Chinese fentanyl network suspected of crypto fraud via Japan base

Nikkei Asia - A Chinese organization suspected of illegally exporting chemical precursors for the synthetic opioid fentanyl appears to have been involved in large-scale cryptocurrency fraud using a base in Japan, an independent Nikkei investigation has found.

Using Japanese internet domains, the group allegedly defrauded numerous ordinary crypto buyers. Evidence also has been found of brisk transactions with entities subject to U.S. sanctions, suggesting the possibility of a broader organized crime network.

The organization suspected of involvement in financial crimes in Japan centers on Chinese chemical manufacturer Hubei Amarvel Biotech. American authorities have been pursuing enforcement actions. Two executives of the company were convicted in the U.S. last year.

A senior official of the U.S. Drug Enforcement Administration (DEA) indicated in late May that Japan is considered a transit point for fentanyl smuggling. Japan conducts less stringent inspections of U.S.-bound commercial cargo than many countries do, making it attractive as a transit hub for drug precursors produced in China and India.

An Amarvel company called Firsky, based in Nagoya, functioned as an operational base where a figure referred to as "a boss in Japan" directed logistics and fund management. Firsky was liquidated in July 2024.

Concerns are growing that the Japan base may have served for various illicit activities beyond drug smuggling, including financial fraud.

Based on court evidence, cryptocurrency accounts used by the organization centered on Amarvel were identified. Nikkei developed an analytical program to examine how Amarvel used these accounts to transfer funds externally.

The analysis focused on transactions after September 2022, when Firsky moved to Nagoya. Suspicious transactions began as early as October 2022.

Blockchain transaction histories revealed links with criminal organizations.

Amarvel frequently exchanged cryptocurrency with Chinese-linked financial fraud groups. They distributed a fraudulent token called "zksync.jp," designed to mimic an existing fast-payment service, deceiving users worldwide into transferring funds. Total damages, including in Japan, are estimated in the hundreds of millions of yen (100 million yen equals $620,000).

The token used the ".jp" domain, which normally requires a registrant to have a Japanese address. It was issued in 2023, overlapping with the period when Amarvel operated through Firsky in Japan.

The domain registrant appears to be a Chinese national living in Hong Kong. Tracing financial flows and personal connections shows the person's close relationship with Amarvel.

U.S.-based Chainalysis views such an approach as a typical method of money laundering. Japanese domains carry high international credibility, making them attractive for misuse.

Numerous links also were found with Chinese organizations and individuals sanctioned by the U.S. Treasury's Office of Foreign Assets Control (OFAC).

In particular, ties were evident with Chinese chemical group Wuhan Yuancheng Group. Its top executive, a Chinese national, is alleged to be a drug kingpin by U.S. authorities, which have offered a $5 million reward for information leading to his capture.

Amarvel conducted more than 120 transactions with OFAC-sanctioned entities centered around Wuhan Yuancheng, using multiple accounts that obscured the origin of funds. Many individuals involved share the same hometown, suggesting strong human networks.

Tien-Peng Ho of U.S. analytics firm TRM Labs, which was consulted for verification, said Japan's proximity to mainland China, its open financial system and its active industries in trade and cross-border capital movement make the country an attractive route for disguising illicit proceeds as legitimate.

In May, the DEA signed a memorandum with the Japan Coast Guard to strengthen crackdowns on drug smuggling, including fentanyl. The United Nations Office on Drugs and Crime also has begun countermeasures.

While monitoring of smuggling routs is tightening, authorities worldwide including in Japan lag in addressing drug-related money flows via cryptocurrency.