In Peru and Colombia, the world’s top producers of cocaine, illegally mined gold is now a more valuable export than cocaine, according to a new study.

Organized criminal groups have moved into this sector, leaving workers vulnerable to labour exploitation, human trafficking and sexual offences, the study says.

“It is staggering when you go to these illegal mines and you see that the government is not responding and all the negative impacts on the environment and on the people,” said Livia Wagner, who wrote the report for the Global Initiative against Transnational Organized Crime, based in Switzerland. “Illegal mining funds criminal and terrorist groups, facilitates money laundering and corruption … and creates sex trafficking.”

Illegal miners tend to use heavy machinery, but lack legal titles and shirk labour and environmental standards. Both Peru and Colombia also have large-scale legal gold mining industries, including mines run by companies based in Canada.

High gold prices from 2000 to 2010, combined with lower profit margins in drug trafficking and increased enforcement, created the ideal conditions for this boom in illegal mining. Once gold is laundered it becomes indistinguishable from legal gold and can be easily moved across borders.

The study estimates that 28 per cent of gold mined in Peru is illegal, earning criminals $3.3 billion a year. In Colombia, it estimates 80 per cent of gold production is illegal, worth between $1.9 billion and $2.6 billion a year.

That makes illegal mining more lucrative than cocaine production: Organized crime groups in Peru produce about 295 tonnes of the drug a year, earning about $1.9 billion, and Colombia’s drug cartels earn a similar amount in wholesale proceeds from both heroin and cocaine, according to the United Nations World Drug Report.

The Revolutionary Armed Forces of Colombia, or FARC, receives as much as one-fifth of its funding from illegal mining, the gold study says. The guerrilla group is currently negotiating a peace deal with the Colombian government.

“We came up with these numbers by looking at how much gold miners officially register versus how much gold is being exported. The discrepancy is the illegally mined gold,” Wagner said. “Gold has no label and doesn’t have a provenance.”

Latin America also has a large number of traditional, artisanal miners, who work without heavy machinery, are not considered illegal and are generally not connected to organized crime.

Most of Latin American gold is sent to refineries in the U.S., Switzerland and Canada.

The investigation also found evidence of the sexual abuse of children in the illegal mining sector. In Peru, girls are recruited to work in brothels close to mining areas in the country’s southeast. As many as 2,000 sex workers, of whom 60 per cent are minors, are employed near one mining area, the study says.

These children are recruited by the wives of miners in the illegal sector, Wagner said.

Illegal mining can also take a devastating toll on the environment and on human health. A common way to extract gold is for workers to mix toxic mercury with powdered ore, and then burn off the mercury to collect the gold. This process, which is often done without safety equipment, can cause permanent health problems. Lakes and rivers in the Amazon region have mercury levels up to 34 times the safe limit for women, whose unborn children could suffer from permanent brain damage.

The deforestation of the Amazon rain forest is also due, in part, to illegal mining, the study says.

“Local governments have been helpless to combat illegal mining due to the strength of the criminal groups and their willingness to corrupt local officials, either through bribery or intimidation,” notes the report.

Both Peru and Colombia have shut down thousands of mines operating without a government licence and rescued hundred of people who are part of human trafficking rings during raids. But illegal mining operations are quick to relocate to other secluded regions, according to Global Initiative, which is a network of law enforcement, governance and development professionals.

The study recommends helping unlicensed miners enter the legal economy to protect them from crime, in the same way that coca farmers get help to transition to plant legal crops. It also urges corporations to take action, and credits the legal gold sector for its initiatives to ensure that gold has been responsibly sourced.

How crime groups launder illegal gold

How it’s done in Peru

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Gold illegally mined in the region of Madre de Dios in the south is smuggled to Bolivia, then “imported” back into Peru to Lima, then shipped to the U.S. The customs agency of Peru, the financial crimes unit and money laundering investigators have exposed 60 of 120 Peruvian gold exporters as being involved in the illegal trade of gold.

How it’s done in Colombia

Armed groups illegally mine gold, and then create false documents claiming it was extracted from legal mines. They sell it through front companies to unscrupulous gold brokers or smuggle it out of the country. A report from Colombia found that one quarter of all money laundering in the country was carried out through illegal mining.

Source: Global Institute against Transnational Organized Crime