As Opioid Crisis Evolves, Anonymous Company Loopholes Remain a Gap

By Nathan Proctor

This article is cross-posted from Fair Share’s website.

What’s Changed Since Our 2016 Report, “Anonymity Overdose,” and What Hasn’t

Our 2016 report, Anonymity Overdose, charted the connection between the opioid epidemic and the problem of anonymous shell companies.

As Congress ramps up funding for the national response to this crisis (though not at the levels some had hoped for), we wanted to provide an update on how the opioid trafficking operations are changing, and why ending anonymous shell companies is still an incredibly low-cost, bipartisan approach to help take on the opioid crisis.

Our findings from 2016

Our report, featured on CBS MoneyWatch, the Hill, the New York Times, the Wall Street Journal and elsewhere, made the case that ineffective money laundering controls make it easier and cheaper to traffic opioids.

We recommended closing loopholes that allow companies to be formed with no record of who owns them, which would help law enforcement seize money from drug trafficking operations, and trace street level crime up to kingpins.

The report featured 10 case studies of how anonymous shell companies — companies formed with no record of who owns them — were used as money laundering instruments or front operations for opioid traffickers, sometimes as part of larger more diverse criminal operations.

In the case of Kingsley Iyare Osemwengie, who used sold oxycodone across many states through prostitutes and couriers, profits were shifted through an anonymous shell company aptly named High-Profit Investments LLC.

In an example of how anonymous companies can be used to front as legitimate businesses, Owen Hanson allegedly lead a violent international narcotics trafficking and gambling ring based in San Diego, California. He used a U.S. based anonymous shell company called Big Dog Memorabilia Inc., to disguise his activities.

From prescription abuse to more powerful street drugs 

Opioids are highly addictive, and users develop tolerances which can push them into higher and higher dosages to get the same “high.” An increasing body of research is showing that prescription drug abuse can lead people to move to more powerful — and much cheaper — street drugs like heroin.

The National Institute on Drug Abuse, reports that “[n]early half of young people who inject heroin surveyed in three recent studies reported abusing prescription opioids before starting to use heroin.”

While a prescription drug like oxycodone might have a street value of $80 per pill, in most states, a dose of heroin costs less than a pack of cigarettes.

The rise of fentanyl, carfentanil and other synthetic opioids

Heroin isn’t the end of this chain. Synthetic opioids, which have dramatically increased in availability and popularity, can be far more powerful than heroin — and therefore easier to move without detection.

Fentanyl, a synthetic opioid which can be 100 times more powerful than heroin, was detected in more than 50% of opioid overdose deaths in 2016, according to the CDC. The New York Times estimated that fentanyl deaths were up 540% over the last 3 years. Some synthetics, like carfentanil, are so potent that first responders risk overdose by physical contact with an addicts clothing. Carfentanil has been used as a chemical weapon.

Fentanyl poses new challenges to law enforcement, in addition to first responders and healthcare workers. New production techniques have spawned new distributions systems, which our law enforcement officials are working to confront.

Fentanyl by mail

Because fentanyl and other synthetics are so much stronger, they take up a lot less space and can be much more easily hidden in other products. For example, it can be hidden in fake “Silica Gel” packets and included with another product and was uncovered by the Globe and Mail. And because these drugs are synthetics, they can be produced in factories without leaving much of a supply chain to tip off investigators.

Earlier this year, the Senate Subcommittee on Investigations did a study of how easy it was to order fentanyl through the mail — essentially googling “buy fentanyl online” and then tracking the most responsive vendors. Researchers logged 500 online transactions with a street value of approximately $766 million. Those examples were on the standard web, there are additional portals to buy these products on the dark web, where traffic is much harder to track and trace.

The result of pressure on China by the U.S. and other countries to take more action against synthetic opioids by expanding their controlled substance bans has shown some progress, but law enforcement is hoping for more action.

Last year China banned several synthetics, including carfentanil. There are indications that this has cut down on the number of sellers. Yet, while reduced, there are still open drug markets on Chinese websites. Compared to the U.S., China has loose regulation of chemical companies and fewer requirements for transparency. And while last year the U.S. Department of Justice announced the first-ever indictments of Chinese nationals accused of shipping large quantities of fentanyl through the mail to international customers, China has been reluctant to take their own enforcement actions.

Anonymous companies help ship synthetic opioids

As drug enforcement agencies catch up to some of the new methods, anonymous companies remain a gap that aids the illegal trafficking of opioids. For example, agents in Southern California intercepted a commercial pill press being sent to “Beyond Your Dreams” a shell company set up in California. The shipper was Capsulcn International, a company set up in abroad. Both are, as far as I can tell, anonymous companies.

While there is more direct to customer traffic through the mail, many order synthetic opioids to distribute. One of the reasons that pill presses are an item to watch for port authorities is that a small amount of fentanyl can be pressed with other filler ingredients and made to look like oxycodone tablets, which have a greater street value. These fake prescription drugs can have very unpredictable strength and pose significant overdose risks to would-be users.

Cartels are placing their orders, too

Similar to methamphetamine, the illicit manufacture and distribution of fentanyl is lucrative for the Mexican cartels. They manufacture it in their own Mexican-based labs using precursor chemicals imported from China. Fentanyl’s potency allows the cartels to deal in smaller shipments. This boosts the efficiency of its operations and results in enormous criminal proceeds.

Money laundering reforms would aid targeted new distributors

For tackling these emerging dealers, money laundering tools are critical. As was reported in “Anonymity Overdose,” following the money up from a street deal to the supplier is a time-tested investigative tool for law enforcement. Anonymous shell companies make this work all-the-more difficult by providing essentially a getaway car for drug profits.

With no record of who owns them, anonymous companies are an ideal vehicle for hiding drug proceeds. A string of shell companies can launder the money back into a usable form, which is often difficult or impossible for law enforcement to trace.

Mexican drug lords and traffickers based in China, armed with new distribution techniques frequently avail themselves of offshore shell companies. The fact that we continue to provide free harbor for illicit money increases the profit margins.

As the opioid epidemic evolves and finds new cracks in the armor, getting rid of anonymous companies is one straight-forward move that would get rid of one those cracks.

Nathan Proctor is a National Campaign Director with Fair Share, and the State Director of Massachusetts Fair Share.