Artisanal MiningWhy Switzerland Struggles with Dirty GoldTales from Peru
But with gold prices the highest they’ve been in nearly a decade, the quest for the precious metal is heating up in a place where mining and criminal activities overlap and law enforcement is haphazard.
Illegal vs. Legal MiningThe Two Sides of Peru's Interoceanic Highway
"Only a few of us can work here legally.More common is illegality."
Weak law enforcement in large parts of this region means the situation is not as clear-cut as the Interoceanic Highway’s route suggests, and the government says. The weak implementation of mining regulations has led to widespread illegal mining here, which in turn has been responsible for large-scale deforestation and mercury pollution, experts say.
But identifying “dirty” gold is hard. Criminal networks and illegal miners often try to conceal the illegal origins of their gold by mixing it with legitimately obtained gold before introducing it into the international gold market, according to the miners, traders and law enforcement officials swissinfo.ch met in Peru. This makes it difficult for Swiss refiners and gold-buying companies to know if they’re importing illegal gold.
Some gave up. In early 2019, Swiss refiner Metalor stopped sourcing from artisanal gold miners in Latin America altogether. The decision came after Peruvian customs officials seized 91 kilos of gold bars from local exporter Minerales del Sur destined for the Swiss refinery. The cargo is suspected by Peruvian authorities to have contained illegally sourced gold including possibly from Madre de Dios.
Getting it right
Trying to get it rightMiner Juan Ttamiña
Making a living
“We have been working here for years, out of need, to move forward,” he says. “We are trying to create better lives for ourselves… for our children.”
For a long time, that meant operating in a legal vacuum, mining and trading gold deep in the jungle, with little government oversight. But that is slowly changing with refiners and consumers increasingly pushing for sustainable mining practices and transparency in the gold supply chain.
The bit of land he is allowed to mine sits in the mining corridor – an area of roughly 500,000 hectares (the equivalent of nearly one million football fields) – where gold extraction is permitted provided that environmental and social standards are upheld.
To be certified, Ttamiña must prove he is reforesting barren areas and adopting mercury-free mining techniques. In a purpose-built structure, he has installed a gold shaker table that separates the gold from dirt without using mercury.
But he says these rules don’t curb the illegal trade, adding that it was well-known among miners that even licensed traders purchase gold from questionable sources. And such traders are not limited to the area largely known as La Pampa, on the fringes of the Tambopata National Reserve.
“We fulfilled everything," says Ttamiña, referring to the state's requirements, "so as not to have any problems.” He removes from his pocket a government-issued card that proves he applied for formalisation. This piece of plastic is his only shield against potential police raids.
His hard work has paid off. Back then, the family only had a couple of wheelbarrows and basic water pumping engines to flush the ore. Now, the middle-aged miner employs 22 people who use modern excavators and trucks to move mineral matter on his “cuadricula”, or one-square-kilometre concession.
“Production is not always the same: today it could be more, but it could also be less,” explains Ttamiña as a pair of workers conclude a sweltering eight-hour shift rinsing gold ore, stationed at two chutes. They sleep on site in a single-story brick dorm.
On average, he extracts 32 grammes of gold per chute per shift. Assuming the operation of both chutes and a price of PEN120 (CHF 35.5) per gramme, he stands to earn PEN15,000 (CHF4,343) per day.
Ttamiña plans to mine his parcel of land for another 10 to 15 years. Afterwards, he plans “to move to another plot”.
He hopes that plans update to Peru’s mining law will give small and medium-scale miners like him a boost amid competition from larger foreign mining operations, and that the state will support them as they strive to work sustainably, and relieve them of worries over potential checks and harassment by police and the military that have grown more frequent under Operation Mercury.
Ttamiña credits the government for facilitating the formalisation process, but he is no fan of Operation Mercury. He believes it has contributed to the perception that all miners in Madre de Dios work illegally although some try to follow the rules, like him.
“They treat us like illegals, but the government knows who is and who isn’t."
The black market
Former Miner Walter BacaThe Black MarketHow it works
Evading the Law
When we met him in Huepetuhe, Baca declined to comment on these allegations but he was willing to share his insights and personal experience in the gold trade.
“The greatest evader is the gold buyer,” he says. “People continue to work illegally because they have obligations [to the buyers].”
Baca is the nephew of a notorious couple – Gregoria Casas and Cecilio Baca – who were among the first settlers in the open pit gold mine of Huaypetue, where mining first began here. The couple, who owned 18 mining plots, was under criminal investigation for illegal mining and money laundering over many years, according the local investigative news outlet Ojo Publico.
The former miner did not directly comment on the allegations against his relatives but said that many local traders engage in corrupt practices and in tax evasion. He accused them of manipulating the market by controlling prices and not invoicing purchase, while miners are held captive by what they owe the traders.
Asked whether it was aware of any complicity among major gold buyers in Madre de Dios and the accusation that they combine purchases, Metalor responded, “No. [We do] not take any material from the region.”
A company spokesperson told swissinfo.ch that Metalor had been “very engaged” in the formalisation process in Peru and had raised its concerns over traceability with Peruvian authorities.
"All responses we got over time from the different authorities in Peru… were very reassuring,” said the spokesperson in an email.
“However,” he added, “we were disappointed because it turned out that the regulatory and enforcement framework is not robust enough.”
‘People work on the run’
Baca says the absence of government authority before Operation Mercury left miners with the freedom to operate as they pleased. When the metal’s price rose, many invested in heavy machinery to be able to cut deeper into the jungle, polluting the waterways and subsoils with mercury as they advanced. Although Peru ratified an international treaty on reducing mercury pollution in 2018, the toxic heavy metal is still widely available for sale online in the country.
“The formalisation process has no goal,” says Baca. “It is as if it is moving towards an abyss.”
Baca was a miner himself but branched out into other business after his mining equipment was blown up by the Peruvian military six years ago as part of an earlier crackdown on illegal mining. His new business involves leasing equipment “to miners in the formalisation process” – those seeking to operate legally.
Most miners fled the banned mining region of La Pampa when they learned of the operation, but over 200 people were arrested and millions of dollars worth of equipment has been seized and demolished.
Baca recalled his own experience in Huaypetue: “People work on the run. When the government bombs the camps and captures equipment, miners work like crazy. The government’s strategy is inadequate.”
General Luis Vera, director of the Peruvian National Police's Environment Directorate, says in an interview in Lima that his troops found many such places when they went into the illegal mining region.
“There was a lot of abuse and disappearances because there was no public authority,” Vera says. “The overseers or the capitalists who had their illegal mining plot, had the authority.”
“Sometimes you can hear the engines operating in the distance,” says Doris, a woman who runs a hostel located along the road. She declined to give her full name.
“There’s lots of gold out there. On a good day, they can make 1000 soles.” (The equivalent of CHF290)
Gold mining deforestation decreased 92% between 2018 (900 hectares) and the first half of 2019 (67 hectares), representing the situation before and after the start of Operation Mercury, according to the Monitoring of the Andean Amazon Project.
"We are after those businesses who purchase the gold and give it the appearance of legality."
Cover-ups and pollution
Lies, cover-ups and pollution
Multiple criminal investigations by state prosecutors and investigative reports by local media suggest that traceability of the gold through traders remains opaque. Fraudulent invoicing has been rife among the many Peruvian purchasing companies and their local agents or representatives.
Complex webs of family and business relationships obscure links between many of the companies operating in the region. That explains why small and medium-sized buyers rarely appear on customs records as exporters to foreign refiners and buyers, and many of those that do appear have been linked to illegal mining concessions in Madre de Dios.
Of the dozen miners working illegally that we spoke to, most said that they primarily sold their gold to the Peruvian trading companies A&M Metal Trading and Veta de Oro, among other mineral buyers.
In the most bizarre episode in our effort to get comments from the company, at Veta de Oro’s two-storey office in Puerto Maldonado, a clerk stopped us from investigating further. He denied the establishment was buying gold, claiming that the commercial space was a hotel. A large sign outside suggested its proprietors are gold traders rather than in the tourism business.
At A&M Metal Trading’s office in Puerto Maldonado, the regional capital, a clerk called the company’s lawyer and then declined to answer questions and asked us to leave.
While the company could not be reached, its activities are not unknown to observers and activists. “Activos Mineros receives money from the state for their monitoring functions, but they do not invest in true monitoring,” explains Christoph Wiedmer, co-director of the Society for Threatened People, who has studied Peruvian gold imports.
Mercury levels in the air around such shops are 1,000 times higher than the Peruvian limit and 10,000 higher than US government minimum risk levels, according to Adam Kiefer, a chemistry professor with Mercer University. He works with the Peruvian ministry to research air pollution in the region.
Air contamination by mercury
The Swiss connection
Bound for Switzerland
This is where Switzerland becomes part of the equation. The landlocked European country is home to several of the world’s largest refineries, including Metalor. Most of the world’s gold passes through it. Peru ranks sixth among countries exporting gold to the Alpine nation.
The group alleged that the trader Minerales del Sur supplied Metalor with gold from Madre de Dios, where most of the mining activity still remains classified as illegal despite government initiatives and crackdowns.
While the trader was licenced to sell gold only from the southeastern region of Puno, its owner holds land concessions in Huaypetue, close to a protected area, the Amarakaeri Communal Reserve, in Madre de Dios.
Metalor denied the accusation, saying the gold came from Puno. But the quantities it purchased from Minerales del Sur exceeded the total production of gold from the region, according to STP, which cited figures provided by Peru’s energy and mining ministry.
But that might not be a good thing. The governor of Madre de Dios, Luis Hidalgo, said to swissinfo.ch that Metalor’s decision to pull out of Peru would actually make it more difficult to stop illegal mining.
“We want them to buy from those who are working legally,” says Hidalgo. “What the Swiss company needs to do is to facilitate access by miners of [clean] technology that is so costly for them and help them sell their gold more easily.”
Mark Pieth, a criminal law professor at the University of Basel who wrote a book on gold laundering, says that he believes that Swiss refiners should engage with artisanal miners to produce gold responsibly. Pieth says that the downsides are minimal. The cost of proper, transparent audits tracking back through the entire path of the gold represents “pocket money” for a company like Metalor and Swiss refineries as a whole, he said in a recent interview with swissinfo.ch.
The Swiss government seems to agree. Martin Peter, representative of the State Secretariat for Economic Affairs in Peru says that “it is in the interest of companies to care about sustainability in order to have long-term access to commodities”.
Ultimately, pressure by consumers may be one way to curb illegal mining, activists and rights advocates in Peru and Switzerland say.
For years, Swiss civil society groups have expressed concern about the reputational risks of importing “dirty gold” to Switzerland.
That has led to a popular initiative that could finally force the government to act. The Swiss people will soon vote on the “Responsible Business Initiative”, which wants to hold companies based in Switzerland accountable for their environmental and human rights impact abroad. Its odds, though, are uncertain.
Photos: Sebastian Castañeda and Paula Dupraz-Dobias (Additional photos SDA-Keystone)
Graphics: Kai Reusser and Alexandra Kohler
Video: Sebastian Castañeda and Paula Dupraz-Dobias
Production: Dominique Soguel
Appendix: Metalor responds
To our knowledge, investigation of Minerales del Sur continues by the Peruvian authorities. However, since Metalor is not indicted in any way, we do not know further details.
Has the Peruvian public prosecutor reached out to Metalor since the seizure of 91 kilos of gold in 2018?
We have been asked to furnish information about the commercial relationship with had with Minerales del Sur and in this respect we provided all necessary documentation (agreement, invoices, proof of bank transfers, etc) in due time.
To your knowledge, was Minerales del Sur aware of the sourcing of the gold in that shipment?
The documentation associated to every shipment contained all the necessary details including the mine concession from where the material was sourced. We have no reason to believe that such information was incorrect but cannot guarantee that. The investigation will figure that out.
Is Metalor reconsidering purchases from Peru now that the government has reinforced its commitment toward formalising gold miners in Madre de Dios - which involves assuring that they comply to environmental and social standards - while clamping down on illegal miners in La Pampa?
We certainly welcome such statement but that has to be transformed into real and sustainable actions. Madre de Dios is a region from where do not take any material and we do not believe this will change, at least in the near future. However, and regarding artisanal mines, we are open to consider options but it has to be under a concerted effort by all parties involved (all governmental agencies, miners, local authorities and NGOs). So far we are not there. However, in Peru we continue to operate with industrial mines.
What is Metalor’s response to critics - including the governor of Madre de Dios - who say that the company should help miners in the formalization process and possibly support them in acquiring technology that avoids mercury pollution, rather than stopping purchases from the country?
Metalor has been very engaged in supporting the formalization process. This is the best way for the miners to get a fair price for their gold and hence improving their overall working conditions, including applying best practices that do not pollute the environment. However, Metalor cannot assume by itself this responsibility. As mentioned above, this has to be a concerted effort by all parties involved.
How much do you know about the source of gold from your direct buyers? How transparent are your sources about the origin of the gold?
See the above response about the documentation supporting every shipment.
Have you ever broken business relations with companies because they claimed to be producing more gold as mining companies than physically possible? If so, which companies?
We monitor volumes on a routine basis just to avoid situations like the one you describe. Yes, we have stopped relations due to compliance. We do not compromise values for business.
Has Metalor ever addressed concerns about the origin of gold, and perhaps lax legislation of the gold buying business, with Peruvian authorities?
Yes, at the time of engaging into the formalization process and on a regular basis since then. All responses we got over time from the different authorities in Peru (Minister of Mines, Activos Mineros, Formalization Office, Sunat), were very reassuring. However, we are disappointed because it turned out that the regulatory and enforcement framework is not robust enough.
Are you aware of any complicity amongst the major gold buyers in Madre de Dios, and whether they may trade/combine purchases amongst each other?
No. Metalor does not take any material from that region.