Illicit Financial Flows and Illegal Gold Mining – New Developments in Colombia
By Buse Egin, June 13, 2023
Illegal gold mining has emerged as a profitable revenue source for organized crime groups and has become a major concern for authorities due to its social and environmental impacts. This article explores new developments in illegal mining in Colombia and the issue of illicit financial flows (IFFs) and money laundering. Additionally, it addresses measures being taken by the Presidential Administration of Gustavo Petro & Francia Marquez to combat illegal mining.
Gold is the new cocaine
Organized crime groups, and illegal armed groups engage in illegal gold mining to fund other criminal operations such as drug trafficking, smuggling, extortion, and trafficking in persons – usually using the same methods and routes to smuggle the gold or launder the proceeds. Due to the transnational nature of illicit gold trafficking – although not necessarily in all cases – and limited traceability, it has become very appealing to illicit actors. In addition, these groups take advantage of limited state presence in rural areas, conducting operations without pressure from the governments and facing fewer risks than they would with narcotics.
International gold prices have skyrocketed since mid-2020 due to the Covid-19 pandemic and have remained at elevated levels. As of 2023, a kilogram of gold is worth more than US$60,000. At the same time, because of the pandemic, cocaine prices have dropped as much as 73 percent. Recently, studies have found that illegal gold mining is one of the fastest-growing illegal economies, not only in Colombia but also in other gold-rich Andean countries. Illegal gold is now considered the “new cocaine” in terms of profitability.
Impacts in Colombia
Illegal gold mining in Colombia has been a major environmental and social problem for decades. It has significant environmental impacts due to the use of hazardous substances like mercury that contaminate rivers and forests and pose a threat to the health of communities.
A recent press release from the General Comptroller of Colombia (Contraloría General de la República de Colombia) states that illegal mining operations in Colombia affect over 500 hectares of forest per day, which is about as large as 1000 stadiums, and that it primarily occurs in the Amazon and Chocó departments. In 2020, it was estimated that approximately 69% of the country’s gold production came from illegal mining activities. In 2022, the share has increased to 85 percent, and 66 percent takes place in natural parks and forest reserves. In addition, it is important to mention that informal mining represents 70% of total mining in Colombia. Although it is important to note that not all informal mining activities are criminal, yet unregulated or informal mining poses elevated risks for mercury use and environmental damage.
Criminal Groups and Illegal Armed Forces Profits from Illegal Mining
Well-established organized crime groups that are often called BACRIM (Bandas Criminales) and illegal guerrilla groups such as National Liberation Army – ELN (Ejército de Liberación Nacional) and the Revolutionary Armed Forces of Colombia Dissidents – FARC (Disidencias de las Fuerzas Armadas Revolucionarias de Colombia) are conducting illicit activities related to gold mining in many departments of Colombia. Their activities include extorting ASM miners, bribing officials, acquiring legal mines, illegally extracting gold, and laundering their proceeds through legal companies. The informal nature of ASM creates vulnerabilities for miners who encounter challenges in selling their products at fair market prices and may be subjected to exploitation.
After the demobilization of FARC in 2017, several camps remained close to gold mining areas, especially in Antioquia, Cauca, and Chocó. Meanwhile, ELN and BACRIM remained near gold mining areas in Antioquia, Chocó, Nariño, and South Bolivar. Having emerged as a paramilitary group in the early 2000s, Clan del Golfo (Urabeños or Autodefensas Gaitanistas de Colombia) quickly became one of the most dominant criminal groups in Colombia. Until the fall of their leader, Dairo Antonio Úsuga, alias ‘Otoniel’, Clan del Golfo was taking control of mines whether licit or illicit, artisanal or multinational – through the use of violence. In 2021, the Colombian army and intelligence units announced his capture; however, some local cells still maintain illegal mining activities.
The relationship between illegal mining and organized crime groups became evident once again when the CIJ Gutiérrez scandal broke out in 2019 involving one of the largest gold traders in Medellín. The Prosecutor’s Office announced the arrest of several executives and stated that the alleged network had laundered close to 2.4 trillion pesos between 2006 and 2016. The gold trader allegedly laundered illegally-sourced gold through front companies and non-existing suppliers. Many of the irregularities went unnoticed in the due diligence processes by financial institutions; the company used cash-intensive payments to make it difficult to trace the funds. This modus operandi was already familiar to Colombian authorities from the Goldex scandal that broke out in 2015, with the Attorney General’s office alleging that Colombian gold exporter Goldex laundered approximately US$1 billion through similar methods.
The Role of the Venezuelan Crisis
The ongoing economic and social crisis in Venezuela and its impact on security cannot be forgotten while analyzing Colombia’s illegal gold sector. Since the demobilization of FARC, Venezuela has been a safe haven for dissident groups after the peace agreement and later for ELN, operating in impunity. According to InSight Crime, ELN has a presence in 40 municipalities in eight states, including resource-rich Amazonas and gold mines of Bolívar – funding their activities in Venezuela and Colombia.
However, the illicit profit flow both ways. Some Venezuelan gold ends up co-mingled with Colombian gold exports; this layering process conceals the rather legal or illegal origin of Venezuelan gold and moves into international markets as Colombian – putting the effectiveness of sanctions against Venezuela into question.
Paz Total and Illegal Mining
Total Peace or ‘’Paz Total’’ is an initiative introduced by the government of Gustavo Petro with the aim of pursuing peace in the state policy and ending decades-long armed conflict in Colombia. It includes peace negotiations with illegal armed groups including the ELN, FARC dissidents, and Clan del Golfo. It also aims to address environmental concerns, especially around illegal mining.
However, the issue of illegal mining has been a major challenge to achieving Paz Total. Environmental issues are expected to have a central role in peace agreements, particularly in dialogue with the ELN. Since last year, the Colombian armed forces have been authorized to take action against illegal miners linked to the armed groups and destroy their machinery in the departments of Antioquia and Nariño, which resulted in protests and resistance from locals in early February. However, violence escalated again on March 1st, when Defense Minister, Iván Velasquéz, declared “total war” on illegal mining. According to the government, the miners’ strike was promoted by Clan del Golfo and resulted in the suspension of the ceasefire between the group and the state.
While military operations are in place, the government also seeks to tackle illegal mining practices with a new approach. The Minister of Mines and Energy, Irene Vélez, says outdated mining policies harm small miners, leaving them vulnerable to criminal groups, and has proposed reforms that would facilitate small miners’ access to mining rights. Furthermore, the Anti-Corruption and Citizen Service Plan (El Plan Anticorrupción y de Atención al Ciudadano) was accepted to increase accountability, transparency, and corruption risk management tools, requiring all national, departmental, and municipal entities to deliver the plan, including the Ministry of Mines and Energy.
The National Development Plan (Plan Nacional de Desarrollo) of 2022-2026, which was published in May 2023, puts the fight against crimes such as corruption and money laundering at the center of the agenda. The government has stated its commitment to transparency and increasing capacity in the private and public sectors, making access to public information more effective. The plan is considered an important step to prevent money laundering stemming from illegal mining.
Conclusion
In conclusion, illegal gold mining has become very lucrative for organized crime groups. The phenomenon of the gold rush is very likely to experience significant and rapid growth unless Colombia makes a concerted effort to stop it.
However, declaring a ‘’total war’’ on illegal mining in terms of military operations -alone- without combating financial crimes would not be effective. Promoting transparency and access to information is needed and highly recommended by international organizations like OECD. It is advised that countries improve traceability in the gold supply chain and implement due diligence processes for conflict-free minerals. On the other hand, the government must also prioritize the formalization of ASM and provide sufficient funds to miners to comply with environmental requirements. In this sense, the Colombian government appears to be on the right track in addressing IFFs from illegal mining and promoting greater transparency in the sector.