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FROM MINES TO MARKET: THE IMPACT OF ILLEGAL GOLD MINING IN PERU

Updated: Dec 10, 2021

Jennifer Kelly, Illicit Finance and Economic Threats Team

Week of Monday, October 11, 2021


Deforestation of a section of the Peruvian Amazon due to illicit gold mining[1]


Illegal miners have taken advantage of Peru’s rich gold reserves to generate streams of illicit income by exporting gold to the legal market.[2] These illegal gold exports have risen in value by over $1.6 billion USD since 2005.[3] The large section of the Amazon Forest in the Madre de Dios region of Peru allows these mining networks to evade detection by law enforcement and migrate around the region as they continue to profit from illicit activity.[4] This profitable industry almost certainly attracts impoverished Peruvians and other individuals searching for employment. Some of these workers are very likely directly endangered through the risks of mining, while other individuals are very likely indirectly at risk from human traffickers who transport victims into the mining camps. Furthermore, illegal gold mining almost certainly leads to lost tax revenue, which deprives the government of funding to return back to communities for sectors such as education or healthcare. While Peruvian authorities have attempted to combat the criminal activity, a lack of funding and an insufficient number of investigating law enforcement agents has led to inadequate efforts.[5] If left unaddressed, illegal gold mining will likely continue to flourish due to increased demands for gold, and this will likely lead to expansive negative impacts on Peru's economy.


Peru is consistently a leading gold producer in the world, ranked as the seventh largest exporter in 2020, and the Peruvian metal mining industry is expected to grow by 14 percent in 2021.[6] Illegal Peruvian miners exploit the weak enforcement of mining regulations, operating without licenses or land rights; 43% of Peru’s gold exports in the first six months of 2021 are believed to be illegally sourced.[7] The illegal miners very likely use their superior knowledge of the landscape of the Peruvian Amazon Forest in the Madre de Dios region to migrate and evade detection by law enforcement agencies. This likely draws out operations, draining the Peruvian government’s resources. With the complexity of the illegal mining operations, it is likely miners have individuals keeping watch for oncoming police officers to alert the camp and evacuate in time to evade arrest. As authorities are almost certainly unable to identify every illegal mining camp and track their exports from the mines to the market, it is very likely gold exportation figures are significantly underestimated. COVID-19 restrictions almost certainly provided an opportunity for these groups to increase their exportation rates and profits, as is it very unlikely illegal miners adhered to lockdown regulations as strictly as the legal mining sector. It is likely COVID-19 shifted Peruvian authorities’ focus and resources away from covert criminal activities and towards the impact of the pandemic. Less focus from law enforcement on the illegal gold mining industry very likely provided more opportunities for miners to increase their illicit operations.


According to Peruvian officials, illegal gold production rose by over $1.6 billion USD per year between 2005 and 2015, with illicit financial flows originating from illegal gold trade increasing further over the past three years.[8] Since the 2008 economic crisis, investors have moved to commodities such as gold, hoping these assets would hold their value; prices peaked in August 2020 at a street value of just over $2,000 USD for 30 grams of gold.[9] This increase in gold prices almost certainly positively impacted the growth of illegal gold mining, as the increased demand led to a necessary increase in supply. Individuals likely traveled to Peru looking to illegally profit from the gold reserves in response to the increased global demand for gold. It is very unlikely fluctuations in market value will adversely affect the trade as prominently due to gold’s ability to maintain its value against depreciation of major currencies. The versatility of this precious metal in the manufacturing of jewelry, electronics, and coins likely ensures it is an asset that will always be marketable, and as gold reserves around the globe are diminished, it is likely gold’s value will increase even further. This will almost certainly influence the illegal mining sector, which is motivated by profits.


Much of the illegally sourced Peruvian gold makes its way through an illicit network of connections until it reaches the US, where it passes through legal industrial refineries before entering the consumer market.[10] The covert nature of mining networks obscures the chain of command, although accusations have been made against the former governor of Madre de Dios, Luis Otsuka Salazar, for his involvement in the illicit gold trade.[11] It is very unlikely that foreign gold refineries are aware of the source of their imports due to illegal miners’ ability to provide fraudulent documentation for goods. It is likely these illegal mining networks operate as independent contractors, who take advantage of vulnerabilities in the supply chain to conceal the origins of their illicitly sourced gold and sell it to unsuspecting buyers. Mining networks also likely use profits generated from the sale of illegally mined gold to bribe refinery workers who are suspicious or have raised questions. Due to the covert nature of illegal gold mining, it is difficult to identify the exact routes used to move the gold out of Peru. However it is very likely these exports follow a similar journey utilizing land, sea, and air as the large quantities of drugs trafficked out of Latin America. These mining networks almost certainly exploit the porous borders Peru shares with Bolivia and Ecuador when moving illegally mined goods to the legal refineries and consumers.


The illicit gold trade attracts the attention of many Peruvians hoping to make a living; tens of thousands of predominantly poor miners have moved to Madre de Dios in recent years looking for employment.[12] As these jobs are illegal it is very likely the working conditions are not regulated, which almost certainly puts these individuals at risk of human rights violations. It is very unlikely these miners have any control over their wages or working conditions, and they almost certainly do not have a union for support. These illegal mining sites are likely unsafe, resulting in miners risking their lives on a daily basis. Additionally, the illicit gold trade lacks job security or a guarantee of wages because law enforcement agencies constantly aim to shut down illegal mines. It is also very unlikely these individuals have any opportunity to progress within the industry or receive wage increases over time. A lack of alternative employment opportunities almost certainly drives these poorer populations to join illegal mining operations. However it is unlikely many of these illegal miners will ever earn enough to fully support themselves and their families.


Illegal gold mining indirectly employs up to 500,000 people in supporting roles within the illegal mining camps, such as security personnel, mechanics, delivery drivers, food vendors, and sex workers.[13] Additionally, illegal gold mining involves child exploitation[14] This indicates the illegal gold trade provides the opportunity for other avenues of illicit financial flows to develop, as it is very likely a high number of these sex workers and children forced into labor are victims of human trafficking. These victims are very likely trafficked from poorer communities, where it is unlikely they have many other job opportunities. Victims of human trafficking are likely subjected to violence on a regular basis, meaning the pursuit of illicit profits leads to a very dangerous life for even those not directly involved in mining. Targeting the illegal industry without providing alternative opportunities to the communities it supports will almost certainly leave countless individuals without an income. It is likely that these unemployed individuals left with no other job prospects will either turn to other illicit activities as a means of making a living or emigrate to countries providing greater opportunities. This in turn will likely become a credible economic threat, as those left unemployed will almost certainly raise the poverty rate in Peru.


In the first six months of 2021, 43% of Peru’s gold exports were attributed to illegal mining and were worth an estimated $2.41 billion USD.[15] As a substantial amount of gold mined and exported from Peru is done so illegally, the profits are almost certainly not returning to the economy in the form of taxes. If the State benefited from these taxable-profits through legal gold trade, the money would almost certainly circulate back into society. This revenue would likely support poorer communities by providing greater job opportunities and very likely prevent the attraction of many impoverished individuals to illegal mining. Offering more stable jobs will likely curb the risk of emigration, along with reducing the number of individuals unemployed, which would positively impact the economy. Furthermore, other sectors such as education and healthcare would likely receive greater funding, which almost certainly helps the economy in the long term by ensuring a more skilled, healthier workforce.


Within the Pariamanu area, a hotspot for illegal gold mining in the Madre de Dios region, 204 hectares have suffered deforestation from 2017 to 2021.[16] This deforestation is almost certainly due to the migrating nature of the illegal mining camps that likely do not attempt to replant. Scientists have identified 50 endangered animal and plant species that exist only in the Amazon.[17] It is very likely the continued destruction of the forest as a result of the profit-driven illegal mining industry will push these endangered species to extinction. This destruction will almost certainly require significant resources from the government to address the issue, which will likely put an unnecessary strain on Peru’s economy. This deforestation will also likely directly impact tourism as less people will visit these regions, resulting in less revenue circulating in Peru. Additionally, this deforestation almost certainly endangers Indigenous tribes living in the Amazon. These tribes are very likely at risk of losing their land to the mines, which likely inflicts great economic pressure to set up new homes. It is also very likely some of these native communities have little to no interaction with the rest of society. If illegal miners come in contact with these tribes, even controlled viruses, such as measles, could likely have fatal consequences for the secluded Indigenous people. These individuals likely do not have the financial resources to obtain medical aid and supplies needed to save their tribes.


The annual rate of deforestation in Peru in correlation with gold prices[18]


Up to 400 tons of mercury attributed to illicit gold mining are dumped into rivers and dispersed into the air within Peru every year.[19] Illegal miners’ exposure to mercury during the gold extraction combined with the failure to safely dispose of the toxic residue very likely has a detrimental impact on individuals’ health and the environment. This pollution of water almost certainly results in the poisoning of marine life and the disruption of the whole ecosystem for other animals relying on the rivers as a water source. This likely leads to a depletion of food sources for some communities due to the fish and other animals they may hunt consuming the poisoned mercury-infused water. Additionally these people very likely have less access to clean water sources. These communities are almost certainly now forced to source or purchase other food and water, which will likely put a financial strain on individuals who are already living near the poverty line. The accumulation of mercury in marine life very likely has further economic effects in the form of a loss of income for these individuals involved in the fishing trade, as they cannot sell poisoned stock.


In February 2019, the Peruvian government attempted to combat illegal gold mining by launching Operation Mercury in the Madre de Dios region.[20] While the operation successfully shut down a number of illegal camps and reduced deforestation in the Tambopata National Reserve by 92 percent in its first five months, displaced miners from the identified illegal mines migrated elsewhere in the country to continue their illicit activities.[21] The Peruvian authorities likely lacked the finances or the resources to continue pursuing the illegal miners, resulting in the operation failing to reach its full potential. The migration of illegal mining camps to new sites following their initial discovery likely indicates law enforcement lacked the controls to detain and convict the miners, therefore the threat of illegal mining was being dispersed as opposed to defeated. The scope of the Amazon Forest was also an impediment on the operation as there was likely too much ground to cover when searching for illegal mining camps. It is likely illegal miners have a superior knowledge of the landscape, which enables them to navigate the forest with greater ease than authorities. The COVID-19 pandemic likely affected plans to continue targeting the illegal gold trade as funding and law enforcement agencies were directed elsewhere to mitigate the physical and economical impact on the country.


In 2017, the US and Peru signed a Memorandum of Understanding, expanding bilateral cooperation to combat illegal gold mining.[22] Under the agreement, US officials trained Peruvian border control agents how to identify fraudulent gold documentation and seize illegally exported gold, and Peru’s Financial Intelligence Unit received support in identifying suspicious transactions and money-laundering activity linked to the illicit gold trade.[23] Due to the financial and educational resources the US can provide, a greater regional effort between Latin American countries and the US is almost certainly an important countermeasure to combat the threat emanating from illegal gold mining. Without a collaborative approach with countries in a stronger economic position and guidance from better equipped law enforcement agencies, it is very unlikely Peruvian authorities will make any progress in disrupting the illicit financial flows from illegal gold mining. Financial aid almost certainly helps fund operations involving satellite imagery which could assist the Peruvian government in pinpointing illegal mining sites within the region. Over an extended period of time, it is likely this technology will curb illegal mining, disrupt the flow of illicit finances, restore the environment, and assist vulnerable communities impacted by these activities.


Transparency within the supply chain is an aspect that will very likely identify and deter the illicit gold trade, as illegally mined gold navigates through countless connections before reaching the refineries. The Counterterrorism Group (CTG) recommends implementing a mandatory direct route from legally titled mines to the refinery and then onto the consumer to mitigate illegal mining activity and reduce illegal profits. It is likely such measures have not already been implemented due to a limited law enforcement capacity, coupled with the disruption of the COVID-19 pandemic, which likely resulted in attention being turned to regulating lockdowns. Furthermore the lucrative profits generated from the sale of illicit gold on the legal market are likely in part due to the ease of which documents can be falsified. By enforcing more stringent document checks, or reinforcing the security features of these documents to make them more difficult to forge, illegally mined gold can be easier to identify, and thus the creation of illicit funds can be disrupted.


CTG and the Illicit Finance and Economic Threats (IFET) team will continue to monitor developments and financial threats relating to illegal gold mining in Peru. The IFET team will consult with the SOUTHCOM team to determine the level of threat to other countries in Latin America, while reporting any imminent threat to the proper channels. Future reports will track and outline developments of threats of illicit financing from illegal gold mining, as well as implications for any local, regional, or international groups. CTG’s Worldwide Analysis of Terrorism, Crime, and Hazards (W.A.T.C.H.) Officers and Threat Hunters will continue to provide up-to-date reports on threats or attacks of this nature in the region.


The Counterterrorism Group (CTG) is a subdivision of the global consulting firm Paladin 7. CTG has a developed business acumen that proactively identifies and counteracts the threat of terrorism through intelligence and investigative products. Business development resources can now be accessed via the Counter Threat Center (CTC), emerging Fall 2021. The CTG produces W.A.T.C.H resources using daily threat intelligence, also designed to complement CTG specialty reports which utilize analytical and scenario-based planning. Innovation must accommodate political, financial, and cyber threats to maintain a level of business continuity, regardless of unplanned incidents that may take critical systems offline. To find out more about our products and services visit us at counterterrorismgroup.com.


[1]Breaking Down the Chain of Illegal Gold in Peru” by Insight Crime licensed under Creative Commons

[2] Analysis: Illegal Gold Mining in Peru Set to Continue, E&T, July 2021, https://eandt.theiet.org/content/articles/2021/07/analysis-illegal-gold-mining-in-peru/

[3] Money Laundering from Environmental Crime, Financial Action Task Force Report, July 2021, https://www.fatf-gafi.org/media/fatf/documents/reports/Money-Laundering-from-Environmental-Crime.pdf

[4] Analysis: Illegal Gold Mining in Peru Set to Continue, E&T, July 2021, https://eandt.theiet.org/content/articles/2021/07/analysis-illegal-gold-mining-in-peru/

[5] Peru’s military tries to curb illegal gold mining in Amazon, AP News, May 2019, https://apnews.com/article/human-trafficking-caribbean-forests-latin-america-international-news-95cd2f96e5a6490a837ebcee186b82db

[6] Metals Mining a Bright Spot in Peru amid the Government’s Changing of the Guard, CIAT, June 2021, https://www.ciat.org/metals-mining-a-bright-spot-in-peru-amid-the-governments-changing-of-the-guard/?lang=en

[7] Where are Peru's gold exports coming from?, Bnamericas, September 2021, https://www.bnamericas.com/en/analysis/where-are-perus-gold-exports-coming-from

[8] Money Laundering from Environmental Crime, Financial Action Task Force Report, July 2021, https://www.fatf-gafi.org/media/fatf/documents/reports/Money-Laundering-from-Environmental-Crime.pdf

[9] Exploring Illegal Mining in Colombia’s Amazon, Insight Crime, September 2021, https://insightcrime.org/investigations/exploring-illegal-mining-colombia-amazon/

[10] Digging Into Dirty Gold Across the Americas, Insight Crime, April 2021, https://insightcrime.org/news/digging-dirty-gold-across-americas/

[11] Special judiciary on environmental crimes established in Peru, Mongabay, April 2018, https://news.mongabay.com/2018/04/special-judiciary-on-environmental-crimes-established-in-peru/

[12] Peru's 'Wonder Woman' battles illegal gold mining in the Amazon, Reuters, September 2020, https://www.reuters.com/article/peru-gold-wonderwoman-idUSL5N2GK4C4

[13] Case Study: Illicit Gold Mining In Peru, The Global Initiative against Transnational Organized Crime, 2017, https://globalinitiative.net/wp-content/uploads/2017/11/tgiatoc-case-study-peru-1878-web-lo-res.pdf

[14] 2020 List of Goods Produced by Child Labor or Forced Labor, US Department of Labor, September 2020, https://www.dol.gov/sites/dolgov/files/ILAB/child_labor_reports/tda2019/2020_TVPRA_List_Online_Final.pdf

[15] Where are Peru's gold exports coming from?, Bnamericas, September 2021, https://www.bnamericas.com/en/analysis/where-are-perus-gold-exports-coming-from

[16] New Illegal Gold Mining Hotspot in Peruvian Amazon - Pariamanu, MAAP, May 2021, https://maaproject.org/2021/mining-peru-pariamanu/

[17] 50 endangered species that only live in the Amazon rainforest, Stacker, n.d., https://stacker.com/stories/3452/50-endangered-species-only-live-amazon-rainforest

[18]Annual rate of deforestation over 34 years due to ASGM in the Southeastern Peruvian Amazon” by Remote Sensing licensed by Creative Commons

[19] Peru Scrambles to Drive Out Illegal Gold Mining and Save Precious Land, The New York Times, July 2016, https://www.nytimes.com/2016/07/26/world/americas/peru-illegal-gold-mining-latin-america.html

[20] 3 Security Challenges Facing Peru’s Incoming President, Insight Crime, June 2021, https://insightcrime.org/news/security-challenges-peru-incoming-president/

[21] Ibid

[22] Money Laundering from Environmental Crime, Financial Action Task Force Report, July 2021, https://www.fatf-gafi.org/media/fatf/documents/reports/Money-Laundering-from-Environmental-Crime.pdf

[23] Ibid

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