International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Friday, August 7, 2020

American Darknet Vendor and Costa Rican Pharmacist Charged with Narcotics and Money Laundering Violations

Co-conspirators Sold Hundreds of Thousands of Opioid Pills worth Millions of Dollars in Bitcoin on Multiple Darknet Markets

A dual U.S.-Costa Rican citizen and a Costa Rican citizen, both of whom reside in Costa Rica, were indicted by a federal grand jury in the District of Columbia for their illegal sales of opioids on the darknet.

The seven-count indictment charged David Brian Pate, 44, a U.S. and Costa Rican citizen, and Jose Luis Fung Hou, 38, a Costa Rican citizen, with counts of conspiring with persons to distribute controlled substances, distribution of controlled substances, conspiring with persons to import controlled substances, conspiring to launder money, and laundering of monetary instruments.

“As alleged in the indictment, the defendants helped fuel our deadly opioid drug epidemic by hiding behind the darknet and cryptocurrency to profit from the sale of illicit opioids into the United States,” said Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division.  “Fortunately, by working with our law enforcement partners across the United States and overseas, we were able to uncover this darknet opioid market and bring to justice those responsible.”

“These charges are a warning to drug traffickers worldwide that neither the shroud of the darknet or of virtual currency can hide their illegal activities from the vigilance of U.S. law enforcement,” said Acting U.S. Attorney Michael Sherwin for the District of Columbia.  “We are firmly committed to combatting the problem of opioid abuse and breaking through sophisticated cyber-enabled barriers employed by criminals to hide their activities.” 

“The opioid epidemic is a crisis crippling many families in this country,” said Special Agent in Charge Kelly R. Jackson of the IRS Criminal Investigation (CI) Washington D.C. Field Office.  “This international group profited off of people’s addictions, revictimizing them when they were already vulnerable. This group purposely distributed opioids that did not contain a safety additive and prevented inhalation of the drug.  Years ago when drug dealers and traffickers moved to the darknet and started using virtual currency to conceal and expand their network, CI also moved our playing field to the darknet to bring groups like this to justice.”

“Today’s case is a great example of how the DEA has infiltrated the darknet and, together with our law enforcement partners, proven that every criminal attempting to sell these deadly drugs is within the reach of the law,” said Special Agent in Charge Jesse R. Fong of the U.S. Drug Enforcement Administration’s (DEA) Washington Field Division. 

The indictment alleges that Pate illegally purchased narcotics, including OxyContin and morphine pills, primarily from Fung, a pharmacist in Costa Rica.  Pate would launder payments to Fung to purchase narcotics.  Pate then sold these narcotics on numerous darknet markets, including Silk Road and AlphaBay, in exchange for bitcoin.  Pate utilized various online monikers including “buyersclub” on darknet markets, online forums, and bitcoin exchanges.  Pate advertised that he was selling the “old formula” of OxyContin, which did not contain tamper-resistant features such as a crush-proof feature that prevented a user from inhaling or injecting the pills after pulverizing them. 

The indictment further alleges that Pate’s darknet sales involved him sending bulk shipments of narcotics in pill form from Costa Rica, often concealed in tourist souvenirs such as maracas, to co-conspirator re-shippers in the United States.  Pate would then send the re-shippers a list of customer orders, which included customer’s names, the customer’s shipping address, and the quantity of pills they purchased.  The re-shippers created smaller packages of pills, which they then mailed to the customer.  Once the shipments were received by the customer, the darknet market would release funds in bitcoin, which were held in escrow until the transaction was completed, into Pate’s account on the darknet market.  Customers paid Pate over 23,903 bitcoin for these darknet market sales.  The co-conspirators also laundered payments in the form of bitcoin and international wire transfers. 

The charges in the pleadings are merely allegations, and the defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law. 

IRS-CI Cyber Crimes Unit, DEA, and the U.S. Postal Inspection Service investigated this case.  The Justice Department’s Office of International Affairs and Costa Rican authorities provided assistance.

Download Pate Indictment

https://lawprofessors.typepad.com/intfinlaw/2020/08/american-darknet-vendor-and-costa-rican-pharmacist-charged-with-narcotics-and-money-laundering-violations.html

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