Illegal Mining and Continuing Criminal Diversification

Latin America witnessed a criminal boom in illegal mining in 2016, and a rise of complementary illicit activities, as organized crime recognized the potential of illegal gold can rival the cocaine trade.

Two of the main factors raised to explain the magnitude of the phenomenon were, as InSight Crime said, “higher risks and lower profit margins in drug trafficking, and a surge in international gold prices [that] have combined to create the ideal conditions for a boom in criminal gold mining.”

This expansion is causing environmental and human damage in the affected countries. The highest estimated proportion of illegal mining within national industries is believed to be in Venezuela (90 percent) and Colombia (70 percent), while illegal mining in Peru and could reach 28 percent and 9 percent respectively.

Illegal mining has grown into an attractive and lucrative business for organize crime, not only due to the associated economic gains and minimal judicial risks, but also because of its facilitating role in money laundering schemes. In Colombia, criminal groups view illegal gold as a window of opportunity with very few restrictions. It is carried out in areas with low institutional presence, and much of the state’s efforts — as with drug trafficking — are concentrated on the lower levels of the production chain, namely informal miners and machinery, rather than addressing the legal global market flooded by “blood” gold.

As in most of the countries affected by this activity, Panama and Mexico have witnessed the evolution of illegal mining into an efficient mechanism to launder criminal proceeds by both, as we wrote, foreign and domestic criminal structures: “The origins of melted gold are difficult to trace, and US companies that deal with gold face less scrutiny than institutions that handle cash transfers.”

Criminal Groups and Their Portfolios

Criminal groups are involved in different components of the illegal mining industry, depending on the territory in which they are established. In some cases, such as in Venezuela, they only charge extortion fees from communities or multinational companies involved in the industry. But in other countries, like Colombia, criminal elements control the whole process. The organized crime groups regulate the trade, manage the security as well as the machinery, and give permits to “barqueos” — individual autonomous miners without machines or equipment — to carry out mining activities. And at the most sophisticated stage, they use illegal mining as a money laundering method.

Although the potential profits may vary from one country to another, the economic gains generated by illegal mining are significant. Peru‘s Madre de Dios state, which has been dramatically affected by the illegal gold mining, is believed to have generated more than a billion dollars of illicit profits since 2011, a trend which is reportedly still increasing.

In Colombia, as we wrote, the illegal gold industry as a whole “brings in an estimated three billion dollars every year, more than double the earnings of the illicit drug trade — [and] has reportedly attracted the attention of foreign illegal armed groups, including the Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia – FARC).”

The industry has had an effect on the murder rate, human trafficking, forced labor and other illicit activities that undergo a correlated increase due the wide criminal networks generated by illegal mining.

“Illicit mining operations often fuel a number of separate but related criminal activities.”

“Illicit mining operations often fuel a number of separate but related criminal activities,” we reported. “One of the most common crimes linked to illegal mining is human trafficking, which can serve to supply forced labor at the illicit mining sites as well as prostitution rings, where paid workers can spend their money.”

In the case of Colombia, the majority of gold deposits are located in the Pacific region, Antioquia, Córdoba and Bolívar. Illegal mining generates two billion dollars a year in the country, which explains why several criminal actors have invested in the sector.

“Mining is a key source of income for Colombia’s guerrilla organizations and neo-paramilitary groups, known as BACRIM (from the Spanish ‘bandas criminales’),” we said. “These groups manage, extort and provide security for illegal mining operations. The departments with the most gold deposits…are also some of the country’s most violent, with a heavy presence of armed actors.”

The FARC‘s 57th Front has become the de facto regulator of gold exploitation in the border region of Panama‘s Darién province and the Colombian department of Chocó. Other fronts of the group, as well as the National Liberation Army (Ejército de Liberación Nacional – ELN), participate in this activity, although to a lesser extent. Illegal armed groups often charge to allow the entry of dredgers and other mining equipment, maintaining their control by extorting “barqueos” who enter territory under their influence to carry out gold mining activities.

Mexico’s illegal gold exports have been estimated at $500 million and, as InSight Crime reported, “mining in five different states — Chihuahua, Guerrero, Michoacán, Morelos, and Tamaulipas — is controlled by criminal groups.” Organizations in these areas, such the Zetas or the Knights Templar, extort local and multinational mining operators in exchange for allowing them to carry out their work unmolested in these zones.

There are also allegations that illegal mining fosters corruption and violence. One of the most serious cases reportedly occurred in the Venezuelan state of Bolívar.

“A Venezuela party leader has blamed corruption in the armed forces for the disappearance of 28 miners, hinting at long-standing military involvement in the illegal gold industry,” we reported. “He also asserted that military officials present in the area charge illegal miners extortion fees in exchange for allowing them to operate.”

Gold Trade and Money Laundering

A common pattern related to illegal mining in all five of the aforementioned Latin American countries is the use by organized crime of the illegal gold trade to launder illegal proceeds.

In Peru, a variety of criminal elements participating in illegal mining have emerged, and their involvement in the commercialization of gold has come to affect neighboring Ecuador and Bolivia.

“An investigation in Ecuador has revealed how the country has become a major transit hub for illegal Peruvian gold exported to the United States, an evolution directly linked to Peru‘s attempts to crack down on gold trafficking,” InSight Crime wrote.

Tackling this transnational flux of illegal gold has proven particularly complicated for both states and private companies.

“A major difficulty in tackling the illegal gold trade stems from the challenge of proving when legal business entities are knowingly or negligently dealing with black market product,” we said. “Gold importers are normally required to ensure their purchases come from legitimate sources, but proof of origin documentation can be falsified, allowing illegally-mined gold to enter the legitimate market.”

These cross-border dynamics facilitating money laundering activities have been witnessed throughout the region, as “gold trading in Panama has long been a favored laundering method for Colombian criminals,” such as the Urabeños.

“A major difficulty in tackling the illegal gold trade stems from the challenge of proving when legal business entities are knowingly or negligently dealing with black market product.”

According to a study by Colombia’s Externado University released this year, in Colombia “the main issues with illegal mining are financial, since illegally extracted minerals cannot be taxed,” which makes it not only easy to trade gold but also to launder money.

Organized crime also takes advantage of the legal gold trade to launder its criminal profits, as illustrated by a report by Bloomberg concerning a 2014 US operation against a Sinaloa Cartel laundering scheme.

Sinaloa Cartel operatives based in Chicago would use profits from drug sales to buy gold bars and jewelry in the area. The gold was then shipped via FedEx to a company in Florida, which melted down the gold and sold it for cash. The Florida company would then keep one percent of the profits and send the rest of the money to a business in Mexico,” we said referring to the Bloomberg report. “Operatives involved in the scheme would also falsify paperwork, making it look as though the Mexican business had legitimately sold the gold to their partners in Florida. Members of the Sinaloa Cartel sent hundreds of boxes full of gold to the Florida company before US authorities raided the company’s office outside of Miami.”

Considerable economic gains associated with mining have led criminal groups to exert pressure on the general population with the objective of gaining control of the activity. The growth of illegal mining increases the risk of criminal groups partaking in other illicit activities, such as sexual exploitation, forced labor and timber trafficking.

Persons under the legal age are regularly used or recruited to work in activities linked with illegal mining. In Colombia, girls have been taken for, as we reported, the sexual entertainment of miners.

“Sex trafficking in the Americas is most concentrated in the gold mines of Peru and Colombia, according to the report, in part due to the involvement of organized crime groups in the mining industry which operates in remote regions of those countries,” InSight Crime said.

And, in addition to human rights concerns, the illegal mining industry has proven to have detrimental effects on rivers and forests that are contaminated daily with chemicals such as mercury and other waste.

Regardless of fluctuations in gold prices, illegal mining will continue to offer significant benefits to criminal groups wishing to diversify and solidify their source of income. It has become a catalyst for an array of illicit activities — prostitution, forced labor and eco-trafficking — and presents a low risk due to a weak state response and presence in the areas where mining is occurring.

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