A methamphetamine and cocaine gang operating across the U.S., Mexico, Europe and Australia used the world’s biggest cryptocurrency exchange Binance to launder tens of millions in drug proceeds, according to an ongoing investigation by the US Drug Enforcement Administration. Between $15 and $40 million in illicit proceeds may have been funneled through Binance, the DEA alleged.
The previously-unreported case provides rare insight into how Mexican-based narcotics dealers are increasingly looking to cryptocurrency as a means to obscure illicit business transactions. At the same time, it shows federal agencies moving to track illegal use of cryptocurrency – once touted as untraceable – and how closely they work with exchanges like Binance to track organized crime (though Binance itself is facing a federal probeover concerns about money laundering on its platform).
According to a search warrant obtained by Forbes, the investigation into the unnamed Mexican gang’s use of Binance began in 2020 when multiple DEA informants using localbitcoins.com, a crypto trade forum, interacted with a user offering to exchange cryptocurrency for cash. The transaction appeared to be simple: send Bitcoin or USDC (a “stablecoin” whose value is pegged to the U.S. dollar) to the seller’s account and then meet him or a contact to collect the cash in person. The trader – Mexican national Carlos Fong Echavarria – told them the cash came from “ family restaurants and cattle ranches,” according to the government’s account.
This is actually an example of where the transparency of blockchain transactions works against criminal actors.Matthew Price, senior director of investigations at Binance
By surveilling the alleged couriers of the cash, and having an undercover agent deal directly with Echavarria, the DEA said it tracked the money back to drug sales. In August, Echavarria, who was arrested last year, pleaded guilty to two charges, one of drug dealing, the other of money laundering. He awaits sentencing.
The DEA’s investigation continued during his prosecution. With assistance from Binance, the agency tracked Echavarria’s crypto across 75 transactions he made with the undercover agent, totalling $4.7 million. One account appeared to be taking money from Echavarria and continuing the laundering process, the DEA said. In 2021, the owner of that account made 146 purchases of cryptocurrency worth nearly $42 million and sold over $38 million across 117 sell orders, according to the warrant. The DEA said it believed at least $16 million of that was derived from drug proceeds. It didn’t offer any explanation for the source of the remaining funds.
Thanks to information provided by Binance, the DEA was able to identify the owner of that second account. Though he’s named in the warrant, Forbes is withholding his name from publication as he is yet to be charged.
Binance senior director of investigations Matthew Price, a former IRS cybercrime agent, told Forbes the Echavarria case was notable as it showed a Mexican-based operation laundering significant drug money through cryptocurrency wallets. Previous investigations have found evidence of cartel use of cryptocurrency, but transactions were only in the tens of thousands.
“This is actually an example of where the transparency of blockchain transactions works against criminal actors,” Price told Forbes. “The bad guys are leaving a permanent record of what they’re doing.
This isn’t the first time Binance has helped the DEA. Earlier this year, it said it worked with the agency to seize over 100 accounts linked to suspected drug money laundering in Mexico.
Those seizures pointed to a trend identified in a U.N. report earlier this year claiming the Jalisco New Generation and Sinaloa cartels were increasingly looking to bitcoin as a laundering mechanism. That said, some experts believe Mexican gangs will likely continue to move cash proceeds across the border in bulk to stop American cops following their money. “On a larger scale, [crypto laundering] is still completely dwarfed by cash and other means just because of the volume of money involved,” Prince explained.
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By Thomas Brewster, Forbes Staff