December 22, 2022

Credit: The Wall Street Journal

Chinese chemical companies are making more ingredients for illegal fentanyl than ever. Strained relations between Beijing and Washington are undermining efforts to stop the flow.

Among the available products are compounds with obscure names such as N-Phenyl-4-piperidinamine, which Mexican cartels purchase to make into fentanyl. The opioid has become the most deadly illegal drug the U.S. has ever seen.

A few years ago, a joint effort to limit the flow of illicit fentanyl was a successful point of collaboration in a tense U.S.-China relationship. In 2018, China restricted the production and sale of two of the most common ingredients for the drug, a move that won it praise from the U.S.

Since then, the U.S. has adopted a tougher posture toward China, while China has also grown more assertive about defending its interests. As a consequence, the cooperation on combating the drug trade has broken down.

Conversations about fentanyl between China and officials from the Drug Enforcement Administration and State Department have ceased, according to Biden administration officials and to Rep. David Trone, a Maryland Democrat who was recently co-chair of a federal commission on opioid trafficking.

Mr. Trone said he discussed the fentanyl trade with China’s ambassador to the U.S. in March and May, and with Chinese security officials in a virtual meeting in July. U.S. officials said China cut off all talks over fentanyl after House Speaker Nancy Pelosi’s August visit to the contested island of Taiwan, which angered China.

Nicholas Burns, the U.S. ambassador to China, said he is pressing senior Chinese officials to re-engage on fentanyl. He described the flow of Chinese chemicals to Mexican drug cartels as a major challenge in the U.S.-China relationship.

China places the blame squarely on the U.S. “As a matter of fact, it is the U.S. that has undermined China-U. S. counter-narcotics cooperation,” said Liu Pengyu, a spokesman for China’s embassy in Washington.

China has also said the U.S. should address its drug crisis by curbing demand. “The U.S. must look squarely at its own problem instead of deflecting blame,” said Foreign Ministry spokesman Wang Wenbin at an August news conference.

Tensions between the U.S. and China eased after a November meeting between President Biden and Chinese leader Xi Jinping. U.S. officials said they nevertheless anticipate intense competition in the years ahead. Chinese officials criticize what they call U.S. efforts to suppress China’s ambitions.

China’s government considers biopharmaceuticals an important economic driver and has no incentive to overregulate the sector, the U.S. Commission on Combating Synthetic Opioid Trafficking said in February.

Chinese academics said that weak coordination and unclear lines of command in China’s drug-enforcement system contribute to the problem. When the government regulates one chemical used in the drug trade, others quickly emerge to replace it.

“We were always trying to chase that next substance,” said Russell C. Holske Jr., who led the DEA’s operations in Asia from 2016 to 2019.

Chemical companies in China target Mexican buyers online. The companies say they accept payment in cryptocurrency, and they use encrypted channels to talk with customers.

“Mexico Stock,” read a posting on the website of Wuhan-based Hanhong Medicine Technology (Hubei) Co., which advertises supplies of fentanyl ingredients. “100% Pass Customs.”

Hanhong didn’t respond to emailed requests for comment. A woman who answered its phone hung up on a reporter.

Some Chinese nationals working with cartels moved to Mexico and adopted local names as part of money-laundering rings, say federal prosecutors. One such network funneled drug proceeds from New York through China’s banking system and ultimately to Mexico, according to prosecutors and court testimony from people involved.

The U.S. has charged Chinese citizens whom prosecutors accuse of helping cartels supercharge the fentanyl trade. Because the countries have no extradition treaty, some of the accused remain at large.

In an indictment unsealed last year, federal prosecutors in the Northern District of Texas charged Chuen Fat Yip, who they said runs a Chinese conglomerate that makes fentanyl ingredients and steroids, with conspiracy to distribute controlled substances in the U.S. and other crimes tied to the drug trade. The charges had been filed in 2018.

Mr. Yip’s business network, known as the Yuancheng Group, includes companies with operations in Wuhan and other cities, according to prosecutors. Last year, the U.S. offered a reward of up to $5 million for information leading to his arrest and conviction.

Yuancheng didn’t respond to requests for comment. One of the Yuancheng businesses said in a letter to the federal court in Dallas that Mr. Yip shouldn’t be held responsible if customers make illicit drugs from its chemicals.

The business compared the charges to holding a steelmaker responsible for a stabbing. “If someone bought the knife to hurt someone, was the mineral supplier illegal?” the company said in its letter, sent in May.

In a court filing two months earlier, the Justice Department said that Mr. Yip and his associates met undercover U.S. agents at a Las Vegas trade show in October 2015. The filing stated that the Chinese group had acknowledged illegally distributing controlled substances in the U.S.

In its letter to the court, Yuancheng called that account “inconsistent and inconceivable.”

To avoid scrutiny at customs, Mr. Yip’s company at times disguised chemicals as packaged food, according to the federal indictment.

In 2017, the indictment said, one of Mr. Yip’s companies agreed to send 25 kilograms of the fentanyl ingredient 4-ANPP to the U.S. The indictment said a buyer planned to take the chemicals to Mexico to be made into fentanyl and smuggled into the U.S.

Yuancheng denied that in its letter to the court. “It was normal trading, goods are packed under customer’s requirements, not disguised as food or something,” the company said. The letter said the allegations against Mr. Yip were “completely untrue.”

The period when federal prosecutors charged Mr. Yip, 2018, was a time of relative harmony between U.S. and Chinese officials on fighting the drug trade. A tip from the U.S. Department of Homeland Security in 2017 had led China to arrest and convict a man named Liu Yong and several others for running a fentanyl production and export ring targeting the U.S. After his sentencing in 2019, U.S. and Chinese officials convened a joint press conference to celebrate their cooperation.

Mr. Liu was sentenced to death with a two-year reprieve, a punishment China often commutes to life in prison. China hasn’t said what happened to him.

Chemicals from Mr. Yip’s Yuancheng Group also flowed into Canada, according to customs records and court documents from a separate case, in Newmarket, Ontario. As in the U.S., opioid abuse and overdose deaths have worsened dramatically in Canada in recent years.

A Yuancheng unit sent more than a ton of the chemical azobisisobutyronitrile in 2017 to a Canadian company called Genaxx Pharma Inc., a shipping record shows. The chemical can be used to produce meth, according to the International Narcotics Control Board, a monitoring body for United Nations drug-control conventions.

A man named Wister Lee imported chemicals from Yuancheng for Genaxx, court records show. Canadian undercover agents posing as brokers for fentanyl producers arrested Mr. Lee in 2020 after he sold them chemicals.

Mr. Lee used aliases and split his time between Canada, Hong Kong and Thailand, court records show. Inside a family home that police raided outside Toronto, investigators found 106,000 Canadian dollars in cash, about U.S. $80,000 at the time, according to court records.

In a warehouse where Mr. Lee stored chemicals, police found vats of liquids and boxes of powders, many ordered from Chinese companies, based on photographs of their labels included in court records. According to court documents, border agents seized a box headed from Hong Kong to Mr. Lee’s firm containing 4-piperidone, another ingredient that can be used to make fentanyl.

He pleaded guilty in December 2020 to possessing chemicals that he knew would be used to produce controlled substances. A Canadian court sentenced him to nearly four years in prison. He was released on parole in May.

Mr. Lee said in a text message that his role was to import chemicals, not to determine how they would be used. “I don’t know any of my customers,” he said.

As U.S. officials pursued Mr. Yip, the fentanyl supply chain has evolved. After China in 2018 tightly regulated two key fentanyl ingredients, including 4-ANPP, alternatives began flowing to Mexico.

Mexican officials inspecting a container shipment from China at the Port of Ensenada in May 2020 discovered 375 pounds of such chemicals, including one called 4-AP, hidden within a shipment of powdered soap, according to the DEA. Through a one-step chemical reaction, 4-AP can be converted into 4-ANPP for fentanyl production, the agency said.

U.S.-China cooperation began breaking down around this time. In the same month as the 4-AP bust in Mexico, the U.S. said it was blacklisting a Chinese police institute for an alleged role in human-rights abuses of Muslim residents of China’s Xinjiang region. The designation limited the institute’s ability to access U.S. technology.

In negotiations over fentanyl, Chinese officials have pushed the U.S. to unblock the institute in exchange for their cooperation. Not doing so hurts China’s goodwill to help the U.S., China’s embassy in Washington said in 2021.

U.S. officials say they have urged China to take three steps to constrict the fentanyl trade: Require Chinese companies to know the identities of customers before shipping chemicals; ensure that such shipments are properly labeled for customs inspectors; and create a system to track shipment volumes and trends.

Homeland Security agents and Mexican authorities stopped about 24,000 pounds of cutting agents coming from China to dilute high-purity fentanyl synthesized by cartels in Mexico in October 2020. Agents also blocked 1,600 pounds of 4-AP coming into Mexico from China and 1.5 million pounds of ingredients for meth from China and India, in 2021 and 2022.

Agents traced the chemicals to high-level buyers inside a Mexican cartel. The transactions, through brokers and shell companies, were arranged so the chemical makers in China might not have known who bought the chemicals in Mexico.

The U.N. Commission on Narcotic Drugs in March added 4-AP to a list of substances that countries agree to regulate closely. China, a member of the commission, hasn’t said it would add restrictions on 4-AP. Dozens of websites with Chinese contact information list 4-AP for sale among their products.

After the U.N. agreed to restrict 4-AP, substitutes appeared on the market. One, para-fluoro 4-AP, is advertised online by Wuhan’s Hanhong.

On its website, contact information for salespeople is provided for the encrypted-messaging platform Wickr Me. Hanhong says it accepts payments in forms including cryptocurrency.

In August, Hanhong began advertising a new product on its website: the psychoactive drug bromazolam. In recent years, that has appeared in postmortem blood samples of drug users in Europe and the U.S. Many of them had taken bromazolam with fentanyl, researchers said.

Rahul Gupta, director of the White House Office of National Drug Control Policy, said new chemical threats will continue popping up unless China approaches illicit drugs as a global problem. “No one action will permanently address this threat,” he said.

Rachel Liang contributed to this article.

Write to Brian Spegele at brian.spegele@wsj.com and Julie Wernau at Julie.Wernau@wsj.com