Financial exclusion and opaque banking laws help make Colombian gold more attractive than drugs to money launderers

The exclusion of artisanal and small-scale miners from the financial system and Switzerland’s opaque banking laws are amongst the factors making Colombia’s gold sector vulnerable to illicit financial flows (IFFs) according to a new report published by Global Financial Integrity (GFI).

Meanwhile gold appears more attractive than drugs to criminals according to The Gold Standard, which explores what gold sector vulnerabilities mean for Colombia’s environment, trade, and artisanal mining communities.

More attractive than drugs

“Criminal mining brings more money to criminal groups, to guerrilla groups, to mafias … than drug trafficking,” according to a former Colombian head of state quoted in the report.

Gold’s inherent qualities make it vulnerable to illegal extraction, trafficking and laundering. These include its high value, ease of portability and unlike narcotics, gold is not inherently illegal. Differentiating between legally and illegally sourced gold can be difficult while legal requirements for transporting gold are less stringent than those for cash.

These are all attractive aspects for Colombian criminal groups looking to maximise financial gains, shift profits from one jurisdiction to another and minimise the risks of being caught.

Illegal and informal operations

Many – but certainly not all – of the factors promoting gold as the preferred choice for money launderers can be found in the role of riverbed gold-mining, 70 per cent of which takes place without legal authorisation by artisanal and small-scale miners.

Although Colombia introduced some legislation in 2019 to formalise these miners’ role in the economy, they still face two primary barriers that limit their access to legal and formal markets.

One barrier is a lack of clarity and institutional coordination in mining and commercial regulations.

Financial exclusion

The other is the financial exclusion of the sector. These miners can neither open bank accounts nor access credit with interest rates that are representative of their repayment capabilities.

This lack of access has resulted in a vicious cycle of stigmatisation of the mining sector: it is considered risky therefore it is financially excluded, which only increases the perceived risks.

International misinvoicing

When comparing Colombian gold exports to imports by international trading partners, the report finds a value gap of more than US$5.6 billion over the period of 2010-18, which the report says is indicative of trade misinvoicing. 

The US and Switzerland are the largest importers of Colombian gold by weight. The report points out that Switzerland is listed as a tax haven due to its opaque banking laws; in 2018 it came in top place in Tax Justice Network’s Financial Secrecy Index, and in 2020 it was ranked alongside the Cayman Islands and the US as the world’s least transparent countries.

GFI’s report, The Gold Standard, can be found here.

Categories: Trade Based Financial crimes News

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