Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned three individuals and nine entities associated with darknet marketplaces and research chemicals sites under the Illicit Drugs Executive Order (EO 14059) for supplying illicit synthetic substances to U.S. markets through internet sales and a host of shell companies. Today’s action marks the first time this EO has been used to designate activities related to online and darknet market illicit drug sales.
Two individuals, Alex Adrianus Martinus Peijnenburg (Peijnenburg) and Martinus Pterus Henri De Koning (De Koning) began their business selling illicit fentanyl, synthetic stimulants, cannabinoids, and opioids on darknet marketplaces and then eventually moved to more traditional online methods, where users were pushed to these sites via popular social media ads. Back in 2017, these two individuals were arrested by the National Police of the Netherlands for the sale of illicit synthetics; however, even after their arrest, they continued drug trafficking through the use of various Dutch companies. Through their website, therealarc[.]com, the two profited $2 million through virtual currency. As a result, OFAC has stated their designation is due to having “materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.”
Separately, Matthew Simon Grimm (Grimm) is the registered owner of Smokeyschemsite[.]com, an online marketplace similar to Peijnenburg and De Koning’s sites that also accepted payment through virtual currency. As a result of selling Schedule 1 controlled substances through his site, Grimm was also included in this designation.
Grimm and Peijnenbur had Bitcoin, Bitcoin Cash, and Ethereum addresses associated with them, and those addresses were included as identifiers on the Specially Designated Nationals (SDN) list. Chainalysis also identified thousands of additional addresses associated with the two actors. The third individual, De Koning, had no known cryptocurrency addresses associated with him.
While today’s designation is unique in that the Illicit Drugs EO was used for online sales of synthetics, it’s not the first time OFAC has targeted fentanyl-related activity. Back in April 2018, OFAC designated Jian Zhang and his network as specially designated narcotics traffickers under the Foreign Narcotics Kingpin Sanctions Regulations (SDNTK) for the trafficking of fentanyl. However, no cryptocurrency addresses were included in that designation. Later on though, in August 2019, OFAC again designated fentanyl traffickers Fujing Zheng and Xiaobing Yan under the SDNTK program. This time, they included their cryptocurrency addresses, highlighting over $1 million having been processed through virtual currency.
Combating trafficking broadly
Today’s news is a continuation of OFAC’s work to crack down on narcotics trafficking and successfully pursue illicit actors who utilize cryptocurrencies as a means of dodging enforcement action. Criminals turn to crypto for many of the same reasons as legitimate consumers: for its speed, pseudonymity, and cross-border functionality. To combat this illicit use of cryptocurrency by criminals, investigators must grow their knowledge and capabilities to keep pace with the speed of crypto. Read more on how to leverage blockchain analysis to combat trafficking here.