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Peru: Tarnished Gold

With soaring demand and indispensability of gold to industry, Peru, the sixth-largest producer in the world, struggles to keep the supply legitimate.

Gold - The Metal of Gods

Gold has been the standard for valuation of wealth and power since ancient times. At the individual level, gold remains attractive as a hedge against inflation.  Industrial use of the precious metal has added to its demand. The high-tech industry saw a massive surge in demand, consuming nearly 335 tons annually. An iPhone, for example, contains 0.014 grams of gold.

Gold's value comes from its rarity. According to a 2009 National Geographic article, "in all of history, only 161,000 tons of gold have been mined, barely enough to fill 2 Olympic-size swimming pools. More than half of that was extracted in the past 50 years."

Now, the world's richest deposits are depleted faster, and there are rarely any new reserves found. Despite this, the gold mining industry is rapidly exhausting the existing gold veins. World production has doubled over the past 50 years, from some 1,500 tons per year in 1970 to approximately 3,000 tons per year as of 2014.

Spreading Misery over a Poor Land

Peru accounts for almost 6 percent of global gold output, which comes at a huge ecological cost.  According to a 2018 study by the Centre for Amazonian Scientific Innovation, unregulated mining has uprooted nearly 250,000 acres of rainforest in the Madre de Dios region of Peru. The resulting toxic sludge (about 20 tons for every 0.333 ounce of pure gold) is poisoning the subsoil and water bodies.

An international labour watchdog, Verité, has reported that over 20 percent of the gold mined in Peru, is produced illegally, surpassing the cocaine trade. Roughly $3 billion in illegal gold is exported out of the country every year. Local and international organised crime and rebel groups are involved in illegal mining.

Like the infamous Roman-owned gold mines in ancient Spain, who worked child slaves to death, the present-day illegal mines also make their profit using cheap forced labour working in inhumane conditions.

Then there is the attendant evil of human trafficking and sexual exploitation. For every kilogram of illegally mined gold, dozens of children suffer abuse in the flourishing sex trade that caters to the industry. In Puerto Maldonado in Peru, there were at least 2,241 reported cases of human trafficking between 2009 and 2014 and 889 in 2015 alone.

Is the Peruvian Government Combating the Syndicates?

As per Peruvian law, mining activity in natural reserve areas are prohibited. However, the mountainous geography and complex land regulations make it difficult to enforce the law. The authorities are under-equipped or unwilling to impose the writ of the state, deep in the jungles or on protected lands.

The Peruvian government allows some protected areas to be administered by private, regional and community organisations. A government-run programme is certifying miners against social and environmental benchmarks. Over the past two years, the Peruvian government has been cracking down on informal mining operations and illicit gold exports. Security forces have been raiding illegal mining camps, destroying equipment, and monitoring gold trading companies involved in buying and selling contraband gold.

Monitoring the gold trade to detect unlawful gold is extremely difficult, if not impossible. Gold, unlike "blood" or "conflict" diamonds, can be disposed of in small quantities by the miners themselves. The tax authority of Peru estimates that 35 tons of contraband gold worth over $1 billion was transhipped via Lima to the United States and Switzerland between February and October of 2014.

Laundering of the Precious Metal

In Peru, before the illegal gold can make its way into international markets, its exact origin has to be concealed or 'laundered.' The gold ore is processed locally, then transported to refiners, who purify it to the qualities required by end-users. Latin American gold is usually sent to refineries in either the United States, Switzerland or Canada. Unlike cocaine, once gold is 'laundered,' it becomes legal and can move freely across international borders.

In early 2019, Swiss refiner Metalor stopped sourcing altogether from artisanal gold miners in Latin America, after Peruvian Customs officials seized 91 kilograms of gold bars from local exporter Minerales del Sur destined for the Swiss refinery.

International Regulatory Mechanism against Illegal Gold Sourcing

The Dodd-Frank Act (the United States, 2010) and the European Union's conflict minerals legislation, are some  regulations in force  to stop the import of minerals/ precious stones from conflict zones.  The Dodd-Frank Act primarily focuses on the Democratic Republic of Congo and a specific list of adjoining countries.  The EU regulation expands the geographic focus to any conflict-affected or high-risk area in the world. The Organisation for Economic Co-operation and Development (OECD) has formulated a five-step process for risk-based due diligence in the minerals supply chain.

The International Council on Mining and Metals, The London Bullion Market Association, the World Gold Council, the Better Gold Initiative, and the Responsible Jewellery Council all have initiatives and compliance standards that focus on labour conditions and sourcing audits.

India Watch

In the fiscal year 2019, India has imported gold worth nearly ₹2.3 trillion in the form of gold doré (unrefined gold), mainly from Ghana and Peru.The 2018 NITI Aayog report on 'Transforming India's Gold Market' proposes a collaboration between the Indian bullion industry and the OECD to prepare a policy on responsible sourcing of gold.


  • The concept of 'conflict' minerals is generally only applied to the African context. While illegal mining in Latin America is intrinsically linked to conflict, there are few initiatives in place to address this intersection. This needs to be corrected by something akin to the Kimberley Certification Process, which is now the globally accepted standard to deny 'blood' diamonds free access to world markets.

  • Corruption and poor implementation of legislation have allowed the nexus between corrupt officials and crime syndicates to flourish. The national leadership has to be pressurised by the international community to enforce rules more diligently. This will happen if the export of dirty gold is stopped, causing financial distress to the parallel economy.

  • The skyrocketing global demand for the precious metal has created a modern-day Gold Rush. Switzerland, China, India, the United Kingdom, Turkey, the United States, and the United Arab Emirates are amongst the top buyers. Unless these countries impose an embargo on dirty gold, the illegal practices will never cease.





Image Design: Chris Karedan, Synergia Foundation