The low-risk, high-profit yield of illegal gold has sparked a devastating boom in illegal gold mining, attracting political and criminal gangs, according to several new reports. This industry has grown to such a scale that illegal gold exports now exceed the value of cocaine exports in infamous drug-producing countries Colombia and Peru.

The value of illegal gold in Peru is estimated to be $2.6bn a year and $2bn a year in Colombia, according to an April report by The Global Initiative Against Transnational Organized Crime.

However, beyond the large illicit flows of money and lost tax revenue for local governments, the devastation of illegal mining has a very human face.

Numerous investigations have linked illegal gold mining to child labour, forced labour and sex trafficking. According a Global Initiative report, children in the mining town of Potosi, Bolivia can be bought for as little as $3-$7, and brothels in the illegal mining district of Madre de Dios in Peru are filled with women and girls as young as 12, lured with false job offers.

"The value of illegal gold in Peru is estimated to be $2.6bn a year and $2bn a year in Colombia."

Illegal mining is also responsible for rampant deforestation of the Amazon and the polluting of rivers and drinking water with unlawfully discarded mercury used to extract gold. In May, a state of emergency was announced in the Madre de Dios area of Peru after blood samples from the local population showed high levels of mercury caused by an estimated 30t of mercury being dumped into Peru’s rivers and lakes every year.

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Funds from illegal mining are also destabilising peace talks and funding political guerrilla groups. A United Nations Environment Programme (UNEP) and Interpol report released in June stated that one well-known guerrilla movement makes an estimated $12m annually by extorting illegal gold miners.

However, the issue is not limited to gold mining or South America. Militant groups in East Africa have profited from illegal mining of coal, and the bloody conflicts in the Democratic Republic of Congo (DRCC) have been in part-funded by conflict minerals such as tin and tungsten, according to the UNEP report.

Corruption, destruction and extortion

“I have personally witnessed the severity of the devastating impacts of illegal mining from a micro perspective on these communities,” says Bonnie Lyn de Bartok, CEO and founder of MacCormick International Mining Consultancy (IMC), which works with mining companies on corporate social responsibility programmes and local community management.

“From chemical burns, to amputee victims of misuse of explosives, to drugs, prostitution, rape victims, childhood pregnancies, staggering school drop-out rates for both girls and boys, to rebel and terrorist involvement, government corruption and corporate extortion in trades of goods,” she adds.

As part of her consultancy work, de Bartok has interviewed local clinic nurses, police units, village women and their chiefs, school masters, government representatives, and gold runners employed by terrorist groups, to fully understand the system of the trade in Peru and Burkina Faso.

“I’ve visited illegal mining pits which temporarily housed more than 60,000 illegal miners at any given time. These miners operate 24 hours a day, seven days a week for years in fully mechanised operations with pits well beyond 150ft below surface,” she says.

De Bartok believes the demise of the formalised commodities markets in recent years has made illegal mining more easily accessible.

“When resource prices are up, legitimate businesses can produce at a scale and grade that illegal miners could never compete with,” she says.

Many experts also believe the surge in illegal mining has been facilitated by the blurry line between itself and small-scale artisanal mining, which financially supports hundreds and thousands of families.

"I’ve visited illegal mining pits which temporarily housed more than 60,000 illegal miners at any given time."

Large-scale legal miners and artisanal miners usually have a government concession to mine a certain part of land. Peru and Colombia are the only countries that allow informal mining, which can be defined as a person that has no formal concession but is in the formalisation process. Informal miners are often vulnerable to extortion from crime groups and being wrongly targeted by authorities as illegal miners.

“This is something that is scattered and diverse – you don’t have the group of illegal miners and all of them are criminal,” says Global Initiative private sector advisor Livia Wagner, who authored the report on the illegal gold trade in Latin America.

“In Colombia you have some criminal groups managing the mines, but the workers themselves come from poor communities. In Peru you have more scattered small groups that are not criminal per se but are acting in violation of the law because they don’t have a concession so are acting illegally,” she adds.

“They are the ones that suffer most from the interdictions of the governments and not the heads of the criminal groups.”

Local government efforts to combat illegal mining have typically focused on bombing or bulldozing illegitimate mining areas. These campaigns often also target informal artisanal miners because governments often fail to distinguish between illegal and artisanal miners.

Either way, it is an approach that is failing, say Wagner.

“The country or the government is only fighting the symptoms but not the root cause and as long as you do that you won’t have any long-term or sustainable results,” she says.

An integrated response starts at the top

A top-down, bottom-up approach is needed.

As highlighted by Wagner’s report, the tools to combat illegal mining include legislation in import and export countries, international accords, private sector initiatives, and civil society action groups.

“In the gold sector refineries [which buy from traders and sell on to jewellery makers and the electronics industry] buy from one gold trader, but it’s the refineries’ responsibility to say to their supplier ‘you have to make sure the gold is legally sourced,’” says Wagner. “But this is difficult because the supplier likely has many other middlemen.”

It will be easier for refineries to trace the origin of the gold they buy if they reduce the number of intermediaries they use or buy directly from a mine, which could be certified or a Fairtrade mine.  

However, despite guidelines from the World Gold Council and other regulating bodies there is little incentive for refineries to trace the origin of the gold they buy, especially as it is often very costly to do so.

“If you want to make sure it is not illegal gold then that has a price tag,” says Wagner.

Insight Crime, a foundation dedicated to the study of organised crime in Latin America, reports that attempts to introduce traceability to the Colombian gold industry has had mixed results: “Gold sales are now limited to registered miners, but local officials in mining zones, miners and gold traders say the main impact of this has not been to reduce the flow of gold but to push the sector further towards criminality, as they can now only sell gold on the black market.”

The financial sector also has a role to play. One element that makes mining illegal is the use of heavy machinery in areas where small-scale artisanal sustenance mining is permitted.

“These machineries from small mining groups have to be bought from companies and loans have to be facilitated by the banks,” says Wagner.

“In the very small town of Puerto Maldonado, the capital of Madre de Dios, you can see ten different banks, so yes, the financial institutions do play a role and up until now there has not been much of a focus on their share of the responsibility,” she adds.

Legal frameworks

Most experts agree that also there needs to be stronger, more integrated international frameworks to deal with not just conflict minerals but illegal mining in general.

Wagner says there has been work done in the US, EU and Switzerland, where the biggest gold refineries are located, to strengthen efforts to eradicate illegal gold.

Clause 1502 of the US’s Dodd Frank Act requires US-listed companies to carry out due diligence on minerals sourced from the DRC and neighbouring countries to ensure they are not funding conflicts, but does this act does not cover Latin America.

A new EU law, when enforced, will require importers of tin, tantalum, tungsten and gold for manufacturing consumer goods to be certified by the EU to ensure they are 'conflict free'. This includes regions outside Africa.

However, the Middle East and Asia, huge consumers of gold, are far from any concrete laws to combat the sale of illegal minerals, and Dubai is currently competing with Switzerland to build the biggest gold refinery in the world.

“If this happens we are far away from regulation, we are taking a step back,” says Wagner.

Supporting artisanal miners

As agreed upon by many experts and NGOs, perhaps the best way to combat illegal mining and the sale of illegal gold and other minerals is the formalisation of the small-scale and artisanal mining sector, a recommendation from both Wagner and Insight Crime, or to at least provide these communities with other forms of income.

“Public-private partnerships (PPP) can support legalisation of small, localised operations in partnership for training and regulation, especially on health and safety issues, and protection for smaller scale subsistence miners needs to be present, so that they are not taken advantage of by the larger illegal mining outfits,” says de Bartok.

"The tools to combat illegal mining include legislation in import and export countries, international accords, private sector initiatives, and civil society action groups."

“Whilst it is a heavy initial investment for both company and government in the short-term, the longer term benefits of a trained localised and regulated workforce will have substantial, lasting, and positive impacts on the community at large – illegal mining is growing at such a rate that the sector will ultimately be forced to operate under military protection, unless we begin to get very real about what’s taking place at what scale,” she adds.

But, for now, illegal mining remains a global challenge of gigantic proportions that will continue to have negative impacts on all stakeholders – local communities, governments, legitimate business and, given the environmental impact, the world – until a unified response is taken.