The Nexus of Illegal Gold Mining Supply Chains Lessons from Latin America GOLD PRODUCTION Gold is an extremely scarce commodity. The amount of gold swimming pools,1 and almost three-quarters of all of the world’s gold deposits have already been exhausted.2 Due to increasing the world now consumes more gold than ever before, leading to the production of 3,000 tons of gold per year, twice what was produced in 1970. The diminishing supply and increasing demand, combined with criminal and armed groups’ quest for new sources of illicit revenue, has contributed to a surge in illegal extraction of gold from increasingly remote and lawless regions.3 Introduction In-depth research carried out by Verité has found that Latin American countries export reputational risks for major companies with gold in their supply chains. The Global Initiative Against Transnational Organized Crime, with which Verité has been closely collaborating, recently released an in-depth report thoroughly documenting the close link between illegal gold mining and organized crime, which fuels violence, environmental damage, corruption, money Verité publications include a research report focusing on illegal gold mining in Colombia and Latin American countries, a white paper with detailed recommendations for companies and along with Canada other stakeholders to ensure that illegally mined gold does not (which is a major conduit enter into company supply chains and the vaults of central banks. for Latin American gold), constitute all top ten exporters of gold to the research carried out by Verité in Peru in 2012-2013 and in Colombia United States. in 2015, and desk research carried out across the Latin American region. Latin America is a vitally important player in the global gold trade, contributing 20 percent of the world’s gold production in 2013.4 Gold exports play a critical role in the economies of many Latin American countries. Gold is Peru’s top export and the fourth largest export for Colombia. July 2016 www.verite.org 2 +1.413.253.9227 Due to its proximity to the U.S. and Canada, Latin America is the main supplier of gold to these countries, exporting approximately three-quarters of the gold imported by the U.S.5 and two- thirds of the gold imported by Canada.6 Latin American countries, along with Canada (which is a major conduit for Latin American gold), constitute all top ten exporters of gold to the United States.7 imported by Switzerland,8 through which at least 70 percent of the gold produced worldwide 9 Illegal Gold Mining THE SCALE OF THE PROBLEM Illegal gold production is rampant in Latin America. In several countries, unregulated illegal and informal mines account for over 75 percent of gold produced. In Peru and Colombia—the two largest cocaine producers in the world—the value of illegal gold exports has in recent years surpassed the value of cocaine exports, becoming the largest illicit export from these two countries.10 Illegally mined gold is “laundered” and exported, with the help of corrupt United Arab Emirates, which supply some of the biggest central banks, jewelry companies, and electronics producers in the world. Estimated Percentage of Gold not Produced Legally* 100% 91% 90% 80% 80% 77% 70% 60% 50% 40% 31% 28% 30% 22% 20% 13% 10% 9% 10% 0% Venezuela Colombia Equador Bolivia Peru Guyana Nicaragua Brazil Mexico *Based on an analysis of production and export data carried out by the Global Initiative Against Transnational Organized Crime July 2016 www.verite .org 3 +1.413.253.9227 Latin American countries export staggering amounts of makes its way into the supply chains of major electronics and jewelry companies and central banks. In contrast to other goods produced by organized criminal groups such as cocaine or heroin, illegally mined gold can easily be laundered to conceal its criminal origins. Unlike illicit drugs, illegally mined gold becomes a legitimate consumer commodity and moves easily and legally across international borders.11 By buying illegally produced gold, companies and central banks over vast stretches of land, and foment corruption and impunity.12 There are important distinctions between informal mining and illegal mining. In general terms, illegal gold mining is carried out in blatant violation of the law and with no intention of formalizing; this includes mining that is carried out in environmentally protected areas, in open violation of labor or tax laws, or by criminal groups.13 Verité’s research has found that while illegal and informal mining are often lumped together under the auspices of artisanal small-scale mining (ASM), many of the illegal mining operations in Latin America investigated by Verité were far from artisanal or small-scale, involving millions of dollars of investment and revenue, heavy machinery, and workforces of hundreds of migrant workers. Small-scale, informal artisanal miners are often treated similarly to criminal groups that control large-scale illegal mining operations and oftentimes extort small-scale miners under the threat of violence. The workers employed by illegal mines are also frequently treated as criminals rather than as potential victims of human attention away from the real problem: the criminal actors that control huge swaths of territory illegal mines operate clandestinely and fail to abide by the law, the workers employed in these mines are generally poorer, more marginalized, and more vulnerable to extreme forms of labor 14 heavily involved in illegal gold mining in Peru and Colombia,15 de Colombia (FARC) and Ejército Nacional de Liberación (ELN) guerrilla groups and the Urabeños and Rastrojos criminal bands (BACRIM) in Colombia. While the recent signing of of fracturing of the FARC,16 as well as clashes with and between the BACRIM in order to establish control over the illegal mining areas.17 International organized criminal groups also directly control, invest in, and/or use illegal gold mining for money laundering, including the Italian ‘Ndrangheta,18 the Mexican Sinaloa Cartel,19 and Chinese and Russian organized crime groups.20 July 2016 www.verite.org 4 +1.413.253.9227 In Peru and Colombia—the two largest cocaine producers in the world—the value of illegal gold exports has in recent years surpassed the value of cocaine exports, becoming the largest illicit export from these two countries. Colombia Peru Informally or illegally mined gold makes The situation is similar in up the vast majority of Colombia’s gold Peru, where illegal gold mining production. Income from illegal mining is is estimated to generate estimated to bring in USD 2.5 billion per USD 3 billion annually, over year to Colombia.21 By some reports, there twice the amount of money are 3,600-6,000 mines that operate without produced by the country’s a permit in Colombia.22 Recent research trade in illegal narcotics.25 The Global Initiative’s has indicated that as much as 87 percent estimates indicate that 28 percent of Peru’s gold of Colombia’s gold is produced in informal or illegal mines.23 was produced illegally in 2013.26 Peruvian tax Verité’s analysis of publicly available trade data (see graphic authorities have reported that half of Peru’s 120 below) indicates that the United States imports far more gold gold export companies were being investigated than Colombia legally produces. The Global Initiative against for exporting illegally mined gold.27 Verité Transnational Organized Crime reported that Colombia’s second research carried out in Peru found that some largest gold exporting company exported over USD 1.4 billion of Peru’s largest companies exported hundreds worth of gold between 2008 and 2014, 97 percent of which of millions of dollars of illegally mined gold to the U.S., Switzerland, and Italy. For example, in 2011 a company owned by the ex-Minster of information about 90 percent of its suppliers and in fact purchased Hydrocarbons of the Ministry of Energy and a large amount of gold from the brother of the founders of Mines (the entity tasked with combatting illegal Colombia’s biggest paramilitary and criminal groups (the United gold mining) exported USD 901 million dollars of Self Defence Forces of Colombia-AUC and the Urabeños). The gold tied to the biggest illegal mining clan in Peru, which research found was directly linked to labor major U.S.-based and multinational companies, including the largest 28 To put this into perspective, in 2011 supplier of gold to the U.S. Mint. Ironically, the U.S. Mint is operated one Peruvian company exported more than twice by the U.S. Department of the Treasury, which is the federal agency the amount exported by the country of Nicaragua tasked with enforcing laws prohibiting transactions with drug (USD 364 million), during a year when gold was 24 Nicaragua’s third largest export.29 Estimates of High-Risk Gold, Imports to the USA (2013) Country Reported gold Exports to US imports of Percentage of gold mine production US (tons) gold in excess of imported to US in -- assumed to reported gold excess of reported be legal (tons) production (tons) gold production Colombia 11.2 47.00 35.8 76% Ecuador 2.80 9.88 7.08 72% Bolivia 7.00 9.55 2.55 27% Venezuela 1.69 3.12 1.43 46% Honduras 1.90 3.24 1.34 41% SOURCES: The Global Initiative Against Transnational Organized Crime. Organized Crime and Illegally Mined Gold in Latin America. April 2016. http://globalinitiative.net/wp-content/uploads/2016/03/TGIA- TOC-OC-and-Illegally-Mined-Gold-in-Latin-America-Report-1718-digital.pdf July 2016 U.S. Department of the Interior, United States Geological Survey. 2013 Minerals Yearbook: Gold. October 2015. http://minerals.usgs.gov/minerals/pubs/commodity/gold www.verite .org 5 +1.413.253.9227 Billions of dollars of illegally mined gold is purchased by prominent companies and central banks.