A new report on organized crime and gold mining in Latin America offers insight into how states, the international community, and the private sector have failed to control a criminal boom that has caught the region woefully underprepared.
The report by the Global Initiative Against Transnational Organized Crime traces how organized crime has co-opted informal gold mining in Latin America, generating enormous illicit wealth as well as violence, corruption and environmental destruction.
The investigation highlights how two critical factors -- higher risks and lower profit margins in drug trafficking, and a surge in international gold prices -- have combined to create the ideal conditions for a boom in criminal gold mining. This phenomenon has been most evident in Colombia and Peru, but has also left its mark in Mexico, Nicaragua, Bolivia, Ecuador, Venezuela, Guyana and Brazil.
The figures provided by Global Initiative are staggering. In Peru, illegal gold exports add up to an estimated $2.6 billion a year, the report states, while in Colombia the trade is worth approximately $2 billion, Mexico $500 million and Brazil $400 million. Around 28 percent of gold mined in Peru and 80 percent in Colombia is illegal, the report adds, with the percentages elsewhere reaching as high as the 80-90 percent recorded in Venezuela.
Building on investigations by media and civil society organizations, Global Initiative examines the role of armed groups, drug traffickers, and other criminal networks in illegal gold mining, ranging from the Marxist guerrillas of the Revolutionary Armed Forces of Colombia (FARC) to the Italian mafia.
The report also lays out the many ways that crime and mining intersect, from the most basic level, in which a criminal group extorts mining operations, to more sophisticated schemes, in which mines and gold trading are used to launder billions of dollars of illegal money.
In addition, the report describes both the environmental and the human toll exacted by this criminalization of informal mining, which has led to widespread deforestation and mercury poisoning and been linked to displacement, forced labor and sex trafficking.
Perhaps one of the most welcome contributions of the Global Initiative report is its exhaustive cataloguing of the numerous national and international mechanisms that could be deployed against illegal gold mining, and its explanation for why Latin America has not been able to harness these to bring illegal mining under control.
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As highlighted by the report, the tools available to combat illegal mining can be broadly divided into four areas: legislation in import and export countries, international accords, private sector initiatives, and civil society action groups. These mechanisms run the range from local state laws to United Nations conventions, and take aim at labor and environmental abuses, corruption, human trafficking, money laundering, the funding of armed groups and supply chain transparency. As well as these punitive options, they also include programs that certify mines as responsible producers and promote ethical gold sales.
However, the report points out, efforts to combat illegal mining have been undermined by numerous weaknesses. International conventions remain unsigned or unenforced. Legislation cannot keep pace with the evolution of organized crime. Corporations operate with limited, voluntary guidelines instead of a true a regulatory framework. Certification schemes are often vague and weakly implemented, while efforts to introduce traceability to the supply chain have backfired.
In addition, these mechanisms have not been used in an integrated way, the report argues. There has been a glaring lack of coordination across the public and the private sectors and nationally and internationally, resulting in efforts riddled with gaps and overlaps.
The report offers recommendations for each level of the illegal gold supply chain to remedy this, calling for an integrated response targeting each stage. Firstly, export countries should combine efforts to persecute criminal networks with a simplified, better funded program to bring small-time miners who operate without proper permits into the legal economy. Secondly, import countries should oblige stakeholders to meet international human and labor rights and environmental standards, enforce conflict mineral laws and hold accountable the companies that buy and sell illegal gold. Corporations, meanwhile, should take responsibility for ensuring their gold is legal and responsibly sourced and they are meeting international labor and environmental standards.
InSight Crime Analysis
In recent years, Latin America has slowly come to the realization that what was once considered a minor environmental crime is now one of the principal sources of criminal income for powerful underworld actors across the region. The speed and agility with which criminal networks have bent mining to their cause has far surpassed that of the response by the region's governments, which have struggled to adapt to the complexity of the task they face.
The governments that have taken the most action are those that have been most affected, Colombia and Peru, but their measures so far have yielded mixed results and have often created as many problems as they have solved.
Colombia has made tackling illegal mining one of its security priorities; thus, the police and military have targeted the sector relentlessly in certain regions, leading to a dramatic increase in arrests, seizures and the destruction of machinery. However, these efforts have left small-scale, informal miners feeling like criminals, and they complain that the security forces make little attempt to differentiate between workers trying to earn a living and the criminal groups that extort and exploit them.
Attempts to introduce traceability into Colombia's supply chain have also seen mixed results. Gold sales are now limited to registered miners, but local officials in mining zones, miners and gold traders say the main impact of this has not been to reduce the flow of gold but to push the sector further towards criminality, as they can now only sell gold on the black market.
Peru has declared its own war on illegal mining. The government has introduced legislation to facilitate shutting down illegal mines and stepped up investigations into suspect gold exporters and money laundering in the mining sector. However, prosecutions have largely been limited to those at the bottom of the supply chain, while officials say the increased pressure on the supply chain has led to a huge growth in smuggling of illegal gold across the border into Bolivia, where its origins are easily concealed.
Both countries have also experimented with formalization, one of the key policy recommendations of Global Initiative. However, there have been few success stories. In Colombia, a pilot legalization program launched in 2012 in the illegal mining hotspot of Bajo Cauca. The program initially involved 150 mining operations out of more than 1,000 that operate in Bajo Cauca. More than three years on, only 25 remain in the process, and none have completed the transition into becoming fully legalized.
Peru has fared little better. In 2012, the government launched a program to encourage thousands of miners in the region's main illegal mining hotspot, Madre de Dios, to formalize. Currently, over 1,800 miners that signed up remain suspended in a legal limbo.
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While supply side attempts to control illegal mining have stumbled, there has been little action on the other end of the supply chain. The big international smelters that purchase gold from Latin America have supply chain policies that make solemn promises not to tolerate armed groups profiting from the gold they buy or money laundering in their supply chain. However, the only major legislation dealing with conflict minerals, the Dodd-Frank Act -- and the conflict-free certification organizations that have sprung up around it -- are only concerned with the Democratic Republic of the Congo and its neighbors, meaning there is little oversight as to whether they are meeting their commitments in Latin America.
As highlighted by the Global Initiative, the rules of the game could be set to change with new European Union legislation that is looking to expand Dodd-Frank style regulations to other vulnerable countries. However, such legislation could be counterproductive -- as some claim the Dodd-Frank Act has been. Given the huge logistical challenge of tracing gold through a convoluted supply chain, many companies will find it easier to simply end purchases from vulnerable countries rather than comply with the complex regulations, leading to a de facto embargo that could have devastating economic consequences in mining regions.
Despite the current lack of oversight, there have been isolated cases of corporate action. In 2014, Metalor announced it was to stop purchasing gold from Peru's illegal mining hub Madre de Dios. However, the company continued to purchase gold from Bolivia that officials suspected of being contraband Peruvian gold, according to Global Initiative's report. It also continues to purchase gold from the illegal mining zones of Colombia.
As the Global Initiative report states, many of the tools needed to take action against illegal mining are already present -- it's a matter of using them in a more integrated way. The enormous complexity of picking apart a transnational trade -- one that combines a legal product with illegal production and informal workers with criminal structures -- means progress will require a far more coordinated response.
Perhaps the most important of Global Initiative's recommendations is the call for formalization, as it is the sector's informal status that has left mining so vulnerable to organized crime. Bringing unlicensed miners into the legal economy can not only help reclaim the space lost to organized crime, but it is also perhaps the only way to separate the informal from the criminal, allowing judicial institutions to dismantle criminal networks without condemning mining zones to an economic disaster.
However, as the efforts in Colombia and Peru show, formalization is not an easy or a quick path and states will have to improve dramatically on previous efforts to make it a viable option. In the meantime, despite the multiple tools on hand to tackle the illegal mining boom, states and the private sector are still playing catch-up with organized crime.