Latin America’s gold diggers

By Adam Siegel

As part of a recent crackdown, Colombian authorities have seized some of the latest tools favored by drug trafficking groups. Forget private planes, speedboats, and homemade submarines. These guys are investing in backhoes and bulldozers — because some of Latin America’s best organized criminal gangs have gone into the mining business.

Colombia’s drug trafficking organizations — from rebel groups like the FARC and ELN to paramilitary successor gangs known locally as Bacrim — are methodically asserting control over illegal mining operations in the country, including the unlicensed extraction of gold and other metals thought to compose at least 30 percent of Colombia’s total mineral exploitation. Current Minister of Mines Mauricio Cardenas has argued that unlicensed mining "should be given the same treatment as drug trafficking," while the recently-retired chief of the National Police, General Oscar Naranjo, calls the involvement of drug gangs with mining the greatest future challenge for Colombian law enforcement.

With Latin America in the midst of a new "gold rush" (and the price of gold rising from $270 to as much as $1,800 per ounce over the past decade), expanding to mining is in many ways a logical step for Colombian gangs. Profit from mining operations is high and relatively low-risk compared to other revenue-generating activities like cocaine trafficking, extortion, or kidnapping for ransom. In a mineral-rich region like Antioquia- — here royalties from legal gold mining already provide over 45 percent of state revenue — the governor is clear about the changing calculus for drug gangs: "Gold is now more lucrative than coca."

Unauthorized mining itself is not new in Colombia, where small-scale, artisanal mining has been practiced for hundreds of years with relatively little interference from the state. Many of the illegal mining operations are plainly visible, but Colombian authorities are often reluctant to shut down mines because they don’t want to trigger unrest by depriving poor miners of their livelihoods. These miners are treated more as opportunists than as criminals, lack of permits notwithstanding.

But this laxity has opened doors for criminal gangs, whose physical presence at the mines is (in many cases) minimal. Reports from local media and authorities detail a number of methods used by groups like the FARC or prominent Bacrim like the surging Rastrojos: Some charge a five to 10 percent "tax" on daily production or monthly earnings, while others charge "protection" fees or make money by providing heavy machinery, like the aforementioned bulldozers.

Yet the sheer scale of these illegal armed groups’ involvement in the industry is quickly changing the government’s calculus. President Juan Manuel Santos called the new trend "a cancer," and his administration has launched a number of offensives aimed specifically at shuttering these operations. In the Cordoba department, for example, the first phase of Operation Trojan ended in July with more than 400 arrests, 87 mines closed, and 155 bulldozers in state hands. In all of 2011, Colombian authorities shut down 276 mines and arrested more than 1,200 people. By May 2012, an unofficial accounting by the National Police showed 363 closed mines and at least 900 arrests.

The urgency of the Santos administration underscores some serious security challenges: Revenue from mines helps bankroll a decades-long insurgency, while competition for access to resources stokes violence among illegal groups and within the local communities already burdened with poverty and high levels of forced displacement. The environmental impact, in the form of mercury runoff and pollution, is severe.

The alarm is being raised in neighboring Peru as well, where the business consulting firm Macroconsult recently issued a headline-generating report estimating that illegal mining profits surpassed those of drug trafficking last year. With Peru’s coca economy again on the rise and less concrete evidence that the rebel group Shining Path is making the same mining inroads as insurgents in Colombia, the issue of illegal mining still has the "social problem" and "economic issue" veneer seen previously in Peru’s northern neighbor. Mexican authorities, meanwhile, have taken a more aggressive stance, opening a number of investigations into the escalating ‘protection’ fees that drug traffickers like the Gulf Cartel and Los Zetas are said to be charging local mine operators.

The details of the problem vary from country to country, but there are implications for Latin America as a whole — and for the region’s mining industry, with more than $425 billion in investments already announced over the next ten years. As demonstrated in Colombia, the profits from supporting and extorting illegal mining are too large (and too easy) to pass up. By some estimates, in the past five years the FARC has transitioned into making some 20 percent of its total earnings from mining operations and 35 percent from drug trafficking. Put another way, that’s hundreds of thousands of dollars in monthly income (for relatively little work) going to the rebel group’s locally operating fronts. Countless additional illicit funds from drug trafficking are also laundered through these operations because they ultimately produce a legal item.

Organizations like the FARC, with operatives in Ecuador and Venezuela, are well-positioned to extend their mining ventures into those countries. In fact, there is evidence they already have. Groups like the Zetas are present in Mexico and Guatemala, and they have shown no hesitation in taking on new activities as they expand through Central America. Indeed, a key lesson here is that even in Colombia — long the cocaine-producing capital of the world — traffickers are always looking for ways to keep their income fluid and diversified (and, according to some reports, are even willing to team up with rivals to do so).

For the global mineral market, it is unclear whether the trend is toward dominating the "illegal" industry or extorting the legal one. Either way, the presence of these groups may create an unwelcome new "gold standard" for the region: greater violence, more corruption, and a higher cost of doing business.

Adam Siegel is a researcher in Eurasia Group’s Latin America practice.