With a big chunk of the global gold trade now in the hands of criminal cartels, the jewellery industry is moving to clean up its supply chain

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After blood diamonds, stand by for blood gold. That is the stark conclusion to draw from the fast emerging flurry of reports of criminality and abuse in the gold mining sector, which are being met in turn with a clutch of industry initiatives aiming to bring some ethical order to the trade.

While much of the world’s gold mining is stable and reputable, some at least seems to be anything but. Reports suggest that a significant chunk of the trade, particularly in Latin America, is controlled by criminal gangs, using human trafficking – both for labour and sex – and keeping their workforce in conditions that sometime amount to near-slavery.

Many of the gangs involved are the same ones that run lucrative cocaine rackets and who now find gold a tempting money-spinner. The two commodities have common features: they can both be sourced in remote areas, far from government eyes, and even a small quantity is worth a fortune. Gold is used in everything from bullion in central bank vaults to jewellery, computers and mobile phones. Even if we don’t wear a ring, we all make daily use of gold.

Many of the gangs involved in gold also run cocaine rackets

First cocaine, now gold

Unlike cocaine, though, gold itself isn’t illegal, so all a criminal mining operation needs is some sophisticated laundering and the product can be traded on the open markets. Recent rises in the price of gold, combined with crackdowns on the drug trade, have encouraged some gangs to make the switch, while others use gold mining as a convenient means of laundering drug profits.

According to an investigation by the Global Initiative Against Transnational Organised Crime, illegal mining is rife in several Latin American countries, notably Colombia and Venezuela (where at least 80% is reportedly illegal), Peru, Bolivia and Ecuador. It’s not just the workforce who suffer: indigenous communities who stand in the way of the mining operation are pushed aside, large swathes of forest are destroyed, and mercury and cyanide used in gold processing are dumped in rivers, poisoning fish and people up to 400km downstream.

According to Quintin Kepes, programme director at human rights organisation Verité​, who has carried out on-the-ground investigations, up to 50,000 miners work in Peru’s Madre de Dios region alone. Many of them are in effect bonded labour – unable to leave until they have repaid a debt to the man who recruited them. Miners are often paid in gold, which they can only sell at knockdown rates to local buyers.

In Peru’s Madre de Dios region there are 50,000 bonded labourers in illegal gold mines

In such conditions, says Livia Wagner of Global Initiative, sex trafficking is rife. “One of the most pernicious effects [of criminal mining] is the trafficking of girls as young as 12,” she says. Not all illegal mining is controlled by criminal gangs, Wagner adds. “We don’t want to demonise individual artisanal miners, who may be technically illegal. We’re just targeting the large-scale exploitation.” But as gold becomes increasingly appealing to criminals, they are muscling in to the artisanal sector.

Who are the gangs?

The nature of the gangs varies: in Colombia, they are often offshoots of the former Farc rebels – or of paramilitary groups originally set up by the government to fight them. In Peru and elsewhere it’s often drugs gangs. In some cases, reports detail alleged close connections with those in government or their families so that gold becomes a part of the fabric of corruption binding criminals to the authorities.

An illegal gold mine in Huarayo Peru

What all the operations have in common is a sophisticated laundering operation, which enables gold mined illegally to be cleaned up via licensed exporters and sold in the US or Europe through normal channels.

And it’s not just Latin America. In Africa, notably the Democratic Republic of Congo - source of much of the blood diamond trade - criminal mining abounds. A new investigation by Global Witness has uncovered a trail linking illegal mining operations controlled by local Congolese militia to legitimate gold trading companies in China and Dubai.

So, faced with this array of complex criminality and widespread human rights abuse, what can governments and the gold trade do to restore the shine to this tarnished commodity?

The first step, says Kepes, is to tighten legislation – and make sure it’s enforced. In remote recesses of Latin America, that’s easier said than done. But further down the supply chain, the law could start to have some clout. There’s even a neat precedent in the US, in the form of the Dodd-Frank Wall Street Reform and Consumer Protection Act. One of its provisos compels companies to disclose the use of so-called conflict minerals, including gold, sourced from the DRC or nearby. The UN Security Council credits the act with driving efforts to cut off a key source of funding for local armed groups.

But some see efforts to combat illegal mining elsewhere as victims of the act’s success. “There’s been a tendency for companies to focus their efforts on complying with Dodd-Frank, with an attitude of ‘anywhere outside the Congo region is OK’,” says Kepes.

Writing new rules

One obvious solution might be to extend the scope of the act to apply to conflict or criminal minerals worldwide. Another might lie in proposed EU legislation, which would, Kepes explains, “prohibit the import into Europe of minerals from areas at high risk of human rights violations”. MEPs voted for the law last year; it’s now making its tortuous way through the EU bureaucracy, with the final text yet to be agreed.

Global Witness is pushing for a strong, binding regulation that would put the onus on companies to report on their supply chains. The OECD, meanwhile, has published its own Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. While not legally binding, it provides a useful framework for businesses to get a grip on their gold supply chains.

Other existing legal instruments could be wielded too, Kepes argues, citing ones such as the “Kingpin” Act, which prohibits trade by US companies with known drugs traffickers and their related businesses – on pain of significant penalties, including jail terms for chief executives.

A Global Initiative report, Organised Crime and Illegally Mined Gold in Latin America, should make uncomfortable reading for some executives in legitimate gold companies. Among other allegations, it details gold purchases by two US-based companies from Goldex, a Colombian company with documented links to drugs traffickers and paramilitaries.

It even presents evidence alleging that some of the gold ended up being bought by the US Mint. This falls under the jurisdiction of the US Treasury – which is responsible for administering the Kingpin Act. If the allegations are true – and the report presents some pretty compelling evidence – then the US government can be said to be in violation of its own statutes.

Gold is used in everything from bullion in central bank vaults to mobile phones

From mine to store

Given the evidence, then, why aren’t some gold executives behind bars? “That’s a very good question,” responds Kepes. The answer lies in the complexity of the supply chain – deliberately obfuscated by laundering – which can make it fiendishly difficult to trace any particular consignment from a mine all the way down the chain via the gold refineries to the end user.

Difficult, maybe, but not impossible, says Global Initiative’s Wagner. “The gold sector is a very, very closed society, and it’s very hard to find one refinery which fully discloses its suppliers. But it need not be so. If the will is there, it should be possible to ensure traceability all the way from the mine to the shelves in the jewellery store.”

After blood diamonds blood gold is next to hit the jewellery trade

Neil Harby, good delivery list officer at the London Bullion and Metals Association, agrees. The LBMA maintains a list of approved refineries, which is used as something of a “gold standard” by the reputable end of the industry. The LBMA is keen to encourage greater traceability, Harby says, and has recently taken two refineries off the approved list because they couldn’t meet good practice in the area.

Global Initiative argues for a mix of tighter laws, better enforcement and greater responsibility on the part of gold businesses. So when it comes to the latter, what is the industry itself doing? On the surface, a great deal. There is a whole raft of voluntary programmes aimed at cleaning up the sector. These range from highly reputable, if niche, schemes such as Fairtrade Gold, through to more general, industry-wide initiatives such as the Responsible Jewellery Council, which aims to certify reputable suppliers.

In the past the council has been criticized as over-lax by activists, including Earthworks’ No Dirty Gold (NDG) campaign, but is aiming to tighten its methods. Meanwhile around 90 retailers, ranging from Argos to Cartier and Tiffany & Co, have signed up to NDG’s Golden Rules, which call for socially and environmentally responsible mining practices.

A route to traceability

But all of these rely on robust, independent auditing – and given the complexity of the supply chain, says Wagner, this has to start at site level: at the mine itself. That is the goal of the Initiative for Responsible Mining Assurance (IRMA), set up by a mix of NGOs, jewellers and other gold customers.

Arguably the most broad-based of all the voluntary initiatives, its steering committee includes representatives from Anglo-American, Arcelor Mittal, Tiffany & Co, Microsoft, Oxfam and Earthworks. Inspired by the Forest and Marine Stewardship Councils, IRMA is drafting standards on everything from working conditions to conflict minerals to environmental practices. Currently at the piloting stage, it aims to have a “beta launch” in 2017.

“We’re trying to be an umbrella,” says IRMA Co-ordinator Aimee Boulanger, “bringing all sorts of existing standards under one roof.” While it will focus on site-based certification, IRMA is looking to partner with others, particularly experts on supply chain traceability, she says. “We’ve had some consultants come to us and say, ‘we’ve been tracing the palm oil chain or the garment chain, and we think we can do it for mining too’.”

As publicity grows around blood gold, and the legal framework tightens, IRMA and its partners could provide an industry under pressure with a route to reassurance. Boulanger says: “Blood diamonds showed the jewellery trade what it’s like to be held accountable for a supply chain you don’t have control over. It’s not a pleasant experience.”

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gold trade  blood diamonds  abuse  human trafficking  slavery  drugs  illegal mining  Human rights  supply chains  LBMA 

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