Punish Chinese money-launderers and banks who finance the trade in fentanyl

As Americans gather for the holiday season, there will be thousands of empty chairs at dinner tables signifying the victims of the Chinese-backed fentanyl trade, the leading cause of death for Americans aged 18 to 45.

Chinese premier Xi Jinping is culpable for this epidemic. He pretends to clamp down on the cartels, but takes no effective action. Yet, rather than holding Xi and the Chinese Communist Party accountable, the Biden administration appears to be bending a knee to Beijing once again.

Biden welcomed Xi to San Francisco last month, calling it “a great honor and a pleasure.” The two leaders struck a deal to stem the flow of Chinese fentanyl precursors to the U.S. Biden explained that the deal was “going to save lives, and I appreciate President Xi’s commitment on this issue.” But the contours of the deal are inadequate. They came at a high cost, and Beijing can just stop cooperating at any time.

Xi made a similar deal with former President Trump in 2019 that ended shipments of Chinese fentanyl to Mexican cartels. In 2019, a senior Chinese official said that Beijing would enforce its laws “even more comprehensively” and “bring violators to justice without mercy.” However, the benefits were short-lived as Chinese companies and individuals circumvented Beijing’s measures by shipping fentanyl precursors that were not restricted.

America’s fentanyl crisis reaches every community and is an urgent public health and national security priority. Opioid deaths, including from fentanyl, have exploded from more than 47,000 in 2019 to more than 80,000 in 2021. Beijing has since paused counter-narcotics cooperation with Washington, after then-Speaker Nancy Pelosi’s August 2022 visit to Taiwan.

To hide the limited scope of the deal with China, the administration added non-China related actions to the fact sheet it issued after the deal. The White House claimed that the administration’s diplomacy resulted in “concrete action” but this essentially amounted to a notice to China’s domestic industry against selling precursors and pill presses. This is just like the now-discarded notice issued in 2019, promising undefined law enforcement action against precursor suppliers, and reporting incidents to an international database.

The Department of the Treasury and the Department of Justice have previously used their authorities to target Chinese entities and individuals shipping fentanyl precursors and pill presses, which Treasury notes is “a mechanical device that compresses powdered substances into tablets of uniform size and weight.”

Last month, the Justice Department announced the unsealing of indictments in Florida charging eight Chinese companies and 12 Chinese individuals for fentanyl production and sales of precursor chemicals. The indictments detailed how the companies “openly advertised their ability to thwart U.S. customs and deliver the chemicals used to make fentanyl” in the U.S. The Justice Department also alleged that “individuals used fake shipping labels and special delivery procedures to ensure the illicit chemicals went undetected.”

Treasury also sanctioned 28 entities and individuals to complement the Justice Department’s action. In May, Treasury designated seven entities and six individuals based in China for selling pill presses and die sets, which are used to produce counterfeit pills that mimic the markings of legitimate pills.

Unfortunately, these efforts were undermined by Biden’s deal with Xi. The administration should have insisted that all Chinese individuals indicted for fentanyl related activities be prosecuted in American courts. Instead, Biden accepted Xi’s promise of counternarcotics cooperation to prove that the administration’s approach of working with Beijing on some issues will decrease the temperature in other areas.

The fentanyl deal came at a high price. Instead of using the leverage provided by his administration’s sanctions and indictments, Biden granted Xi an additional concession by removing the Ministry of Public Security’s Institute of Forensic Science of China from the Commerce Department’s Entity List. In June 2020, the department had added the entity and noted that it was “implicated in human rights violations and abuses” in Xinjiang against Uighurs, Kazakhs, and other members of Muslim minority groups.  There is no reason to believe the institute has stopped these abhorrent practices. 

Biden also largely ignored the role of Chinese money launderers and Chinese banks in financing the fentanyl trade, and excluded the Treasury Department from a recent White House roundtable on countering the fentanyl trade. The cartels run a cash business inside the U.S. and face a dilemma of moving their money to Mexico. Chinese money launderers have stepped in to coordinate an elaborate scheme across the three financial systems.

Chinese individuals take cash from the drug transactions and offer it to Chinese citizens who need access to U.S. dollars. This marries two groups with similar interests and allows the money launderers to hide the transactions inside the Chinese financial system. The money is then used to buy items in China that are sold for pesos in Mexico, providing the hard currency the cartels require. The Treasury and Justice Departments have noted that these transactions, some of which total tens of millions of dollars, were processed by the largest banks in China.

The administration’s fentanyl deal is an effort to reinforce Washington’s China policy of cooperation in areas of mutual interest and competition in other areas. But this is the flawed China policy of the past. Congress must step in and push Biden to tackle this issue more directly.

Biden credited Senate Majority Leader Chuck Schumer (D-N.Y.) for raising fentanyl during a bipartisan October trip to China. The Senate, under his leadership, was instrumental in the 2019 passage of the Fentanyl Sanctions Act, and Sen. Tim Scott (R-S.C.) has been working on updating and strengthening the law through his bipartisan FEND Off Fentanyl Act, which was included in the Senate’s version of the annual defense authorization bill. Both the Senate and House should work to ensure that this critical legislation is included in the final text.

Congress should not stop there, it should conduct oversight of the administration’s fentanyl policy, including questioning why the administration weakened Xinjiang sanctions to secure the fentanyl deal.

Americans are dying from Xi’s unwillingness to stop the fentanyl trade. Biden correctly called Xi a dictator, he should stop making deals with him and use his leverage to punish China for killing Americans.

Anthony Ruggiero, a former National Security Council senior director for counterproliferation and biodefense (2019-2021), is a senior fellow and senior director of the Nonproliferation and Biodefense Program at the Foundation for Defense of Democracies (FDD). Matthew Zweig is the senior policy director at FDD Action.