosecution nor, per its own admission, what the importance of the frozen funds is relative to the total illegal proceeds that are laundered in Mexico. 

The government’s lack of transparency in these matters has been noted in public forums. The UIF’s opacity has spawned recurrent accusations of political bias, including in Mexico’s Congress. In the same vein, the Attorney General’s Office does not provide money laundering prosecution statistics and does not provide any context for the confiscation of proceeds from judiciary processes in which it is involved — other than asserting that the estimated total value in play for the most recent year it has statistics, 2022, was $1.5 billion pesos (or about $88 million), about a third of what the UIF has blocked. 

But the core of the problem appears to be a conflict between these two key agencies and a discrepancy about how and whether to prosecute money laundering cases at all. While money laundering can be prosecuted on its own, most money laundering cases come with what is known as a “predicate offense.” In other words, there is an underlying criminal act — drug trafficking, human trafficking, corruption, etc. — which leads to the need to launder illicit proceeds. 

In the case of Mexico, these prosecutions are subject to different investigative processes with widely differing objectives and institutional capabilities. While both Mexico’s Anti-Money Laundering Law (AML) and the federal penal code grant significant supervisory and investigative powers to the UIF, it is, in the end, an intelligence-gathering agency. The evidence it has is often raw and related to patterns of misbehavior, which it then passes to the Attorney General’s Office, the entity responsible for prosecuting the cases. 

SEE ALSO: Mexico’s Laws to Regulate Chemicals Work on Paper But Not in Practice

For their part, the Attorney General’s Office has numerous special departments that can continue these investigations. The prosecutors, however, need proof that can withstand judicial scrutiny, which often requires more investigative legwork they are either: not prepared to do; do not have the time to do because of workload and inadequate staff; are paid by corrupt actors not to do; or do not think it is necessary to do since most of their cases already include predicate offenses that can lead to significant prison sentences.  

The result is that few money laundering cases are even prosecuted, and none that we could find are connected to precursor chemicals or synthetic drug distribution and sales. In its 2018 report, the FATF noted solemnly that “financial intelligence does not often lead to launching ML (money laundering) investigations,” noting a significant difference in priorities between the UIF and prosecuting authorities. 

“In view of the serious threat posed by the main predicate offenses, the competent authorities accord far more priority to the investigation of the predicate offenses and scant attention is paid to ML,” the FATF wrote.

The disconnect often plays out in public. In 2020, for example, current Attorney General Alejandro Gertz told Aristegui Noticias that the failure of the Attorney General’s Office in prosecuting cases was that the UIF failed to “provide all the proof.” 

It was as if the attorney general thought the UIF was an adjunct prosecutorial unit.

Money Flows from Mexico

Another US investigation the UIF participated in was against the Zamudio Lerma network. In February 2023, the US Treasury Department sanctioned the network for its role as precursor suppliers of the Sinaloa Cartel. 

The Treasury Department named several Zamudio Lerma family members and associates, as well as a series of companies that provided them with the requisite infrastructure to launder both the precursor chemicals and the proceeds of these sales. This included an import/export company, a pharmacy, a hardware company, and a real estate company. In addition, a Treasury Department sanctions list released in July 2023 named another family member who had been the director of Culiacán’s General Hospital and sanctioned an import/export company called REI Companía Interacional, which, using Altana, we investigated. 

According to shipping records accessed via Altana, REI maintained relations with at least three Hong Kong and China-based chemical companies. One of these, Tai’an Herris Chemical Co., Ltd., sent 192 tons of n-methylformamide, a dual-use substance that is heavily regulated because of its use in the synthesis of methamphetamine. The records show that Tai’an Herris Chemical also sent 9.6 tons of methyl thioglycolate and 21.12 tons of isobutyronitrile to REI between April and October 2020. Another company, Shandong Tai’an Construction Engineering Group, sent at least nine shipments of a total of 128 tons of n-methylformamide, 40 tons of tartaric acid, and 19.2 tons of isobutyronitrile to REI between May and November 2020. All these substances can be used to produce methamphetamine.

Notwithstanding the participation of numerous law enforcement — the FBI, the DEA, and Mexican government agencies — as of publication, there were no known formal charges against any members of the network in the United States or Mexico. 

However, the shipments appear to illustrate an important pattern as it relates to methamphetamine precursors and payments for them: Methamphetamine producers import less regulated pre-precursors and essential chemical substances, and, in these cases, there is little need to obfuscate the chemicals or the payment methods. 

What’s more, payments for methamphetamine pre-precursors and essential chemicals can be hidden amidst large purchase orders that often include many other chemicals that do not have illicit uses.

In fact, using Altana, we found numerous companies in Mexico that follow a similar pattern. For example, one Monterrey-based company, which we do not name because it has not been sanctioned nor criminally charged, frequently deals with Chinese companies that sell controlled substances. And it reported importing 950 tons of methyl chloride in a dozen different shipments, as well as receiving a shipment of 26 tons of acetic acid. The first substance is an essential chemical for methamphetamine production and is not regulated in Mexico. The second is a pre-precursor for methamphetamine and fentanyl that is regulated in Mexico. Aside from these chemicals, the company imported hundreds of tons of other products, including cleaning products, industrial solvents, plastics, and soaps.

From what we can surmise, the payments for these chemicals were most likely done via bank transfers, reported to financial institutions, and did not raise any red flags given the wide swath of chemical transactions embedded in the purchase orders. In sum, when it comes to methamphetamine precursors, neither the shipments nor the payments are going to necessarily trip investigative wires. 

SEE ALSO: Beyond China: How Other Countries Provide Precursor Chemicals to Mexico

But when it comes to fentanyl precursors, we found a different pattern. According to Altana data, beginning in 2020, REI received a series of random shipments that did not seem to correspond at all to their regular business practices.

In one of these, Cameron Sino Technology Limited, sent at least 40 shipments of what it listed as “lithium batteries” and “lithium battery chargers” to REI between August 2020 and March 2023, with the help of a Mexico City-based broker. Other companies listed motorcycle locks, paintings, pet toys, and security locks on the manifests of their shipments to REI.

Government investigators told InSight Crime that these types of random shipments raised red flags because of the possibility that they were mislabeling the items for the shipping manifests and bills of lading. The changes often followed changes in regulations in China. And whereas the stated amounts and weights of the shipped goods remained the same, the names of what was being shipped changed. 

The pattern was particularly true as it relates to fentanyl precursors, and it is a common practice that authorities have identified in other cases, according to InSight Crime interviews with the Mexican navy and retired port officials, as well as per our clandestine interactions with chemical purveyors in China. 

This is, in part, because the amount of precursors needed is much less than what is needed to produce methamphetamine. Thus, disguising the movement of the chemicals in small shipments of random products becomes a simple process. 

Investigators also say the payments for fentanyl precursors are easily hidden amid a sea of random transactions. Aside from cryptocurrencies, as in the case of the Zheng network, the payments move via wire transfers and services like Western Union. 

In some cases, criminal networks may also be trading goods for precursors. For example, José Alfredo Ortega, the minister for Public Security in Michoacán, told InSight Crime in December 2022 that brokers and buyers in the state were exchanging iron extracted from illegal mines on the state’s coast for precursor chemicals. 

“We have identified that iron was sold irregularly to Chinese buyers and, in exchange, they brought in precursor chemicals,” Ortega said.

Two members of an armed group in the town of Aquila, which is located close to the mining region, corroborated this account.

Similarly, a 2022 Brookings Institution report concluded illegal trade in wildlife was being used by Mexican criminal groups as a means to buy precursor chemicals from China, and launder the money in the process. More recently, the Associated Press quoted a Mexican attorney who said that methamphetamine is exchanged in China for precursor chemicals.

Nonetheless, InSight Crime did not find any judicial cases in the United States or Mexico that document these types of payments. To be sure, the transactions, in particular for fentanyl precursors, are so small that they are difficult to track and may not be worth the effort. These micro-economic transactions are even more obscure in Mexico itself, where cash remains king.  

Cash: Still King in Mexico

On a recent hot, sunny morning in Culiacán, Sinaloa, we traveled downtown to an area near one of the city’s main markets. There we saw dozens of young adults sitting beneath umbrellas on the street, just outside the dark-tinted windows of currency exchange houses. In all, we counted 30 on one street alone. As cars passed, they yelled, “Dollars! Do you want some dollars?”

Curious, we approached one to inquire about an exchange. The attendant did not request any form of identification or ask us to sign any documents, as is legally required. Had we proceeded with the transaction, we could have exchanged large sums of cash without any record of it in the banking system. And when we checked the government’s registry to see who of these had an active license to change currency, none of them appeared. 

The street is a reflection of another reality that also makes money laundering and illicit financing difficult to fight in Mexico: the country’s reliance on cash. Cash dominates the financial landscape of Mexico, and its importance continues to grow, rather than decrease. According to Mexico’s Central Bank, as of February 2024, there were about 2.788 billion pesos (around $164 million) in bills and coins circulating in Mexico, a 9.9% increase from February 2023. 

The increase outpaced inflation and also illustrated the continued importance of remittances, which a recent Reuters report said was also becoming a mainstay of money laundering operations of the Sinaloa Cartel. Remittances hit a record $63.1 billion pesos in 2023 ($3.7 billion), a 7.6% increase compared to the previous year, and an 89.5% increase compared to 2018, according to data from Mexico’s Central Bank.

Furthermore, according to the 2021 Financial Inclusion National Survey, 90.1% of Mexicans used cash for purchases under $500 pesos (or $30) and 78.7% for purchases over that amount, with similar trends observed across all regions of the country. Likewise, about half of the population did not have any savings in a bank account or debit cards. 

The laws also favor cash and “analog” methods of payment that are not registered by the banking system. In Mexico, for example, it is possible to conduct large financial operations using cash or precious metals without running afoul of article 32 of the AML law. While there is a threshold for certain types of transactions, such as real estate, it is relatively high (see list below). What’s more, the list does not include transactions for chemicals, which, in effect, means there is no limit for the use of cash in making these purchases. 

Even if one were to assume that there is a high level of compliance and enforcement for article 32 of the country’s AML law — which is unlikely, given the low number of prosecutions — it is clear that the prevalence of the use of cash and the relatively high legal thresholds for cash transactions might significantly reduce the necessity of integrating the money back into the system. 

The implications of this cash flow in the precursor market are clear, especially when you consider the horizontal nature of the marketplace. There are, quite simply, numerous independent fentanyl and methamphetamine producers who import or buy chemicals on the local level. 

These are relatively small transactions when measured in dollars. For example, four fentanyl producers told InSight Crime the investment to set up a production operation was close to a million pesos, or $58,000. Smaller labs could be set up with as little as $11,600, according to another independent producer. 

Once a lab was running, the cost of buying the necessary chemical substances to produce one kilogram of fentanyl was also relatively low: The producers said it would run between $2,000 and $5,000, which could also be paid in cash in Mexico. The cost of 1-BOC-4-Piperidone, the preferred pre-precursor to manufacture fentanyl, for example, could vary between $1,000 to $4,000, according to our interviews with both local producers and our interactions with Chinese sellers — another transaction that could be satisfied via fiat once the chemicals were in Mexico.

The production of methamphetamine implies more costs, especially when setting up a lab, as the quantities are larger and more specialized equipment is required. According to methamphetamine producers interviewed in Michoacán, this can go as high as $157,000. The prices of the required pre-precursors and essential chemicals fluctuate constantly, according to our sources. But over the past year, the necessary substances to produce 120 kilograms of methamphetamine were worth between $23,000 and $35,000. As noted above, something close to these amounts could be paid via cash without tripping any investigative algorithms.

The small amounts that move via fiat also obviate the ability and desire of authorities to track and prosecute such crimes. Two former UIF officials who spoke to InSight Crime on condition of anonymity, said these transactions were simply too small.

“[These numbers] are not at all significant to raise any alarms in the financial system. It goes by unnoticed,” one of the officials said.

The UIF-Typology’s Real Life Twin

On August 27, 2019, Mexico’s Marines (SEMAR) seized over 23 tons of precursor chemicals in the Lázaro Cárdenas port of Michoacán, on the Pacific coast of Mexico. The chemicals arrived on a Dutch cargo ship at the request of Culiacán-based company, Distribuidora Agroindustrial Ocher. 

In its account of the case, Proceso said SEMAR alerted the UIF, which began an investigation in the case. What it turned up looked remarkably similar to the case study — or the “typology,” as they had called it — cited at the onset of this report. 

Like the case study, Ocher was a front company, which was connected to another Sinaloa-based company called Mi Pao, S.A. de C.V., which was also importing precursor chemicals. Both companies were receiving chemicals and machinery from a Hong Kong-based company, according to Altana.

And like the case study, the prime suspect had Asian ties. Proceso said the owner of Mi Pao was Tawainese national, Chiang Li Chun. As it was in the case study, Chun had been arrested in May. In Chun’s case, he was connected to a fentanyl laboratory where authorities found 40,000 counterfeit pills and 14 kilograms of powdered fentanyl. 

A person with knowledge of the investigation told InSight Crime that the UIF eventually froze Ocher’s account. But no other public information is available about any prosecution of those implicated in the case.  

*Jorge Lara, Jaime López-Aranda, Victoria Dittmar, and 穆小姐 contributed reporting to this article.  Fact-checked by Peter Appleby.

Altana supports InSight Crime’s research into precursor chemical flows by providing access to the Atlas, a dynamic, AI-Powered map of global supply chains, as well as to its Counternarcotics Dashboard, an AI-driven model to flag narcotics trafficking risk within global shipment and business ownership data.

The post How Mexico Loses the Precursor Chemical Money Trail appeared first on InSight Crime.

A wastewater analysis has indicated that in Europe, cocaine from South America is now being consumed in smaller towns, as well as major urban areas.

The report, published on March 20 by the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA), is the institution’s latest annual overview of drug residues used to estimate cocaine consumption across participant cities in Europe. This year, the report analyzed results from approximately 90 cities and towns, though several major cities, including London, Madrid, and Berlin, did not participate.

It found that the Belgian city of Antwerp, a vital port for the arrival of drugs from Latin America to Europe, remains the continent’s cocaine consumption capital, while eastern European states — particularly the Czech Republic and Slovakia — continue to dominate in methamphetamine consumption, though that is changing slowly.

The report also looked beyond the European Union for the first time to compare residues at a global level, including cities in the United States and Brazil in its analysis.
Researchers tested the cities’ sewage systems for indications of how much cocaine the population is consuming, which they estimate in milligrams per 1,000 inhabitants per day (mg/1000p/day). 

Wastewater studies measure only drugs that have been consumed, not those that were dumped, João Matias, a scientific analyst at the EMCDDA and one of the authors of the study, told InSight Crime.

“Once inside our bodies, the drug is metabolized. Once excreted to the sewage system, researchers can take samples before the water is treated. We look for the metabolites produced after the use of a specific substance,” said Matias.

Here, InSight Crime analyzes the report’s findings on the increasing prevalence of cocaine and methamphetamine outside of major cities in Europe, as well as new data from non-EU cities.

Disparities Between Urban and Non-Urban Consumption Dissolve

This year, researchers noted that differences in residue readings between urban and non-urban settings in Europe no longer exist, suggesting that traffickers have flooded the continent with cocaine, and it is now available almost everywhere.

“Contrary to previous years, in most countries with multiple study locations, no marked differences were found when comparing large cities to smaller locations,” according to the report. 

Record coca cultivation and cocaine production in nations on the supply side of the cocaine trade have enabled this spread. 

SEE ALSO: GameChangers 2023: The Cocaine Flash-to-Bang in 2024

Authorities in Colombia, the world’s largest cocaine producer, seized 739.5 tons of the drug in 2023, an increase from the 659 tons seized in 2022. Peru saw a 4.4% drop in seizures of cocaine but 53% more cocaine base, while Bolivian seizures jumped by 62%. 

The Colombian government’s announcement in March that it would reduce eradication efforts to 10,000 hectares, half of 2023’s target, is likely to see coca cultivation increase still further this year.

Even with these record seizures in Latin America, seizures in Europe also continued to climb. Europe’s traditional entry points — Belgium, the Netherlands, and Spain — all increased their seizures. Sweden and Russia, countries not known for receiving cocaine, saw large single seizures of 699 kilograms and 460 kilograms respectively, while Norway made its largest-ever cocaine seizure of 800 kilograms.

The report also found that cocaine residues have doubled since 2011 among the seven cities that have participated in the study each year.

From 2011, the daily value of cocaine residue across Antwerp in Belgium, Zagreb in Croatia, Milan in Italy, Eindhoven and Utrecht in the Netherlands, and Castellón and Santiago in Spain, rose from 341 mg/1,000p/day to 747 mg/1,000p/day in 2023. Last year, the rate in these cities was slightly higher, at 800 mg/1,000p/day.

The increase in consumption is “definitely related to the increased availability [in Europe] and the increased production of cocaine in South America,” Matias said.

Methamphetamine’s Slow Spread

The report also found that methamphetamine use has spread into new areas of the continent, while seizures of the drug both in Latin America and Europe have made the news.

“Methamphetamine use, generally low and historically concentrated in the Czech Republic and Slovakia, now appears to be present also in Belgium, Cyprus, the east of Germany, Spain, the Netherlands, Turkey and several northern European countries,” said the report. However, overall, the study found that the amount of methamphetamine consumed remained stable.

“One of the highlights of last year’s report was that we were seeing an increase in methamphetamine use over most of Europe,” said Matias. “This year we found use in many countries, but we didn’t see the same increase in use we saw in the previous years.”

SEE ALSO: South America’s Cocaine Supply Boom Shows Up in European Wastewater Analysis

Methamphetamine, a synthetic drug, has traditionally been supplied to the European market by local actors, including in the consumption heartlands of the Czech Republic and Slovakia.

However, in 2019, multiple arrests of Mexican or other Latin American methamphetamine cooks in the Netherlands and Belgium suggested that the “Mexican method” — the production of methamphetamine used in Mexico which produces a high-quality drug — was being learned by European producers. Since 2019, there have been no other arrests, implying that a transfer of knowledge has taken place.

The vast majority of methamphetamine production in Mexico usually takes place in the northwestern state of Sinaloa, and is then trafficked to the United States. Significant amounts of methamphetamine have arrived to European shores recently, though the majority was intended for onward travel.

In February 2024, Ireland made its largest-ever methamphetamine seizure of 546 kilograms, worth some $35 million. The drugs had come from Mexico and were on their way to Australia, police said. The shipment was traced back to the Sinaloa Cartel.

At the beginning of September, Mexican authorities discovered 20 tons of suspected methamphetamine aboard a ship in Veracruz, on Mexico’s Atlantic coast, according to a press release. The ship was headed for Rotterdam, the Netherlands.

Non-EU Cities Rival European Cocaine Habits

For the first time, the EMCDDA report included wastewater results from non-European Union cities. Cities in the United States, Switzerland, and Brazil “show similar levels of use as the cities in Europe with the highest loads,” found the report.

Seattle in the United States recorded a daily mean of 647 mg/1,000p, while Geneva in Switzerland recorded 812mg/1,000p. The northeastern Brazilian city of Recife had a daily mean of 670 mg/1,000p.

These results are around the same as European cities like Utrecht (744), Paris (616), and Barcelona (619), but still far below the big hitters like Antwerp (1,722), the highest of all participant cities by a distance, or Amsterdam (1,210).

While cocaine consumption may be entrenched in many regions of the world, Oceania remains relatively untouched, according to residue findings. The daily mean of 102 mg/1,000p across Australia’s 55 sites suggests a dearth of the drug, and provides plenty of reasons for organized crime groups to continue, and perhaps even increase, their attempts to move cocaine to this untapped market.

Featured image: Lines of cocaine. Credit: EuroNews Health

The post Flood of Cocaine Spreads Beyond Europe’s Cities, Wastewater Shows appeared first on InSight Crime.

We were in a remote city in mainland China, also referred to as the People’s Republic of China, when we met Wang.* Wang is short and has a protruding belly that on that day stretched the buttons on his brown, Louis Vuitton shirt. His jewelry shop is tucked away in the lonely recesses of the city. Given the location and timing — China was still living under the government’s strict COVID-19 pandemic restrictions — we did not expect much fanfare. 

But inside, we noticed a plethora of treasures from what could have been a lost pirate ship’s booty — among them, a few random emerald rings, a pair of diamond bracelets, and a dusty gold ring with a sapphire square embedded in it. 

Baffled by these treasures, we asked Wang if he would mind sharing the secret of his success. He stopped and looked at us.

*This article is part of a series of investigations into the flow of precursor chemicals for fentanyl and methamphetamine production in Mexico. Read the other articles of the series here.

“Do you smoke?” he asked, pointing to a big tobacco jar on his desk. 

We nodded. He rolled a thin, tightly wound cigarette. Then, with a Cheshire grin, he guided us toward the backroom of his shop, where we smoked, and he told us he was connected to an organization that specialized in a peculiar form of debt collection, which he called, zhengyi fuchou (正义复仇). Roughly translated, it means divine justice. 

We probed further — perhaps he could elaborate on this “divine justice”? 

But he ignored our questions. Instead, he started talking about the intricate web of legal and covert businesses that had sustained him during the pandemic. From fish markets to tea shops to construction sites, Wang had a remarkably diverse portfolio. It was able to sidestep the Chinese government’s strict COVID sanctions in part due to what Wang claimed were his high-level contacts in the government. 

These contacts had also opened the door for him to plunder others of their wealth. Wang bragged that the treasures we’d seen at the entrance, for instance, were once the property of high-ranking political elites who’d been imprisoned during President Xi Jinping’s anti-corruption sweep. For Wang, this was divine justice.

“Many people wish to have a piece of the big cake, especially from the ‘tigers and flies’ (老虎苍蝇),” he said, referencing a term used by Xi Jinping to describe allegedly corrupt elites.

The revelations left us stunned, but Wang was just getting started. Many of his regional associates, he said, had vested interests in illegal enterprises. He hinted that their products had a local reach and an international footprint, peddled to clients across the globe.

“Have you dealt in chemicals?” we asked. 

“More than that, but yes, chemicals also, very profitable,” he responded in a jumpy, declarative way. 

Still, Wang claimed he had no first-hand involvement in the industry, seemingly wanting to maintain a cautious distance from what he knew to be a touchy international topic.

That was because the Chinese chemicals in question are the chemical precursors for fentanyl, among many other synthetic drugs. Those ingredients are sold in large quantities from China to criminal operators in places like Mexico, where fentanyl is produced clandestinely in massive amounts. It is then laced into counterfeit pills or kept in powdered form, before being trafficked in considerable quantities north to the United States, where tens of thousands of people overdose on the drug per year.

The fentanyl market, and China’s role in it, has helped disrupt bilateral relations between the United States and China, and as we talked, Wang remained cagey. But he kept alluding to a sprawling black market within China, a shadowy industry filled with well-connected individuals and covert chemical enterprises, some intricately linked to local governors and prestigious academic institutions.

“Some of my friends do it,” he said, referring to the sale of highly regulated chemicals. “But it’s too complicated and costly to start that business. You have to be really connected, [and have] very good guangxi (关系),” he said. 

Guangxi means a lot of things in Chinese. But in this case, it means corrupt or high-level connections that can provide extra-legal protection and contacts, all of which makes a grey-market business like precursor chemicals hum.

The Dark Web

Piqued by our visit to the jewelry shop, we began to see if we could find anyone with knowledge of the precursor chemical market. Soon, we got a tip from what would be our first anonymous source. The source pointed us to the dark web, where anonymity cloaks buyers, sellers, and their transactions. Not surprisingly, it is a hub for numerous underworld products, including illegal drugs, highly regulated chemicals, modified weapons, and stolen credit cards, among other goods. 

Our initial mission was to unearth suppliers shipping precursor chemicals from mainland China, which excludes Hong Kong and Macau, that were destined for Mexico. Using the information from our source, we began poking around chemical supply sites. Posing as a buyer from Mexico, we accessed the dark web via Tor. 

Tor is a browser that allows for anonymous communication and it is the most common form of accessing the dark web. Once open, we did a series of searches with the word “fentanyl.” Eventually, one of them popped up with a product identification number. When we clicked on this site, it brought us to MicroDroper.

From the shipping information on their website, MicroDroper appeared to be a China-based distributor. It seemed to permeate all corners of the dark web and the dark web’s most notorious sites, such as Nemesis, Tor2Door, and RoyalMarket. These websites act like Amazon with numerous listings, and MicroDroper was among them.

“We are MicroDroper team,” a typical product description read. “7 years in the Dark Market. Over 16k reviews. 100% satisfaction.”  

The company’s inventory boasted a wide spectrum of chemicals, including those earmarked for the production of designer drugs and synthetic cannabinoids, as well as chemicals used for the production of methamphetamine and fentanyl. With over 16,000 transactions at the time we did the research, MicroDroper stood apart from the other sellers. What’s more, it had a devoted following.

“Arrived quickly again! New shipping method with even better stealth,” wrote one buyer.

“Great communication. All aspects handled very well. Highly recommended!” remarked another.  

We spent the next few weeks analyzing the chemical concoctions MicroDroper was selling. This was difficult because, as we found, they use elaborate means to disguise their products. One of these methods is the use of a Chemical Abstract Service (CAS) number. The CAS is standard industry practice. It is akin to a serial number and is used to identify chemical substances and pharmaceutical products. For example, the number 125541-22-2 mentioned in the product description above is the CAS number for 1-N-Boc-4-phenylaminopiperidine (1-Boc-4-AP), a pre-precursor that can be used to produce fentanyl. According to InSight Crime interviews with various fentanyl cooks in Sinaloa, Mexico, in early 2024, this is one of the main substances they use to manufacture the synthetic drug in their clandestine laboratories.

The CAS number is the easiest way to find these chemicals on the dark web and beyond, and it was the product identification we had stumbled upon in our initial search. But while this coded nomenclature has become a hallmark of this shadowy industry on the dark web and on the clearnet, it is often only part of a layered marketing campaign to draw in customers. The companies also combine the CAS numbers with other key search terms they know can garner the attention of search engines. For instance, one distributor we found on the clearnet used the CAS number and the keywords, “Chemical,” “Mexico,” and “US” to draw buyers to their site.

The Sellers

With time, we began to interact online with these sellers. Our interactions with the companies transpired predominantly through encrypted email correspondence, safeguarding our identity and theirs. We also used a Virtual Private Network (VPN) to access the Internet. The usage of a VPN and secure messaging applications is typical in China, where a formidable government firewall exerts strict control over conventional Chinese platforms. The majority of the population is aware that the messaging applications that are permitted, such as WeChat, are under strict surveillance and avoid them. Instead, they use Telegram, WhatsApp, and Wickr, or they use encrypted email services.

Some of these sellers also maintained fictitious identities, and, to endear them to buyers, they often projected kinship and a shared ethnicity. For instance, some adopted Latino names like “Ana Sofía” or “Daisey,” presumably to make us feel more comfortable that we were doing business with Mexican or Latino counterparts.  

Still, to our surprise, the sellers were more than willing to engage. In fact, once we indicated interest in buying precursor chemicals, they provided us with CAS numbers as well as the names of the chemicals they sold that can be used to synthesize fentanyl. They often went to great lengths to ensure that we had the right CAS number and any additional information we needed to find the chemicals.

Relationships stoked, we sent a message to several contacts asking for 20 kilograms of CAS 125541-22-2, or 1-Boc-4-AP, which would give us enough raw material to make roughly 20 kilograms of fentanyl. 

Less than 24 hours later, we had our first answer.

Other sellers sent messages on Telegram, WhatsApp, or Wickr. Some followed these up with phone numbers and messaging application usernames. 

In one instance, we asked about and added a warning to the seller that it was “difficult to pass customs.” We also mentioned that we had a “contact” — in other words, an insider at customs, which could pick up the shipment. Implied was a simple question: Could the seller affect the sale and move the chemical?

The Marketplace

Over time, our communications with MicroDroper unveiled a connection to a chemical company operating under the name The Grateful Chemicals (TGC-RC Chemicals). From the information we could gather via the clearnet and dark web searches, TGC-RC Chemicals was a Chinese company that produced everything from opioids to psychedelics and stimulants. On its website, the company listed many of the same chemicals that we had seen MicroDroper selling.

TGC-RC Chemicals, we later found out, was based in mainland China. According to their DarkNet Trust, a registry for dark web vendors, it had been a member since December 2019. To be sure, its website, which was riddled with cryptic codes and enigmatic names, served as a crucial gateway for further explorations into both the dark web and the clearnet.

Within these chemical company websites were detailed descriptions of quantities and pricing structures. The vendors seemed to have a shared look and approach. In the case of MicroDroper and TGC-RC Chemicals, for example, they appear to have a very similar bear logo. Many of them also had similar company descriptions, some of which seemed to have been badly translated from the literal Chinese. 

“A company mainly engaged in high quality pharmaceuticals, agricultural chemicals pharmaceutical intermediaries and other related products research and development and sales for the integration of high-tech enterprises,” one read. 

Over time, we found a network of analogous chemical firms, which used the same conventions as TGC-RC Chemicals: CAS numbers, keywords, and a professional website. One of the companies most responsive to our queries was Wanjiang Biotechnology. Vendors there seemed willing to sell precursor chemicals for the manufacturing of fentanyl to just about anyone, including us. 

Suspicious these overzealous vendors were laying a trap of some sort, we stopped communicating with them. But they kept communicating with us. 

In their follow-up, they peddled more chemicals vital to the production of fentanyl, including N-(tert-Butoxycarbonyl)-4-piperidone (also called 1-boc-4-piperidone), a pre-precursor. This chemical is widely used among clandestine producers in Sinaloa, Mexico, according to InSight Crime’s fieldwork. What’s more, in June 2023, the US Justice Department indicted four employees of a Chinese chemical company, in part, for trafficking this same chemical to the city of Culiacán. The substance was also mentioned in the indictment against Ana Gabriela Rubio Zea, a Guatemalan broker who allegedly arranged chemical shipments from a company in China on behalf of the Chapitos faction of the Sinaloa Cartel.

We also established connections with other sellers and manufacturers. At times, it was difficult to tell them apart. Many enterprises operated through websites facilitating the sale of these chemicals, as well as international shipping. And numerous websites shared identical images, mission statements, and product descriptions, pointing to the possibility that they were either under the same umbrella or managed by the same individuals. 

What’s more, some of these companies had ventured beyond the mere trade in chemical precursors, extending their operations into teaching consumers how to synthesize fentanyl and other synthetic drugs. In fact, a few offered detailed recipes and instructions as part of their sales pitches. 

“Hey friends, here you can buy the very strong old 4f-adb. Since the product is illegal in China what we can offer is the semi-finished product. Here is the instruction how to change the product final product,” one seller wrote, referring to synthetic cannabis products. 

Synthetic cannabis products are illegal in China. But to avoid those restrictions, these companies  sell “semi-finished products.” In sum, the final products are the semi-finished compounds, as well as the recipe, the chemicals, and the laboratory equipment to complete the chemical synthesis. 

“DON’T WASTE YOUR TIME AND YOUR MONEY WITH OTHER KITS FROM OTHER LABS. OUR SCL-KITS IS THE STRONGEST IN THE MARKET AND INCLUDE ALL YOU NEED TO PRODUCE HIGH QUALITY AND STRONGEST PRODUCT!” another seller wrote.  

Before highlighting in red,“You can also buy all the lab equipment needed to finish the product by yourself easily!”

The seller followed with a link that took us to a product listing where they sold lab equipment kits. 

“If you buy this list you will receive safely: Three-necked Flask (glass reaction), Thermostat, Agitator (electric mixer), and Centrifuge,” the website advertising the kit read.

During our research, we did not find any similar kits for fentanyl. However, during field work in Sinaloa, one clandestine producer said he had purchased such a kit for the production of fentanyl from a China-based vendor. 

‘Stealth Shipping’

A striking dimension of these covert chemical companies resides in their meticulous construction of an illusory façade of legitimacy and legality, a veneer effectively captured in the imagery they flaunt and the practices they pretend to follow while doing business. To begin with, they artfully cultivate an image of operating well within the boundaries of the law. MicroDroper, for example, maintained a presence on the clearnet, even while they did business on the dark web. However, some are more duplicitous. For example, a few asserted they had approval from the US Food and Drug Administration (FDA). Yet, upon closer scrutiny, none of these affiliations seem to lead to authentic credentials.

This façade of legitimacy extended to how they said they communicated with potential buyers. In our case, we identified as having a base in Mexico. While the substances they were shipping were often not controlled or were lightly regulated in China, they were tightly regulated in places like Mexico. The difference in the regulatory regimes of China and Mexico gives them some plausible deniability in the event of a seizure. 

However, most of the sellers we dealt with seemed readily aware of the strict regulations in Mexico and did not question us about these regulations. Indeed, they frequently offered to circumvent that system. TGC-RC Chemicals, for example, offered the option to ship their product to multiple addresses for an extra fee. 

This modus operandi corresponds to what we found during field work in Culiacán. One independent fentanyl producer InSight Crime interviewed in September 2023, who imports his own chemical supplies from China, said he rented several properties around Sinaloa or surrounding states where he received precursor chemical shipments.

Other sellers on the internet prominently advertised “stealth shipping” as an option, a service that came at a premium. Still, some added they could not offer any recompense if the chemicals were seized. In fact, some explicitly warned on their websites about the risks involved in shipping to these regions, another indication of their awareness that regulatory and legal frameworks were vastly different in these countries, and that they may be transgressing the law. 

Still, nothing seemed to deter them. In one case, we asked if they had contacts with customs authorities and whether they had “stealth shipments” to avoid detection in customs. 

The same seller also offered to send it via Guatemala. From our investigations, we know that third countries like Guatemala are used as transit points. 

Through our multiple exchanges, we were also able to ascertain that they were willing to entertain all kinds of requests, including bulk orders exceeding 25 kilograms of precursor chemicals for the production of fentanyl. It was as though it were an everyday transaction.  

Checking out was also remarkably similar to most name-brand vendors’ websites. On one chemical website, for example, after adding the items to our online shopping cart, we clicked on the check-out button. On the next page, we could see the product, a coupon code, the option to use a gift certificate, the shipping estimate, and the estimated tax. 

Slide through to see the checkout process.

Perhaps the only major difference between this and name-brand vendors’ websites were the options to pay. Transactions were predominantly done with cryptocurrencies like Bitcoin. After selecting the payment option, it asked us to confirm our order. We clicked, at which point it gave us a Bitcoin QR code to scan.

That is where we stopped.

The Players

With time, we began to make human contact. We met businessmen in underground tea shops, bars, and nightclubs who claimed to own legal and illegal enterprises. As it was online, these businessmen were not ashamed of their economic prowess. They were showing it off.

One of the first people we met went by the name “Fat Man.” He was introduced to us at a bar by the owner. The next day, we met for tea with the bar owner and some of their associates. The meeting took place in what, from the outside, looked like an unremarkable, freshly built condo in an obscure enclave of Fujian province. But inside, it housed a covert tea shop. 

In China, tea time is a ceremony — a ritual to relax and connect with others. But the pouring itself can be a choreographed performance, which reflects Chinese aesthetics, cultural values, and harmony. It is also a way to do business.

The ceremony we saw that day was a delicate dance, from selecting the Fuzhou jasmine tea leaves to the meticulous pouring of water to the graceful presentation of our accompaniments: dried apricots, osmanthus cakes, and an assortment of seeds spread across hand-crafted plates and bowls. 

One man called himself “Master.” He claimed to own various businesses, as well as to being a spiritual and religious guru. He would later give us several talismans, rosaries, and prayer books, to – as he put it – protect us on our spiritual journey.

But he and his associates were also involved in the precursor chemical industry that was supplying these raw ingredients to criminal groups in places like Mexico. The duality was typical in China: tradition and legitimate business facade on the top; grey businesses lurking below. 

In between sips of tea, the men talked about their expansive networks, which reached far beyond the borders of China. They casually disclosed who their acquaintances were in Latin America, some of whom they said lived in Mexico City.

“We have many friends in Latin America,” one remarked. “Business is getting bigger there.” 

“Some of my family members live in Mexico City,” another said. “We do a lot of business back and forth.”

We asked what ties they had specifically with people in Mexico and whether these people also helped with the “international businesses.” 

But like the jewelry shop owner we had met at the onset of this investigation, they ignored our questions. It was typical of the exchanges we had that day. Throughout, the businessmen exhibited a certain level of detachment from the nitty-gritty details of their enterprises. In fact, they asserted their companies were just part of a set of diverse businesses, which included casinos and prostitution in China, and the sale of cheap, Chinese-manufactured goods abroad.  

“Not only chemicals, but many of my friends are also now dealing with a lot of home appliances and other cheap goods,” Master said. “These sell well in Mexico.” 

SEE ALSO: How Fentanyl Is Synthesized in Mexico

Master was wearing a burgundy tunic and orange vest, which separated him from others, who were dressed in athletic leisure wear.

“Some of my family members studied in Mexico, you know?” said another man, in between sips of tea. 

As we began to ask another question, there was a knock on the door. A man got up and opened it, and in walked two women who looked no older than 20. One wore a short, beige, strapless dress and high heels, while the other wore a bright-green dress and tall black boots. They sat down, one in Master’s lap and the other on top of Fat Man. 

“If you want to try some,” Fat Man said to us, stroking the hair of the woman on top of him, his eyes widening slightly and his voice trailing off. 

“You can always try our QR codes,” added Master, taking out his wallet and showing me a sticker with a QR code and an explicit photo of another woman, which appeared almost like a cartoon. 

Everyone on their side of the table was male, and during the conversation they made it clear that women were prohibited from participating in the administration or ownership of these enterprises. In fact, as we were witnessing, women were often reduced to a form of currency offered as entertainment or collateral. Some of these men, for example, said they had supplied women like those in the room to the sons and grandsons of high-level government officials. 

This sordid exchange was portrayed as a method of maintaining guanxi – friendly relations that often result from a corrupt exchange — between these officials’ families and their businesses. The guanxi is part of securing the bǎohùsǎn (‘保护伞) — roughly translated as protective umbrellas, which refers to government officials who use their power to protect organized crime groups in exchange for bribes like sex, promotions, or money.

“I am friends with everyone here,” Master said, as the women got up to serve us more tea. “If you need anything, I know people.” 

The ‘Red Mafia’

During our meeting, Master and his associates explained that having contact with local political leaders meant less scrutiny of their business operations. The quid pro quo was simple: money. The politicians called whenever the municipality needed money. The money made the politician look good and thus move up the ranks in the Chinese Communist Party (CCP). 

These relationships were critical for their businesses, they said. Without them, they could not compete with the state-owned enterprises, which had their own connections and benefits. It seemed like a mutually beneficial arrangement: prosperous businesses thriving under the protection of influential figures, while their political allies reaped the rewards of their success. This alliance, often dubbed the “red mafia,” originates from the upper echelons of political power within the CCP. It strategically exploits common interests and shared benefits for its advantage. 

As long as these businesses continued to generate profits and provided financial support to politicians, thereby stimulating the local economy, ambitious local cadres found opportunities to advance their careers. In return, they leveraged their influence to further empower and protect these enterprises, reinforcing the sway of the black market and the politically connected red mafia. 

“Without guanxi, you are nobody,” one of the businessmen remarked. 

The ripple effect of these businesses extends to local universities. The companies regularly recruited chemical engineers, biologists, and other scientists. Within the intricate web of vendors we engaged with, a distinct subset maintained close affiliations with renowned Chinese universities, notably Zhejiang University and the Shanghai Institute of Organic Chemistry (SIOC). One company, for example, which we found regularly sold precursor chemicals that could be used to make fentanyl, advertised on its website its access to the “analytical facilities” of Zhejiang University and SIOC.

Zhejiang University in the city of Hangzhou is one of the country’s most prestigious universities. The university is highly regarded for its strong emphasis on science, engineering, and technology, and it consistently ranks among the top universities in China. Chinese media often portrays Zhejiang University as critical in advancing China’s scientific and technological prowess. 

Similarly, the SIOC is a prominent research institution in China. It is part of the Chinese Academy of Sciences and has gained international recognition for its contributions to scientific research and innovation. This institute is often seen as a symbol of China’s commitment to scientific excellence and technological progress, contributing to the nation’s reputation in the global scientific community. 

We spoke with numerous students pursuing their degrees at those universities and others. Most of the students did not seem concerned that some of the companies and websites that were courting them may have connections to the precursor industry. To the students, these entities appeared legitimate, offering avenues for financial independence and income to help their elders. 

In sum, the prevailing sentiment was firmly rooted in pragmatism. They recognized that despite these companies not being multinational giants or state-owned behemoths, they presented a viable means of livelihood. 

“As long as I can take care of my parents, especially because they sacrificed a lot for me,” one student told us.  

Economic Lifeline

After the meeting at the tea shop, we kept in touch with a few of the businessmen. Over tea, they shared more tidbits about their businesses and political connections. They seemed proud of their achievements and blissfully unaware of the destruction their chemicals wrought halfway around the globe. 

On one level, it made sense. The Chinese chemical industry is enormous. In 2022, Chinese-produced chemicals accounted for a staggering 44% of all global chemical sales,  according to the European Chemical Industry Council. The ripple effect of these sales in the communities where these companies operate is palpable in China. Put simply, chemical production and sales are lifelines for many provinces and their people. 

SEE ALSO: Beyond China: How Other Countries Provide Precursor Chemicals to Mexico

Those that make precursor chemicals are just a tiny subset of this giant industry. From previous research, we found these companies seemed to be concentrated in the provinces of Hebei, Hubei, and Shanghai. From our more recent research on the dark web, we also found companies in the provinces of Zheijang and Fujian. Specifically, we found companies operating in the Haidian District in Hebei, Hangzhou in Zhejiang, and Xiamen in Fujian. 

The Haidian District, often called the “Silicon Valley of China” due to its concentration of technology companies and research institutions, is in the northwestern part of Beijing and features a mix of residential areas, parks, and cultural sites. When we spoke to foreign government officials, they identified Hebei as the pre-eminent precursor chemical hub.

Located in eastern China approximately 180 kilometers from Shanghai, Hangzhou is the capital and largest city of Zhejiang province. It is a town that blends ancient history and modern development. It has traditional tea houses and temples that sit alongside modern buildings with booming technology and other business offices.

Xiamen is a coastal city in the Fujian province, in southeastern China, across from the Taiwan Strait. Xiamen is a major port city and center for trade and commerce. The city has a rich cultural history due, in part, to its port, which has long drawn people from around the region and beyond.

Hangzhou, Haidian, and Xiamen have a lot in common. Each is doing well economically — Hangzhou and Xiamen, in particular. Each has easy access to ports, which shapes them culturally and economically. And Hangzhou and Haidian are known for a workforce trained at the highest technological and educational levels. 

Perhaps most notably, all three cities are in mainland China, a fact often belied by Chinese officials who have long portrayed the illicit industry as concentrated predominantly within Hong Kong, Macau, and Xinjiang.  

The Port City

Towards the end of our investigation, a business contact invited us to tour his storage space near a major port. It was part of the contact’s keen desire to ensure “client satisfaction” and to dispel any doubts regarding the legitimacy of his business. 

We arranged to meet the owner at a bus station near a major port city in a nearby province. As we walked to the storage space, the owner said we would only be shown limited areas of the business, but that it would include cargo that was ready to be loaded onto a ship. There was no mention of chemicals, and from the outside of the storage area, there was no indication of them. 

However, as soon as we entered, a chemical smell hit our noses. As it turned out, the core of the business consisted of an expansive warehouse with a large laboratory and storage area. The scale of the warehouse was staggering, with hundreds of metal drums filled with chemicals stacked one on top of the other, waiting to be put onto shipping containers. 

The cargo was powdered chemicals. Each metal drum had a 30-liter capacity, our host told us, but most of the powders were either packaged in small boxes or stored in carton drums. He later sent us a photograph detailing the different packaging options.  

As we watched, the workers consolidated the drums into a single container, which was slated for overseas shipment the next day. The drums with the labels were positioned around the perimeter of the container, while unmarked ones were placed in the center. 

It was a fitting end to our quest. Were they doing anything illegal? We don’t know. Maybe they didn’t know either. Maybe that was the point. 

Indeed, it was part of the troubling and disquieting normalization of the business. From prominent businessmen to high-ranking government officials to university students, the overwhelming sensation we got during this journey was one of widespread acceptance and pride that China was providing the world with much-needed chemicals. 

*All the names mentioned in this investigation are pseudonyms.

The post The Synthetic Silk Road: Tracing China’s Grey-Market Precursor Chemical Trade appeared first on InSight Crime.

After a long day of work in the highlands, a coordinator for several clandestine methamphetamine and fentanyl laboratories in the Mexican state of Sinaloa climbed to the top of a mountain to get a cell phone signal.

It was around nine o’clock at night, in early March. A few minutes after arriving, the coordinator received a call from an acquaintance in the city of Culiacán, the state capital. Also on the call was an InSight Crime team member. 

This was the second time InSight Crime had spoken to this coordinator. Previously, he had explained that he worked for various drug production and trafficking networks associated with the Chapitos and Ismael Zambada García, alias “El Mayo,” two of the main factions of the Sinaloa Cartel. In addition to his administrative duties, the coordinator’s role involves maintaining contact with synthetic drug buyers abroad.

Amid interruptions due to a bad signal and motorcycle noises, he explained his take on trends in the international methamphetamine trafficking scene.

“The goal is to send crystal [methamphetamine] all over the world. That’s what’s happening,” he said.

He was referring to Mexican trafficking networks’ ambitions to expand their circle of clients beyond the United States in search of better prices. Several methamphetamine producers and wholesalers interviewed by InSight Crime over the past two years have also alluded to this aim. 

SEE ALSO: Size and Scope of the Meth Industry in Mexico

Their efforts to try to get Mexican methamphetamine into new markets have attracted the attention of international authorities, particularly over the last decade. And in the last seven months, there have been record seizures in Europe and Asia. 

In early February, for example, Irish police seized half a ton of the drug in the port of Cork and linked the shipment to networks associated with the Sinaloa Cartel, according to press reports. Four months earlier, in October 2023, Hong Kong customs authorities made the largest seizure of solid methamphetamine in the island’s history, finding 1.1 tons from Mexico.

In Search of More Profitable Markets

Expanding into new markets is a strategic financial move. Production costs per kilogram of methamphetamine can be as high as $1,000, to which must be added transportation costs, bribes, and the occasional fees paid to criminal groups along the route, according to the coordinator and other methamphetamine producers interviewed by InSight Crime in Sinaloa and Michoacán.

Profits in Mexico and the United States are barely enough to cover this investment. On average, a kilogram of wholesale methamphetamine sells for $600 in Mexico and $5,000 in the United States, according to the same sources.

“We need to look for new markets to offset all the costs,” a methamphetamine producer in Michoacán told InSight Crime in December 2022.

Europe and Oceania offer an opportunity for higher profits. Although transport costs increase, the same amount of methamphetamine can be worth an average of $20,000 in European countries and up to $190,000 in Australia and New Zealand, according to data from the United Nations Office on Drugs and Crime (UNODC) and the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA). 

With the potential for such huge profits, Australian and New Zealand authorities have begun to see a significant flow of methamphetamine from Mexico since 2018.

“These [Mexican] organized crime groups are constantly targeting New Zealand … They are importing illicit drugs, establishing supply lines to domestic markets, and then moving their profits out of the country,” Greg Williams, director of the New Zealand Police’s national organized crime task force, said in a press release on February 13. 

“Drugs in Australia get very high prices when compared to other markets … there’s a very clear incentive for these groups to take a more interested look,” Anthea McCarthy-Jones, an organized crime expert and senior lecturer at the University of New South Wales, told InSight Crime.

Methamphetamine Moves Through Major Ports Worldwide

The Sinaloa lab coordinator explained that methamphetamine shipments to Europe and Oceania are often sent via maritime or air trade routes, camouflaged among widely traded legal products. 

In recent seizures, for example, Mexican traffickers have hidden methamphetamine in boxes of coconut water, steel, seashells, hydraulic presses, and even in boxes with Mexican government seals.

To minimize the risk of detection, traffickers often use ports and airports with a high flow of cargo. It is therefore not surprising that the European ports of Rotterdam, Valencia, Hamburg, and Cork, as well as the international airport of Amsterdam-Schipol, have detected large quantities of methamphetamine of Mexican origin in the past. 

SEE ALSO: Amsterdam’s Schiphol Airport Becoming Arrival Point for Mexican Drugs

The port of Hong Kong has also become a key point on the route to Asia and Oceania. It receives products from around the world, and almost all the shipping companies that connect the Mexican ports of Manzanillo and Lázaro Cárdenas — which are close to drug production zones — with Asia pass through that territory.

Since at least 2020, Hong Kong authorities have seen an increase in methamphetamine seizures. Mexico has been the most common source country for these shipments. 

But routes are not always direct. The lab coordinator said that long and complicated routes can be useful to distract the authorities.  

Recent journalistic investigations have supported this. In January 2024, for example, the Canadian media outlet the Vancouver Sun found that the port of Vancouver was used as a transshipment point to send methamphetamine from Mexico to Australia, via Canada.

Criminal Competition

Although they are expanding their international trade, the involvement of Mexican traffickers in the European and Oceanian drug markets is still in its early stages.

Unlike in the United States, where they have access to most of the market, in Europe and Oceania Mexican groups must collaborate and compete with various organizations from different countries that have established strong supply lines and customer relationships over the years.

Towards the end of the call, the Sinaloa lab coordinator explained that Mexican networks simply sell the drugs wholesale to various family clans or gangs on these continents, who then take care of regional distribution. He declined to name specific criminal organizations he was working with abroad. 

This idea is in line with McCarthy-Jones’ research in Australia. She said that criminal organizations in the Golden Triangle, a center of drug production in Southeast Asia, continue to be the main suppliers of methamphetamine there.

“[Mexican criminal groups] are wholesalers,” she explained. “I think they probably are competing against each other. And I would imagine that the Mexicans are looking to increase their market share.” 

According to McCarthy-Jones, Mexican traffickers have so far relied on brokers to make the connections with Australian and New Zealand distributors, meaning they maintain a certain distance. The brokers are often knowledgeable about the local scene and are responsible for navigating the logistics and making the right contacts on behalf of the Mexicans.

“They are essential in a protection and security sense … to protect your own organization against law enforcement efforts,” she added.

The situation is similar in Europe. While authorities have detected large seizures of Mexican methamphetamine, connections to European organizations also appear limited to the use of intermediaries or emissaries. 

“There is a huge supply of methamphetamine directly from Mexico to Europe. We haven’t seen any big cases for a while,” Andrew Cunningham, director of drug markets, crime and supply reduction at EMCDDA told InSight Crime.

Cunningham added that the participation of Mexican organizations in European markets may vary by country. The greatest involvement has been seen in Spain, where the Beltran Leyva Organization (BLO) was associated with a 1.6 ton shipment of methamphetamine in 2019. 

However, most of the shipments intercepted in Europe are presumably en route to other non-European countries, rather than destined for local consumption, according to a 2022 report by the EMCDDA and a joint report of the same year by Europol and the US Drug Enforcement Administration (DEA). 

Meanwhile, local methamphetamine production and distribution appears to remain dominated by local criminal groups.

*Parker Asmann, Peter Appleby, and Douwe Den Held contributed to this article. Miguel Angel Vega contributed with field work.

The post Methamphetamine Traffickers in Mexico Become Global Wholesalers appeared first on InSight Crime.

On September 21, 2021, Javier Algredo Vázquez was on his way to a US law enforcement office to reclaim chemical substances authorities had seized from him days earlier. In some respects, his trip that day was a remarkable act of hubris. But in other respects, it could be seen as business as usual.

The 50-year-old was born in Mexico and had lived with his family for decades in Queens County, New York, where he had worked at a prestigious hotel chain for over 15 years. But Algredo was also an entrepreneur. In the decade prior, he’d created a company that did regular business with chemical distributors in various countries. His brother, Carlos, was also a businessman with a seemingly prominent chemical import company in Mexico.

Their businesses, however, were under scrutiny. Unbeknownst to both at the time, Carlos had been indicted by US justice officials for charges related to precursor chemical distribution and methamphetamine production and trafficking. More importantly, his clandestine business partners in Mexico had already been designated in the United States as one of the main purveyors of fentanyl, the deadly synthetic opioid that was responsible for tens of thousands of overdose deaths in the country each year.

In spite of the network’s nefarious ties, the brothers could also claim to be following international standards and global regulatory conventions. Although some of the chemicals they sold were heavily regulated in the United States, Mexico, and China, they were not in India, Germany, and Turkey. What’s more, Javier had legitimate paperwork to back up his commercial transactions.

In this context, it’s not clear if Javier ever expected to be in the crosshairs of the authorities. But as soon as he arrived at the office, he was arrested and accused of providing chemical substances from various countries to criminal groups in Mexico for the production of synthetic drugs. Among his clients, prosecutors said, was the Jalisco Cartel New Generation (Cartel Jalisco Nueva Generación – CJNG), one of the world’s most powerful drug trafficking organizations and one of two major suppliers of fentanyl to the United States.

*This article is part of a two-year investigation that tracked the supply chain of precursor chemicals that aid in the production of methamphetamine and fentanyl in Mexico. Read the other articles of the investigation here and the full report here.

Using various front companies, prosecutors alleged that the Algredo brothers made regular chemical purchases, primarily from Chinese chemical suppliers, that were later used to produce synthetic drugs. China is one of the world’s largest chemical production hubs and the primary source of precursor chemicals used in fentanyl and methamphetamine production in Mexico, as InSight Crime has previously reported.

However, the Algredo brothers’ operation extended well beyond China. US prosecutors claimed the brothers had also established a vast network of chemical suppliers in India and Turkey. And an InSight Crime analysis of shipping data revealed numerous other transactions with companies in Germany and the United States. The chemicals the brothers purchased left major seaports in shipping containers that crossed both the Pacific and Atlantic oceans.

The Algredo brothers’ diverse supply chain is typical for these underworld markets. While China remains a key hub, brokers who supply synthetic drug producers in Mexico rely on chemical industries in several countries across Europe, Asia, and the Americas, according to dozens of interviews InSight Crime conducted over two years with synthetic drug producers in the Mexican states of Sinaloa and Michoacán, law enforcement agents and government officials from various countries, and academics and representatives of multilateral organizations.

SEE ALSO: Brokers: Lynchpins of the Precursor Chemical Flow to Mexico

The availability of these chemicals globally is one of the principal challenges law enforcement faces in curbing the synthetic drug trade. While China has cracked down on the production and sale of certain chemicals over the last decade, regulations and laws of other chemical-producing countries are often far less strict, and have numerous loopholes and gaps in enforcement. In fact, many of the substances needed to produce synthetic drugs are legally produced and marketed for numerous industries, making it easier to divert them for illicit purposes without being detected by authorities and the chemical companies that are supposed to be monitoring their own supply chains.

The result is a seemingly endless supply of the raw ingredients needed to make the deadliest drugs the world has ever seen.

Different Countries, Different Laws

In Javier’s indictment and in other court documents related to the case, prosecutors in the District of Columbia said he had used Pro Chemie New York Inc., a company he owned and had registered in the state of New York, to acquire these chemical products. His brother, Carlos, allegedly received the shipments in Mexico through another company, MB Barter & Trading S.A. de C.V., which was based in Ciudad Nezahualcóyotl in the State of Mexico.

Between 2018 and 2021, the Algredo brothers’ network diverted a total of 1,453 tons of chemical substances for methamphetamine production, 1,848 tons of substances used to enhance the potency of methamphetamine, and 44.1 tons of chemicals for fentanyl production, according to court records. Most of these chemicals came from China. 

Nonetheless, the Algredo brothers also dealt with companies in other countries. For example, they obtained acetic acid from Turkey and sodium carbonate from Germany, according to the Altana Atlas, a dynamic map of global supply chains. These substances, which are used in the production of fentanyl and methamphetamine, are strictly regulated in Mexico. But in Turkey and Germany, they are not.

The patterns point to the central weakness of the current global regulatory system. Synthetic drug producers rely on a variety of substances, from precursors that are highly regulated, to essential chemical substances with dual uses. As regulators and law enforcement place controls on precursor chemicals, synthetic drug producers adapt their formulas so that they can use “pre-precursors,” and shift their supply lines in the process.

Although most countries are party to international conventions that provide guidelines for controlling and monitoring the use of these chemicals, regulations and laws vary widely from country to country. These disparities have significant implications. 

To begin with, the lack of global agreement on the control of chemicals gives drug producers a wide variety of potential suppliers and transit points. When regulations increase in one country, as they have in Mexico and China, criminal networks find new substances and suppliers in countries with fewer controls.

Expanding the geographic scope of potential suppliers, as well as trafficking routes, also helps traffickers elude detection, several methamphetamine and fentanyl producers told InSight Crime. They use companies and transporters that offer quality products while minimizing risk in transit, they explained.

“We look for the most convenient route, which is not necessarily the most direct. … Wherever it’s possible,” said one coordinator of several clandestine synthetic drug laboratories in Culiacán, Sinaloa.

The result is that India, Germany, the United States, and Guatemala are now among a growing list of countries that play an important role in the supply chain of chemical substances used to produce methamphetamine and fentanyl in Mexico. Aside from China, these were the countries that were most frequently cited in judicial records consulted by InSight Crime, data of chemical shipments documented in the Altana Atlas, interviews we conducted with officials in these countries, and our fieldwork across Mexico’s synthetic drug-production epicenters.

While India serves as a country of origin due to its significant chemical industry and lenient regulations, Germany and the United States serve as both source countries and transit points for pre-precursors and essential chemicals. Meanwhile, Guatemala acts as a key transit point for chemical substances that are diverted before being transported to Mexico.

Using a list developed by the International Narcotics Control Board (INCB) and various government counternarcotics and regulatory agencies’ lists, as well as open-source methods of synthetic drug production, InSight Crime identified 30 key precursors and pre-precursors, and another 43 key essential chemical substances that are currently used in the production of fentanyl and methamphetamine.  

Of our bespoke list, Mexico has put 23 of these precursors and pre-precursors, along with 18 essential chemical substances on its controlled-substances list; the United States has 22 precursors and pre-precursors, along with 4 essential chemicals on its controlled-substances lists; Guatemala has 19 precursors and pre-precursors, and 12 essential chemicals on its watch list; Germany has 17 precursors and pre-precursors and 3 essential chemicals on its watch list; and India has 13 precursors and pre-precursors and none of the essential chemicals on its watch list.

The lack of uniformity even applies to the most important chemicals for synthetic drug production. For example, methylamine is used in the chemical, agrochemical, and pharmaceutical industries, but it is also an oft-used precursor for the production of methamphetamine and was one of the chemicals the Algredo brothers were trafficking to the CJNG in large quantities. It is included in Mexico’s federal law on precursors and is on the US list of controlled chemical substances. However, it is not considered in any regulations in India, and it is only monitored on a voluntary basis in Germany. Similarly, benzylfentanyl, a fentanyl pre-precursor, is on watch lists in Mexico and the United States but is not strictly regulated in India, Germany, or Guatemala.

These disparities mean that a large part of the precursor chemical supply chain can be sourced legally. For example, the Algredo network’s shipments to Pro Chemie New York and MB Barter & Trading may have met regulations. They made purchases from chemical companies in India, Germany, and the United States, some of which have operated for decades and supplied chemical substances to several billion-dollar industries. This was what may have given Javier Algredo the confidence to try and reclaim his lost merchandise that fateful September 2021 day.

His suppliers were also not necessarily transporting controlled substances. And they could have formed part of the precursor distribution chain without being aware that the chemical products they were selling were being diverted to produce illegal synthetic drugs in Mexico. What’s more, while regulations on the companies producing and trading chemical products may be comprehensive, they may not require the companies to do much due diligence in terms of collecting comprehensive data on the end-users acquiring these substances.

In terms of a lack of due diligence, the Algredo network is a case in point. Neither the company addresses for Pro Chemie New York and MB Barter & Trading registered with US and Mexican authorities, nor where they reportedly received the multi-ton chemical shipments, reflected a company that handled these types of products. In fact, a Google Maps search of both locations revealed they were homes located in residential areas. There was also no evidence to suggest they had the infrastructure in place or that other chemical distribution companies were operating in the area. (See below)

India: Large Production, Few Controls

On December 19, 2020, a ship departed the port of Mundra in northwest India and entered the Arabian Sea loaded with 22.6 tons of oxalic acid. The chemical is mostly used as a cleaning product, but it is also an essential chemical used to synthesize methamphetamine. The cargo’s final destination was the Port of Veracruz, on Mexico’s Gulf Coast. Just six months later, two more shipments containing several tons of oxalic acid departed from Mundra en route to the Mexican ports of Veracruz and Manzanillo, on the Pacific coast.

While Pro Chemie New York purchased the chemicals, it was MB Barter & Trading that was listed as the “notify party” on the bill of lading. The supplier was Punjab Chemicals & Crop Protection, a chemical producer with decades of experience distributing over 220 products from its base in Dera Bassi, Punjab, in northern India.

US court documents in the Algredo case mention Punjab Chemicals, but they do not say whether the company was aware that the chemicals would be diverted for illicit drug production in Mexico. InSight Crime contacted representatives of the company but did not receive a response by the time of this report’s publication.

However, with the assistance of Altana, InSight Crime found other suspicious transactions by the company. Between 2016 and 2020, Punjab Chemicals conducted six other transactions with Pro Chemie New York, shipping a total of 154 tons of oxalic acid to the ports of Veracruz and Manzanillo, according to shipping data. During that same time, it also sent 40 shipments of oxalic acid to three other chemical companies in Mexico. Two of the companies they traded with are frequent buyers of chemicals on the US government’s lists of controlled substances, according to Altana.

The Altana Atlas also showed that between 2017 and 2020, at least one other company based in Mumbai, India, sent nearly 177 tons of oxalic acid in eight shipments to MB Barter & Trading. These were all sent from the port of Mundra to the ports of Altamira, Veracruz, and Manzanillo in Mexico. 

All these shipments are small compared to the total amount of oxalic acid imported by Mexico in any given year, but they are still significant. For instance, in 2020, the total amount of oxalic acid imported by Mexico was at least 2,324 tons, according to the Altana Atlas. The December 2020 shipment from Punjab Chemicals that departed from the port of Mundra would therefore account for 1% of that yearly amount.

Oxalic acid is not on any watch lists in India, Mexico, or the United States, so the transactions documented in the case against Javier Algredo were legal, and neither the Punjab-based company nor anyone from the company have faced charges. But it is this combination of lax regulations and a vibrant chemical industry that makes India increasingly important in the flow of precursor chemicals to Mexico.

Globally, India ranks as the seventh-largest producer of chemical substances and the third-largest in Asia. The chemical industry accounts for 7% of its gross domestic product (GDP). Additionally, India’s pharmaceutical industry supplies 50% of the global demand for vaccines, 40% of generic drugs consumed in the United States, and 25% of all medicines required in the United Kingdom. 

Some of these chemicals are potent. In 2022, for example, data collected by the INCB showed that India emerged as the leading exporter of N-phenethyl-4-piperidone (NPP), a pre-precursor used to produce medical-grade fentanyl, which is heavily regulated in India. The country is also an important source of ephedrine and pseudoephedrine, two pharmaceuticals that are commonly used as precursors for methamphetamine synthesis in various parts of the world — although not in Mexico — according to the INCB’s 2022 annual report.

Trade between India and Mexico is also significant. In 2021, India exported products worth $4.44 billion to Mexico, $603 million of which corresponded to the chemical industry. Moreover, in 2023, India was the third-most common country of origin, after China and the United States, for shipments of pre-precursors and essential chemical substances to Mexico, according to the Altana Atlas. This included over 370 tons of acetic acid derivatives, 34 tons of benzyl alcohol, over 330 tons of acetone, and 8.1 tons of benzaldehyde derivatives, none of which are heavily regulated in India.

To some extent, the data tracks with previous reports by organizations like the Brookings Institution and the Commission on Combating Synthetic Opioid Trafficking, as well as European drug-market analysts interviewed by InSight Crime. They have argued that India developed a greater role in the flow of precursor chemicals to Mexico after China imposed stricter controls over fentanyl, its analogues, and methamphetamine and fentanyl precursors over the last decade. 

However, rather than coinciding with changes in regulatory regimes and laws in other countries like China, the data suggests that India has long been an important source for these types of products for Mexican buyers. While the total value of chemical exports from India to Mexico did grow from $470 million in 2019 to $600 million in 2021, there has not been any significant increase in the shipments of substances that InSight Crime identified as potentially being used for drug production since 2016, according to the Altana Atlas.

The companies that send precursors, pre-precursors, and essential chemicals to Mexico tend to be large firms with decades of experience in both domestic and international markets. They typically engage in the production, distribution, and export of pharmaceutical and chemical products, some of which are marketed for the food industry, veterinary care, and petrochemicals. Most of these companies are located near major cities, such as Mumbai, Hyderabad, Vadodara, Ahmedabad, and Mohali.

The Indian government has various requirements for chemical companies to export chemicals. In addition to issuing a permit, they request that exporters fill out a form with their personal information and that of the importer, as well as details of the chemical substances, their intended use, and the company’s form of payment.

However, Indian regulations on precursors, pre-precursors, and essential chemical substances are less stringent than in other countries. Some precursors and pre-precursors for methamphetamine production, such as toluene, methylamine, nitroethane, and hydrochloric acid, which are heavily regulated in China, the United States, and Mexico, are not subject to any special regulatory controls in India. Fentanyl pre-precursors like piperidine are also not subject to any strict regulations.

This means that companies in the country are not obligated to report trade data of these less regulated substances to authorities. In turn, this impacts the notification process to the INCB or to any government who does have these chemicals on their lists of controlled chemicals. This creates a loophole, which provides an opportunity for diversion.

What’s more, the capacity of Indian companies and authorities to identify diversion strategies, such as the use of shell companies, is limited. In its 2021 report, the INCB noted that chemical and pharmaceutical companies in India were at risk of diverting substances to the illegal market and recommended the country strengthen its internal surveillance and voluntary cooperation with companies to address precursor chemical trafficking.

“The chemical industry in India is large and very poorly regulated,” Vanda Felbab-Brown, researcher and senior fellow at the Brookings Institution, told InSight Crime. She added that authorities have limited capacity to monitor and supervise the chemical industry, which has also become an important interest group in the country’s political arena.

Judicial cases have also shown how these gaps can facilitate the flow of chemical substances used for synthetic drug production in Mexico. In December 2018, for example, three Indian citizens were arrested in possession of 100 kilograms of NPP. This shipment was falsely marketed as flour and intended to be sent by air to Mexico. One of those arrested, Salim Dola, was later accused of working with an alleged Indian drug trafficker known as Dawood Ibrahim.

At the end of September 2018, three other people were captured in a fentanyl laboratory, including Manu Gupta, an Indian businessman. He allegedly used his company, Mondiale Mercantile, to establish commercial relationships with companies in Mexico to ship fentanyl precursors, according to a report by Forbidden Stories. Gupta is currently serving a 20-year prison sentence, according to Indian judicial documents. 

The type of chemicals Gupta’s company shipped were not made public. But according to the Altana Atlas, Mondiale Mercantile made at least one shipment to Mexico of thioglycolic acid, an essential chemical used to produce methamphetamine, which is not on any Indian government watch list. This shipment was sent to a company called Corporativo y Enlace RAM, which is based in the Mexican state of Jalisco. 

Corporativo y Enlace RAM faced scrutiny for its commercial transactions as well. According to a report in Milenio, Mexico’s National Intelligence Center (Centro Nacional de Inteligencia – CNI) investigated the company for allegedly diverting precursor chemicals to drug production networks associated with the Sinaloa Cartel and CJNG. In response to an InSight Crime query about the case, Mexico’s Attorney General’s Office declined to comment.

InSight Crime also made several attempts to interview officials from the Indian Narcotics Control Bureau, the Ministry of Health and Family, and the Indian Embassy in Mexico, but did not receive a response.

Germany: The European Hub

The Algredo network worked in Europe as well. At least seven companies in Germany had a commercial relationship with MB Barter & Trading between 2016 and 2021, according to the Altana Atlas. These included chemical manufacturers, import-export companies, shipping companies, and companies working in the food industry. 

The network sent numerous chemicals from Germany to Mexico during that time, including 48 tons of sorbitol, 443.5 tons of sodium carbonate, and 20 tons of hypophosphorous acid, all essential chemicals that can be used to produce fentanyl and methamphetamine but none of which were on German watch lists. The shipments departed from the German ports of Bremerhaven and Hamburg and arrived at the ports of Veracruz and Altamira in Mexico, the shipping data shows.

The companies did not seem to fit any specific pattern. Five of them operate in the city of Hamburg, in northern Germany. Another one is based in Kronberg in the state of Hesse, and the last one in Oberthal, a city in the western part of the country. Four of these seven companies are transnational and handle hundreds of clients across the globe. However, the rest are small companies that have only registered a handful of transactions with foreign partners. One of these, an import-export company, registered just six exports, three of which were made to companies in Mexico that regularly deal with controlled substances, according to the Altana Atlas.

These companies are part of the more than 2,200 chemical companies registered in Germany, making it the third-most important industry after automotive and machinery. Germany is also the chemical hub of Europe. In 2020, it led the continent in chemical sales and was third in the world, behind only China and the United States.

In Latin America, Mexico is one of Germany’s most important trading partners. During 2022, the country made international purchases from Germany totaling $17.6 million, $2.1 million of which were allocated to pharmaceutical and chemical products, according to data from the Mexican government.

Considering the scale of chemical production in Germany, its regulations of these substances are less stringent than in other countries. For example, chemicals such as methylamine and benzyl chloride — which are heavily regulated in Mexico since they are precursors and pre-precursors that can be used to produce methamphetamine — are subject to voluntary monitoring but are not listed as controlled substances in Germany. These types of disparities make the country attractive to criminal networks seeking to access these chemicals.

Still, Germany has robust legal frameworks regarding the companies producing, trading, and exporting these substances. The country’s laws are governed by conditions set by the European Union (EU), which require licenses, permits, transaction records, data on the parties involved, and pre-export notifications to control the flow of chemicals. Furthermore, according to the most recent US State Department’s International Narcotics Control Strategy Report (INCSR), cooperation between the chemical industry and German authorities is a key part of the country’s chemical control strategy.

InSight Crime contacted the German Chemical Industry Association (Verband der Chemischen Industrie) to ask about this matter. The association said the chemical companies in the country are aware of the potential dangers associated with drug precursors and the responsibility they have if they handle them. In addition to working closely with authorities, they added that some chemical companies have taken the initiative to monitor and control the supply of such substances themselves, which includes conducting due diligence on their potential clients.

However, enforcing these regulations is more complex. In 2022, for example, the German government raided a company that made more than 30 shipments of precursor chemicals to Russia that could be used to produce biological weapons. The company made the shipments for more than three years without meeting export requirements.

Low visibility at ports is also a concern for irregular shipments. In a 2023 report about criminal activity at ports in the European Union, Europol noted that the ports of Hamburg and Bremerhaven were among the most vulnerable to criminal activity, along with Rotterdam in the Netherlands and Antwerp in Belgium. Among the reasons they cited were low rates of container inspection.

What’s more, during our research, InSight Crime did not find any criminal cases regarding German chemical exports from Europe to Latin America. And the German police and several European drug-market analysts said they were unaware of any cases involving German companies diverting precursors or chemical substances to Mexico. 

Instead, they pointed to lax enforcement abroad. German police, for example, acknowledged past cases of diversion in which shipments had undergone the proper export due diligence in Germany but were ultimately diverted in the destination country. And although InSight Crime contacted the German Health Ministry and the customs authority, which are responsible for overseeing compliance with chemical regulations in the country, they declined to discuss the matter.

Without judicial cases, it is impossible to determine if German companies are aware that the chemical substances they are trading are being diverted to produce synthetic drugs. As previously mentioned, most of them are transnational companies dedicated to producing, distributing, and selling chemical substances across a number of industries, including mining, agrochemicals, veterinary care, and pharmaceuticals.

However, several German companies appear to have commercial relationships with Mexican companies that may have diverted precursor chemicals that were later used by Mexican drug production networks, such as MB Barter & Trading. 

The Altana Atlas offers some examples. In 2022, a multinational from the United Kingdom and headquartered in Germany sent toluene — an essential chemical commonly used in methamphetamine production — to a company in Mexico that regularly deals with controlled substances. And between 2019 and 2022, another German multinational sent over 16.8 tons of benzyl alcohol — which is used as an essential chemical to synthesize methamphetamine — to a company in Mexico that also received frequent shipments of controlled substances. Benzyl alcohol is not on any German government watch list. And although toluene is heavily regulated, its use is widely known and the data about buyers is also available.

This potential connection between synthetic drug production in Mexico and German chemical producers also came up during interviews carried out by InSight Crime in Sinaloa in September 2023. An independent synthetic drug producer, for example, mentioned that he often buys fentanyl pre-precursors, such as 1-boc-4-piperidone — which is not on the German government watch list nor on any list of controlled substances in Mexico — from a chemical company in Germany. He declined to give us the name of the company but said it sends the products directly to properties that he temporarily rents in Sinaloa and the surrounding area. He added that representatives of the company gave him a guided virtual tour of the facilities in Germany while they were courting his business.

InSight Crime asked the clandestine producer if he thought the company was aware of the intended illicit use of the products.

“They never asked,” he said.

Germany also serves as a transit country for substances that may end up being used to produce illicit drugs in Mexico. In a series of indictments filed by US prosecutors against the Chapitos — the sons of Joaquín Guzmán Loera, “El Chapo,” who created their own criminal group following the extradition of their infamous father — authorities argued that companies in China often send precursors through Germany.

SEE ALSO: After Arrests, Extraditions, and Infighting, What Does the Future Hold for Mexico’s Chapitos?

The evidence for this was a conversation between the owner of a chemical company in China and a buyer in the United States, which was detailed in one of the indictments. In this conversation, the seller told the buyer that he usually ships precursors to Mexico from Germany, specifically so that Mexican authorities would not be able to identify China as the origin of the shipment. 

Multilateral observers have also marked the trend.

“Transshipment countries are being used to hide the route … to not make it too obvious,” Martin Raithelhuber, a synthetic drugs expert from the United Nations Office on Drugs and Crime (UNODC), told InSight Crime.

As noted, suppliers of controlled chemical substances may opt for longer routes involving more countries to distract authorities. In addition to Germany, chemicals also move through the United States, as traffickers take advantage of huge shipping volumes, as well as loopholes that permit products to move through the country with minimal inspection.

United States: Ignore Your Customer

The United States is responsible for 11% of all chemicals produced worldwide, accounting for some $333 billion worth of products in 2022, according to the American Chemistry Council. Importers, exporters, producers, and distributors of controlled chemicals must be registered with the US Drug Enforcement Administration (DEA). They must also provide information on the importer and their import licenses, and notify authorities of any suspicious transactions of substances that could be used illegally in the receiving country.

However, in practice, these requirements are not always met. Companies may fail to comply with the so-called “Know Your Customer” standards, which can allow synthetic drug producers in Mexico to source key chemicals from US companies.

That happened in the Algredo case. In addition to Pro Chemie New York, at least five chemical production companies located in several US states, including Illinois, Pennsylvania, Florida, and Indiana, traded with MB Barter & Trading in Mexico, according to the Altana Atlas. Most of these were large companies with subsidiaries in various countries, such as Germany, Mexico, and India. 

According to the Altana Atlas, at least two of these companies sent chemical substances to MB Barter & Trading that can potentially be used to synthesize methamphetamine pre-precursors, including a benzaldehyde derivative, nitropropane, and potassium borohydride. These are not on any list of controlled substances. The other three companies sent various chemical substances with no current known illicit uses to the Algredos’ company, as well as plastic equipment for handling chemicals.

Pro Chemie New York, on the other hand, sold pre-precursors and essential chemicals to at least another dozen companies operating in central Mexico.

Still, it is difficult to determine the scale of the problem. None of the companies that sent chemicals to the Algredo network, for example, were sanctioned or prosecuted. In fact, InSight Crime found only two public judicial cases that illustrate this dynamic. And the DEA, which also issues sanctions for violations, declined to respond to an information request from InSight Crime regarding how many chemical companies have been sanctioned for violating procedures related to the diversion of chemical substances.

Given the lack of judicial and regulatory actions, InSight Crime, drawing from the Altana Atlas and our bespoke list of major chemicals, analyzed shipping trends from the United States to Mexico and identified a number of troubling patterns. More than 30 US-based companies — several of whom were decades old and had subsidiaries in numerous countries across the world — were frequently sending pre-precursors and essential chemicals to several small Mexico-based companies that appeared to be singularly focused on receiving these types of chemicals. The substances they were sending included acetic anhydride and toluene, which are categorized as Class II controlled substances by the DEA. 

During our fieldwork, InSight Crime also found some evidence that US-produced chemicals are being used in clandestine drug laboratories. In October 2022, following an army raid of a methamphetamine laboratory in a rural area on the border between Sinaloa and Durango, we visited the lab with authorities and spotted, among other chemicals, a bundle of calcium chloride, which is monitored in Mexico but not in the United States. The essential chemicals were produced by the Laredo, Texas-based Vitro Chemicals, Fibers, and Mining. It is not clear if the drug producers accessed their products from a Mexican distributor or directly through a representative of the company. InSight Crime contacted company representatives but did not receive a response as of the time of publication.

Other news organizations, most notably Bloomberg, have also reported on US-produced chemicals being diverted for drug production in Mexico. 

Sourcing chemicals in the United States was not the only way the Algredo network got its chemicals to Mexico. Some of the chemicals they imported to Mexico also transited through US ports. Authorities were able to identify four of these, and seized the substances at the ports of Oakland, Houston, and Miami, court documents say. 

According to US Customs and Border Protection (CBP), approximately 11 million containers arrive at the country’s seaports annually. Another 11 million enter via land routes. Of these, only approximately 3.7% are inspected, according to the American Journal of Transportation. But some of the chemicals may have never even passed that inspection process. Instead, they could have been designated as in-bond. This is a designation used for containers passing through the United States on their way to a third country. 

These products would have been moved to a special in-bond warehouse before being exported to Mexico. They are not subject to the same scrutiny as products entering the United States and are often less scrutinized when they arrive at their destination as well. A former diversion investigator with the DEA told InSight Crime that chemical shipments that first pass through the United States are scrutinized less when they arrive in Mexico due to the perception that US customs officials have strict controls monitoring such imports.

SEE ALSO: US Chemicals Help Fuel Mexico Drug Production: Report

The traffickers are aware of that perception. One clandestine operator in Culiacán told InSight Crime that, “If [a shipment] has already entered the United States, it’s less likely that they’ll check it here [in Mexico].” 

He added that his suppliers of fentanyl pre-precursors often use the China-US-Mexico route for that exact reason. 

InSight Crime made several attempts to interview the National Customs Agency in Mexico, as well as their customs officials at Pacific ports and international airports, but none of them responded to our requests.

This type of in-bond shipment from the United States to Mexico has grown exponentially in recent years. Citing the CBP, a December 2022 Senate Committee on Homeland Security and Governmental Affairs report said the value of in-bond movements between the United States and Mexico went from $4.29 billion in fiscal year 2018 to $99.4 billion in fiscal year 2022. 

The main reason for this shift in trade is the sharp increase in e-commerce warehouses in Mexico. Nonetheless, this poses a serious challenge for US authorities due to the limited information CBP receives about this type of cargo. Those exporting in-bond chemical shipments are exempt from providing certain information to authorities, such as the name of the chemical, its country of origin, or the consignee’s name. This is a concern US authorities have raised in the past.

Authorities in Mexico are also beginning to notice. In September 2022, the Mexican navy identified an in-bond shipment of a chemical pre-precursor that entered the country after first arriving at the US port of Long Beach, California. It was transported to Mexico via land through the border crossing in Laredo, according to a naval intelligence officer who spoke with InSight Crime. Although the officer did not specify the name of the substance, he noted that it had various legal uses, and the only reason it caught the attention of authorities was the unusually large quantities being imported.

By all appearances, traffickers are using similar methods to move chemicals through Guatemala.

Guatemala: Imminent Risk

Although the Algredo brothers did not rely on Guatemala for their criminal activities, the country has a long history of involvement in the flow of precursor chemicals for synthetic drug production in Mexico.

The most notable recent case occurred in late 2012 when Guatemalan authorities dismantled a methamphetamine precursor trafficking network linked to the Sinaloa Cartel. The operation began in September of that year with the capture of Ramón Antonio Yáñez, a convicted Sinaloa Cartel operative who had allegedly orchestrated precursor shipments through Nicaragua and Guatemala to Mexico since at least 2009. On the day of his arrest, authorities seized a methamphetamine laboratory and almost 100 barrels containing chemical substances. Over the next three years, they captured and convicted at least eight others involved in the network, including the former head of security at Puerto Quetzal, on the Pacific Coast, from where the chemical shipments were allegedly imported.

Further investigations by Guatemalan prosecutors and the United Nations-backed International Commission Against Impunity in Guatemala (Comisión Internacional Contra la Impunidad de Guatemala – CICIG) found links between this case and political elites. The CICIG assisted Guatemala’s Attorney General’s Office in charging José Alberto Rizzo Morán, the mayor of the coastal town of Puerto de San José, his wife, and two of his brothers-in-law. Prosecutors argued that Yáñez had paid the mayor and his family network to facilitate the transit of precursor chemicals through the port. This allegedly involved front companies owned by the family and fraudulent commercial transactions. Rizzo Morán was never convicted and was absolved in 2019. Yañez, on the other hand, escaped Guatemala in 2017 after a judge released him on a technicality.

Since then, Guatemalan authorities have not prosecuted another major precursor trafficking case, according to information the Attorney General’s Office sent to InSight Crime. But law enforcement officials in the region believe that criminal networks continue to take advantage of Central American ports to import chemical substances before transporting them to Mexico for illicit drug production, according to InSight Crime interviews with an official from Guatemala’s National Civil Police, a prosecutor from Honduras’ Special Prosecutor’s Office for Organized Crime, and an official from Mexico’s National Guard.

Guatemala’s seizure data partly supports this assertion. Seizures of precursor chemicals in the country grew from 390 tons in 2012 to 1,409 tons in 2021, according to data from the Attorney General’s Office. It is worth noting that authorities do not disaggregate this data by type of substance, so it is difficult to determine if these chemicals were intended for methamphetamine or fentanyl production. It is also impossible to analyze any particular trafficking trends.

This lack of detail in law enforcement surveillance is coupled with lax chemical controls, suggesting that much of the precursor trade in the country can be conducted without sparking any regulatory or legal scrutiny.

Guatemala, for example, does not have any controls in place for five pre-precursors used to synthesize fentanyl, including benzylfentanyl, 1-benzyl-4-piperidone, 4-piperidone, propionic anhydride, and propionyl chloride. These are all heavily regulated or monitored in Mexico. Sodium cyanide and 1-phenyl-2-nitropropene (P2NP), two pre-precursors for methamphetamine synthesis, are also not included in any of the country’s chemical control lists.

“We have only recently started to implement mechanisms [to curb the flow of precursors], but from what we have been able to observe, chemical substances are introduced into the country via legally constituted entities … then they are diverted for illegal use,” an official from Guatemala’s National Civil Police told InSight Crime.

There are more than 830 companies in the country that are licensed to import and distribute chemical precursors and essential chemical substances. These companies are monitored by the Health Ministry (Ministerio de Salud), which is responsible for ensuring compliance with licenses, tracking the companies and the quantities used, and conducting periodic visits to verify the use of the chemicals. However, they have limited institutional capabilities, which poses significant challenges when identifying gaps or possible cases of diversion.

“I have only three people [under my supervision] and I am obligated to inspect [hundreds of] companies at least once a year. It’s impossible,” said an official from the Department of Regulation and Control of Pharmaceutical and Related Products within Guatemala’s Health Ministry.

What’s more, when misuse of controlled chemical substances is identified, penalties are lenient and limited to administrative punishments, according to health officials interviewed by InSight Crime.

InSight Crime also spoke with representatives of Guatemala’s Association of Chemical Manufacturers and Distributors (Gremial de Fabricantes y Distribuidores Químicos – GREQUIM), who said that the association has cooperated closely with authorities on precursor chemical management. However, the association faces the challenge of involving more companies in this practice. Of the 830 companies with licenses to import and distribute precursor chemicals, only 32 are part of GREQUIM.

Other countries in Central America, such as Honduras, face similar challenges, making them vulnerable to facilitating precursor flows to Mexico. Honduran health officials who spoke to InSight Crime mentioned that they only began profiling and inspecting chemical companies handling controlled substances last year. Meanwhile, chemical controls remain lax.

These types of factors allow criminal networks to continue diverting chemical substances without being subject to scrutiny. For example, in March 2023, Guatemalan authorities announced the seizure of 240 barrels of an unspecified fentanyl precursor in Puerto Barrios, on the Atlantic coast. 

“The shipment was quite large, leading us to believe that it was not intended for consumption in our country but rather was in transit,” a Guatemalan police official, who was not authorized to speak on the record, told InSight Crime.

Authorities said the shipment had come from Turkey. But after a review of the paperwork revealed no red flags, the police official said the cargo was released. 

Producers and distributors of chemical products in China also appear to be aware of these trafficking opportunities in Guatemala. In February 2024, InSight Crime contacted a seller of 1-boc-4-piperidone in China, a pre-precursor to fentanyl that is widely used by drug production networks in Sinaloa. When asked about the shipping method, the individual suggested the substance be sent through Guatemala. They argued it would reach Mexico “faster” that way.

The Conviction

After his arrest at the US law enforcement office in New York in September 2021, Javier Algredo was placed into custody and transferred to a detention center in Washington, D.C.

For a time, his company, Pro Chemie New York, kept working. In October 2021, it sent two shipments totaling 25 tons of anhydrous citric acid, a chemical that is not known to be used to produce synthetic drugs, to the port of Manzanillo on its way to Carlos Algredo’s company, MB Barter & Trading, according to the Altana Atlas. 

MB Barter & Trading also remained active for another year and a half after Javier’s arrest. In January 2022, it ordered 22 tons of acetic acid from a Turkish company and 180 kilograms of a chemical reagent from China, according to the Altana Atlas. Acetic acid is monitored in Mexico, as it is a pre-precursor for methamphetamine production and can also be used as an essential chemical to produce fentanyl. 

However, this would be its last large chemical purchase. By the end of 2022, the commercial focus of MB Barter & Trading seemed to have changed completely. During December, it made over 50 purchases from two companies in Italy for coffee machines, pasta molds, nuts, and hairbrushes. It also changed its address to Mexico City. The company’s last recorded transaction came in February 2023, but it is still listed as active in Mexican business records.

Meanwhile, Carlos Algredo went on the run. He was indicted in November 2020, but that indictment had been sealed until well after his brother’s arrest. At the time of publication, Carlos had not replied to InSight Crime’s requests for comment.

During his trial, Javier testified that he was only an intermediary for Carlos, who he said handled the paperwork and payments to their suppliers in India, China, and Europe. Other witnesses — his wife and his accountant — argued that he was “devoted to his family” and justified his assets as coming from “wise investments” he made with the salary from his job at the hotel chain.

In July 2023, a jury convicted Javier Algredo inside a District of Columbia courtroom for drug trafficking, conspiracy to manufacture illicit substances, and money laundering. 

In February 2024, US authorities ordered the seizure of properties and bank accounts associated with Pro Chemie New York. InSight Crime requested comment from Algredo’s legal team and the prosecutors handling the case, but did not receive a response. 

On February 23, a judge sentenced Javier Algredo to 18 and a half years in a federal prison in the state of New Jersey.

*InSight Crime Co-director Steven Dudley, as well as investigators Victoria Dittmar, Parker Asmann, and Daniela Valle contributed reporting to this article. Miguel Ángel Vega also assisted with field interviews.

Altana supports InSight Crime’s research into precursor chemical flows by providing access to the Atlas, a dynamic, AI-Powered map of global supply chains, as well as to its Counternarcotics Dashboard, an AI-driven model to flag narcotics trafficking risk within global shipment and business ownership data.

The post Beyond China: How Other Countries Provide Precursor Chemicals to Mexico appeared first on InSight Crime.