John Stahl
In 2016, illegal gold mining operations in Peru accounted for an estimated $2.6 billion in black market trading, surpassing cocaine as the country’s most valuable illicit export1. The bulk of this illegal mining is conducted in the depths of the Amazon by ramshackle teams of criminals; human trafficking, drug trafficking, child labor, and vast environmental destruction follow in their wake. The illegal miners use an unsophisticated method of processing, utilizing mercury to form flecks of gold into an amalgam chunk, then removing the gold by boiling and dumping the mercury wastewater back into the wild at a detriment to the local flora and fauna.
Despite multiple military and governmental crackdowns, illegal mining operations in the Amazon are proving too lucrative to resist for cash-strapped smugglers and gold companies. After the illegal gold is mined, it is sent to refineries where it is mixed with legitimately-obtained gold from electronics scrap, estate jewelry, and legal mines. An estimated 20% of the world’s annual gold demand was met by illegal mining in 20182 . With this volume of black market goods, a flow of funds trail is inevitable. AML analysts are in a unique position to observe the cash-flow of this supply chain in the United States, but without knowing what indicators to watch for, they may misdiagnose or fail to spot the suspicious activity. With that in mind, here are some red flags to help identify possible smuggling of gold and precious metals out of Latin America:
- Purchasing gold from Latin American counterparties that are not certified by gold industry governing bodies, such as the Conflict-Free Sourcing Initiative of the Electronic Industry Citizenship Coalition, or the London Bullion Market Association
- Gold purchases from Latin America involving illicit mining hotspots, such as the Madre de Dios region of Peru or the Bolivar region of Venezuela
- When documentation is requested about gold purchases or sales, the customer refuses to supply the documentation or presents incorrect documentation. Gold exports require laboratory certification for purity to help ensure that the gold is tested by a lab certified to perform the activity in its governing country
- A frequently updated Know Your Customer profile for customers who deal with large amounts of gold and cash, such as pawn stores and secondhand jewelry dealers, may provide insights into their supply chain that can reveal links to the criminal underworld
- Negative media involving the entity or trading counterparty
- The entity questions bank employees about CTR filing thresholds, or attempts to structure cash deposits or withdrawals
- Frequent private travel to illegal mining hot-spots and payments to private cargo and logistics companies in the area
- Typical trade-based money laundering flags, including falsified documents or misreporting of tonnage, price, or good type in import/export documentation.
The markers of illegal gold mining and trading are similar in many ways to the red flags of drug trafficking; however, the process is complicated due to the mixing of legally and illegally obtained gold within the same shipments, as well as the legitimate nature of the business receiving the gold. At the end of the day, the key is to gather as much information as possible and make an informed decision. Gold smuggling is a part of the criminal ecosystem and funds are circulated between gold smugglers, human traffickers, and drug pushers. With ample due diligence, AML experts can play a vital role in the fight against this dangerous criminal marketplace.