Mexican Drug Cartels and Crypto Money Laundering Schemes

In September 2023, OFAC officially recognized the use of cryptocurrencies by Mexico's Sinaloa Cartel. That same year, the world’s largest Chinese clandestine drug labs received over $26 million in digital assets. In the first four months of 2024, this volume doubled.

In a new CoinPaper piece, we examine how cryptocurrencies are being widely adopted in the black market, the money laundering schemes used by drug cartels, and the opportunity for the U.S. to replenish its bitcoin reserves.

Mass Adoption in the Black Market

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Like any new technology, blockchain is being used for a variety of purposes and intentions.

The darknet marketplace Silk Road introduced the underworld to the advantages of cryptocurrencies. Ten years after its closure, digital assets began to be integrated into the global financial system. The black market was ahead of the curve: statistics indicate a rapid increase in the use of bitcoin, stablecoins, and altcoins in the drug trade.

In April 2019, Mexican police arrested alleged trafficker Ignacio Santoyo after his name was linked to a Latin America-wide prostitution network. The arrest was made possible after Mexican authorities imposed controls on cryptocurrency transactions, revealing the use of bitcoin to launder crime proceeds.

The year 2020 saw numerous reports of digital assets being integrated into criminal cartel schemes. The arrests of drug traffickers and their financial advisors signaled the end of the myth of blockchain anonymity.

That same year, the DEA launched an operation on the P2P platform LocalBitcoins. Several informants interacted with Carlos Fong Echavarría, offering to exchange cryptocurrency for cash. The suspected Mexican national claimed the cash came from family restaurants and animal farms.

The DEA tracked alleged cash couriers through an undercover agent working directly with Fong Echavarría. The money trail was reconstructed to the point of drug sales using Binance. The crypto exchange’s management provided the agency with information on 75 transactions totaling $4.7 million.

The CEX wallet received funds from the suspect, after which the money laundering continued. In 2021, the account holder made 146 cryptocurrency purchases totaling about $42 million and 117 sales totaling $38 million.

A year later, the UN declared that the Jalisco New Generation Cartel and Sinaloa were increasingly using bitcoin payments to launder money.

Chinese Synthetics Without Tariffs

On September 26, 2023, OFAC imposed sanctions against nine individuals, including several fugitives associated with the Los Chapitos faction from Sinaloa. The organization is responsible for a significant portion of illegal fentanyl and other narcotics shipments into the United States.

In April 2023, the U.S. Department of Justice indicted seven suspects on a range of charges. Among them, Mario Alberto Jimenez Castro ran a cryptocurrency money laundering scheme for the cartel’s leadership. He instructed U.S.-based couriers on how to collect cash proceeds and convert them into digital assets for direct payment to Chapitos members and reinvestment in fentanyl production.

OFAC placed an Ethereum wallet linked to Jimenez Castro on the sanctions list. Between March 2022 and February 2023, more than $740,000 was deposited into it. This marks the first time a Mexican cartel has been officially recognized as using cryptocurrencies.

Digital assets are fully integrated into the drug business and are used for both money laundering and supply chain payments. The Sinaloa cartel uses them to settle payments with Chinese producers of synthetic substances.

Chinese precursor manufacturers supply the global synthetic drug trade.

According to TRM Labs, nearly two-thirds of fentanyl raw material producers also offer at least one precursor for mephedrone, MDMA, and “spice,” targeting Canada, the Netherlands, Australia, Germany, and the United States.

In 2023, manufacturers from China made 600% more profit in cryptocurrency compared to the previous year. In 2024, the volume doubled in just the first four months.

As of September 2024, about 60% of crypto payments to manufacturers were made in bitcoin, about 30% went through the TRON blockchain, and 6% came from Ethereum. Of the 120 precursor laboratories across 26 cities and 16 provinces, 97% offer payment in cryptocurrencies.

China’s shadow banks are deeply embedded in the U.S. alternative financial system and play a major role in cartel schemes. Due to restrictions on international transfers for Chinese nationals, these banks are used for laundering.

According to the Los Angeles Times, the Sinaloa cartel chose the San Gabriel Valley-based organization because of low fees—just 0.5–2% of the laundered amount, compared to 5–10% for traditional networks. Former DEA supervisor Anne Milgram noted the San Gabriel Valley group also received commissions from wealthy Chinese nationals who bought dollars from Sinaloa.

To transfer more than $50,000 a year overseas for real estate, investments, or tuition, a person contacts a broker in California. The broker arranges for drug proceeds to be transferred to a U.S. citizen—usually in cash or as a series of split deposits. The client then transfers the money to a manufacturer that produces consumer goods (electronics and clothing) or chemicals used to produce synthetic drugs.

In the U.S., more than $170,000 was sent via cryptocurrency ATMs to Chinese precursor manufacturers in 2023.

Decentralized Cartels: The Escobar Legacy

If Pablo Escobar’s Medellín cartel was extremely centralized and authoritarian, subsequent generations of Latin American criminal organizations have adopted more sophisticated management.

Decisions are made collectively by vote, and if a cartel leader is arrested, other members take over. In constant confrontation with law enforcement, this networked structure has no single point of failure and resembles a blockchain system. Each closed supply route is replaced by several others. If authorities disrupt the fentanyl supply, the cartel can temporarily shift to selling marijuana or cocaine.

According to a DEA report, the Jalisco cartel operates in more than 40 countries through a franchise business model.

Ruben “El Mencho” Oseguera-Servantes and a small group of high-ranking commanders lead the organization. The second level consists of regional and “plaza” bosses (leaders who control individual territories).

The franchise model allows each group to tailor its operations to a specific specialization, such as running clandestine methamphetamine laboratories, provided they:

• Comply with name, brand, and organizational structure standards

• Follow the general guidelines of the Jalisco cartel leadership

This model also allows the cartel to expand rapidly, as new franchises are opened at minimal cost. However, franchising has a weakness: groups operating under the Jalisco brand may form their own alliances with other criminal organizations.

The other major cartel, Sinaloa, has no single leader. Instead, it functions as an umbrella organization encompassing four separate but cooperating criminal groups.

This structure enables the independent group leaders to:

• Share resources, such as smuggling routes, connections to corrupt officials, access to illegal chemical suppliers, and money laundering networks

• Retain profits and autonomy, without reporting to a single authority

The four main factions within the cartel are led by:

• “Los Chapitos” – four sons of Joaquin “El Chapo” Guzmán Loera, the former head of Sinaloa, currently serving a life sentence in a U.S. prison

• Ismael “El Mayo” Zambada-García – more than 30 years of leadership

• Aureliano “El Guano” Guzmán-Loera – brother of El Chapo

• Rafael Caro-Quintero – founder of the now-defunct Guadalajara cartel

Sinaloa operates in at least 47 countries worldwide. It supplies methamphetamine and cocaine to Thailand, as well as Europe, Australia, and New Zealand, where drug prices are several times higher than in the United States.

It has permanent representatives in many Central and South American countries who coordinate cocaine shipments, ensure the importation of precursors, and disguise the true origin of shipments as they make their way to Mexico.

Additionally, Mexican syndicates have traditionally used African countries as transit points for cocaine shipments to Europe. The last recorded case occurred in June 2023: police in Mozambique arrested several people building a drug laboratory. Among them were two Mexicans who, according to investigators, had been hired by the Sinaloa cartel for that purpose.

Throughout history, criminal organizations have created entire alternative economies. A simple example is the global popularization of avocados and limes.

The scheme is simple. Mexicans export two shipments simultaneously: drugs under illegal schemes and local legal products in parallel. The profits from the first, illicit deal are laundered through the second. Thus, avocados and limes became popular worldwide, and their production became a profitable business. Even today, not all retail chains are willing to sell Mexican-produced avocados due to the product’s connection to the drug trade.

Trump vs. the Cartels

In January 2025, U.S. President Donald Trump issued an executive order designating six Mexican cartels (including Sinaloa and Jalisco New Generation) as “foreign terrorist organizations” and “global terrorists.”

This allows authorities to freeze cartel assets, block financial transactions, and provides a legal basis for possible intervention by intelligence and even military operations within Mexico.

In May, Trump proposed that Mexican President Claudia Sheinbaum allow U.S. troops to fight the cartels. Sheinbaum refused, citing concerns about intervention and the need to protect sovereignty. She made clear in response to U.S. calls for the “total destruction” of the cartels that Mexico must address organized crime on its own.

Tensions between the countries have escalated amid the White House’s aggressive policy of using force against migrants and protesters opposing mass deportations.

In June, Mexico reported a roughly 40 percent drop in chemical trafficking into the United States since Trump took office in early January 2025. Meanwhile, according to U.S. Border Patrol data, about 345 kilograms of fentanyl were seized at the southern border in April, down 1% from a month earlier.

The DEA reported that 22.2 million tablets and approximately 1,400 kg of fentanyl powder were seized in April 2025 alone, corresponding to about 119 million potentially lethal doses.

May saw the largest seizure in history: 2.7 million pills, with 16 people apprehended, including a ringleader with direct ties to Sinaloa.

Cartels function as states within states, operating in a decentralized manner. They are extremely difficult to defeat; at best, authorities can only partially mitigate the threat.

Moreover, in such an intense confrontation, a fast and reliable way to replenish bitcoin reserves has emerged, along with the opportunity to concentrate huge additional capital. According to various estimates, the annual turnover of Mexican cartels is about $50–70 billion, comparable to large sectors of the economy.