Alaco

28.04.2016 | South America: illegal gold mining profits soar

Authorities in Peru and Colombia struggle to counter the criminal networks and paramilitaries controlling unlicensed gold extraction, whose profitability has now surpassed cocaine trafficking.

In the Madre de Dios region of south-east Peru, vast swathes of pristine Amazonian rainforest have been turned into barren wasteland.  This is the consequence of some of the most intensive illegal gold mining in the region, employing around 30,000 miners from around the country.

The Peruvian authorities have sought to clamp down on the scourge, dismantling mines that have contaminated the local environment and poisoned the food chain.  But officials have been unable to curb unlicensed mining, which has already overtaken cocaine trafficking as the most lucrative criminal trade in Peru and neighbouring Colombia.

The Global Initiative Against Transnational Organised Crime, a network of law enforcement, governance and development professionals, says unlicensed extraction represents about 28 per cent of gold production in Peru and 80 per cent in Colombia, generating exports worth $2.6 billion and $2 billion respectively.  By comparison, Peruvian crime groups earn between $1 and $1.5 billion from cocaine smuggling each year, while their Colombian counterparts are thought to make similar amounts from the cocaine and heroin trade.

Illegal gold mining in South America expanded rapidly in the 2000s due to soaring gold prices and a marked reduction in the profitability of drug trafficking, resulting from tougher enforcement.

In Peru, criminal networks run many of the unlicensed mines.  In Colombia, they’re mainly controlled by the Revolutionary Armed Forces of Columbia, FARC, and other paramilitary groups.  

The informal nature of much of the gold mining in the region has made it vulnerable to exploitation by crime groups and militants who have become adept at laundering production.  The process begins with the so-called gold brokers, who provide fake certificates of origin.  The contraband is then sold to export companies, many of which are believed to be complicit in the trade.  Refining companies in North America and Europe are required to monitor the supply chain, but this is difficult to do.  Once the unlicensed gold is melted down with legal supplies, it is almost impossible to trace.

In Peru, officials suspect that half the country’s 120 gold exporters are involved in illegal shipments.   In Colombia, armed groups have reportedly created their own export operations or intimidated the owners of licensed mines into passing off illegal gold as their own output.

Of all the South American countries blighted by illegal gold mining, Peru and Colombia have done most to clamp down on the industry.  Their efforts, however, have produced mixed results.  Like Peru, Colombian authorities have set about trying to destroy the illegal mining infrastructure, with high profile raids by security forces on unlicensed mines becoming increasingly common.  In 2014 seizures of illegal gold increased by over 6,600 per cent, and there were nearly 2,000 arrests and more than 650 mine closures.  But those running illegal extraction in both countries have been able to withstand such blows.

At the same time, the Lima authorities have increased investigations into suspected exporters of contraband gold, though so far prosecutors have tended to target minor players in the supply chain.  Peruvian officials have also stepped up inspections at airports where 80 per cent of illegal production leaves the county, although the prevalence of false certificates makes it difficult to detect contraband cargo.

Both countries have run schemes to legalise unlicensed mines in order to make them less vulnerable to organised crime and paramilitary groups.  Experts say this is critical to prising the industry out of their hands, but so far results have been poor.  Over the years, the Colombian authorities have passed several laws aimed at formalising the mining sector, however between 2002 and 2010 just 158 mines were legalised.  It’s unclear why these efforts have floundered.  Some critics have spoken of bureaucratic incompetence, while others point to miners’ suspicions of the process.

No simple solution appears to be in sight.  Few of the measures taken to combat illegal gold trade, including raids on unlicensed mines, have had much an effect on the industry.  Now may be the time to strike hard at some of the key elements in the supply chain – the gold brokers and corrupt exporters – who fuel the trade and make it an attractive target for organised crime groups and paramilitaries.  Taking enough small but crucial links from the chain may just be enough to cripple what now appears to be a well-oiled machine.