Photo: Ecuadorian Police during a raid in Buenos Aires, Ecuador. Source: Ecuador National Police via AP.
The Ecuadorean economy is commodity-based and well-known as a source of oil, bananas, and shrimp. This has often left the Andean country at the mercy of international price fluctuations, a problem compounded by fiscal problems. One of the options being pursued by Ecuador is the development of its mining industry. Although exploration of the country’s mineral resources is not complete, the government estimates that the mining of gold and copper will generate around USD $4 billion in tax revenue and about USD $40 billion in exports over the next decade.
There are, however, challenges with mining, including the penetration of criminal organizations into the business. The illicit mining of gold is a major problem that governments face throughout parts of Latin America and the Caribbean. While activities such as drug trafficking and arms trading provide transnational criminal organizations (TCOs) and their fellow travelers (like international terrorist groups) with major cash flows, the illicit mining of gold diversifies income and provides a hedge against volatile international financial markets.
With substantial gold reserves and a strategic location next to two large gold producing countries (Colombia and Peru) with TCOs, Ecuador is not immune to the threat of criminalization. According to a study by the Department Against Transnational Organized Crime (DTOC) at the Organization of American States (OAS) with cooperation from the Ecuadorean government, illicit gold mining “has brought surges of violence and instability to remote areas while attracting organized crime at the local and international level and triggering an increase in money laundering and contraband.”
Ecuadorean trade data has noted irregularities in gold ore exports. According to one OAS DTOC study, between 2015 and 2019, Ecuador’s gold ore exports increased by 27,604 percent as measured by weight. “In 2015, Ecuador exported gold ore worth USD $538,633, making it 30th in the world in terms of the export value. However, by 2019, these exports rose to nearly USD $100,000,000, making Ecuador the 9th largest exporter in the world.”
Although Colombia’s and Peru’s mining sectors are larger, in 2019 Ecuador exported close to four times more gold than both of its neighbors combined.
Where do Ecuador’s gold exports go? The key markets for Ecuadorean gold are the United States, Switzerland, Italy, the United Arab Emirates, and India. However, analysts suspect that misinvoicing has opened an increased flow of illicit gold to Asia, specifically China. According to the DTOC report, “the overwhelming majority of these exports went to China, which accounted for over 99 percent of Ecuador’s 2019 gold ore exports.” The same report points out that there are discrepancies in reported value, with China putting a value of $339.2 million for gold from Ecuador in 2019, while the Andean country reported the value at $76.7 million. Misinvoicing of gold is a common form of trade-based money laundering.
Why has the illicit mining of gold emerged as a problem in Ecuador? According to the OAS report, there are multiple reasons:
- Rising gold prices in international markets have stimulated the hunt for more gold, a development facilitated by global transportation links to major markets.
- Ecuador’s highlands are marked by high levels of informality and poverty, and the government presence is much thinner on the ground, both in terms of law enforcement and social services. People have an incentive to make money, even if the activities involved are high risk and illegal. The two main areas with the most illicit mining activity are in the north along the Colombian border and in the south along the Peruvian border.
- The presence of mineral deposits in difficult-to-reach parts of the country complicates the situation. In a sense, the farther from the mainstream mining areas, where large international companies operate, the better. Most multinational corporations are forced to comply with sovereign authorities, and they are increasingly feeling pressure on the ESG (Environmental, Social, and Governance) front from shareholders in their home countries. Ecuador still relies upon large numbers of small-sized and artisanal miners, which lack any institutional or financial depth and are easy to bully.
- The existence of illegal mining networks in neighboring Colombia and Peru has been aided by relatively difficult-to-patrol borders (mainly due to jungles and mountains). Many of these criminal elements are highly organized and well-armed.
- Corruption of public officials is widespread, particularly at the local level.
- The country’s dollarized economy may make money laundering easier through the use of instruments such as gold.
As illicit gold mining has become a larger business operation in Ecuador, other criminal activities have taken root. The DTOC report notes that “these include the contraband movement of explosives, mercury, illegal gold, and weapons, as well as international migration of illegal miners. In addition, the informal communities that develop around the illicit gold mining typically import women, who are trafficked for sex and menial jobs. More broadly, the convergence of illegal networks from Peru and Colombia with those of Ecuador acts as a driver for illicit mining and the illegal gold trade in Ecuador. This occurs through many channels, including increased availability of illicit financing as well as the exchange of know-how and techniques between illegal miners and launderers.”
The net result of illicit gold mining in Ecuador, as in neighboring Colombia and Peru, or even farther afield in Guyana, Suriname, and French Guiana, is a loss of control over parts of the country (mainly in remote border areas). It also erodes the rule of law, disrupts local, legitimate businesses (or facilitates their takeover by criminal elements), and decreases revenues for regional governments.
One of the strengths of the OAS report is that it explains the process of illicit mining from beginning to end, starting with the extraction of gold to its shipment around the world. Once minable amounts of gold are discovered, there is a need for the necessary manpower to extract it. This comes from either local sources, or in Ecuador’s case from Colombia, Brazil, and Peru.
As miners arrive, many without the proper licensing and authorization, they employ prohibited chemicals (which cause environmental damage). If there is a need for larger equipment and supplies, many miners (who lack any financial wherewithal) turn to what is available. According to the OAS, “financing or the direct provision of supplies is typically secured from local processing plants, criminal organizations, and unscrupulous gold traders in arrangements that are heavily unfavorable to miners who can end up losing a significant percentage of their production to these financiers.” The gold is then processed into gold bars and shipped either by human couriers using land routes into Colombia or by commercial air travel to other countries. At the same time, the influx of miners, many from other countries, has meant that local populations, including Indigenous groups, have found themselves outnumbered and overpowered in their own localities. (Indigenous communities have also demanded greater consultation on any major mining programs in their areas.)
Ecuadorean authorities have not been complacent as they have ramped up enforcement and controls over the gold trade with an emphasis on clamping down on contraband trade with Peru. Despite efforts noted in the OAS DTOC report, such as the 2018-2019 operation which tackled criminal gangs in the north of the country, the challenge continues.
There have also been efforts to tighten up regulation, including for money laundering. Equally important, the government of Ecuador has requested and received assistance from the OAS DTOC, which has provided technical assistance to combat transnational organized crime and prepared a situational diagnosis of illegal mining and money laundering activities.
A serious challenge for Ecuador and other countries where artisanal gold mining occurs is the lack of international coordination. Despite a strong network of trade agreements and multilateral organizations in the Americas, international enforcement cooperation is limited. The Council of Europe, on the other hand, has a Committee on Crime Problems with criminologists, diplomats, and lawyers working daily on treaties, uniform laws, and other approaches to cross-border crimes. In addition, the European Union has uniform criminal laws and a uniform approach to external criminal cooperation, for example, through Europol, Eurojust, and the Council of Justice and Home Affairs.
Unfortunately, in the Western Hemisphere there is no equivalent. Instead, there are ad hoc approaches to criminal issues through the OAS, together with the role of the Committee of Hemispheric Security (CHS) which studies and makes recommendations to the OAS Permanent Council on matters relating to hemispheric security.
Since 2014, the OAS has had Meetings of National Authorities on Transnational Organized Crime (RANDOT). RANDOT is the political forum for dialogue and cooperation among OAS Member States within the framework of the Hemispheric Plan of Action Against Transnational Organized Crime and the United Nations Convention against Transnational Organized Crime (Palermo Convention) and its Protocols. The meeting is held every two years under the rotating chairmanship of an OAS Member State.
To address illicit mining, the governments of the Americas need to allocate more authority and resources to RANDOT and other OAS mechanisms working on cross-border crime, such as Meetings of Ministers of Justice or Other Ministers or Attorneys General of the Americas (REMJA), or the Meetings of Ministers on Public Security Matters (MISPA).
Although Ecuador, Bolivia, and Peru are associate members of the Common Market of the South (MERCOSUR), until now MERCOSUR has not engaged in cross-border enforcement cooperation, let alone tried to develop uniform criminal laws or police units. As free trade and economic integration progress without mechanisms to mitigate cross-border crime, criminals will continue to prosper in endeavors such as artisanal mining and maintaining business operations that span the borders of more than one country.
Considering the importance of mining for a country like Ecuador (as well as for others such as Colombia, Peru, Guyana, and Suriname), there should be a greater sense of urgency to push for the creation of better cross-border mechanisms.
According to Gastón Schulmeister, the Director of the OAS Department against Transnational Organized Crime, “given that the illicit gold production chain has shown a close association with other illegal activities such as smuggling, migrant smuggling, human trafficking, and drug trafficking, we consider critical the support for the creation of National Task Forces Against Illegal Mining across the region as a mechanism to increase the number of investigations and prosecutions and to provide training on how to conduct financial investigations and on how to apply the existing legal frameworks on money laundering, illegal mining, and asset recovery cases.” In the same sense, Schulmeister also emphasized that “the establishment of an informal regional network of these National Task Forces is another key dimension on which to invest efforts to promote cooperation in the fight against illegal mining and any other manifestations of Transnational Organized Crime.”
Scott B. MacDonald is the chief economist at Smith’s Research & Gradings, Research Fellow at Global Americans, and founding director of the Caribbean Policy Consortium. He is currently working on a book on the new Cold War in the Caribbean.
Bruce Zagaris is a partner with the Washington, D.C. law firm of Berliner Corcoran & Rowe LLP, founder and editor of the International Enforcement Law Reporter, and former lecturer at the Law Faculty of the University of the West Indies at Cave Hill, Barbados.
