Last year the tiny Nóvita municipality, located in the south of Colombia’s pacific coast department of Chocó, was the country’s second-biggest producer of gold.
At first glance this may not seem particularly remarkable. Along with neighbouring Antioquia department, Chocó is playing an increasing role in Colombia’s booming mining sector and has significant confirmed deposits of precious metals, including gold and platinum. However, what makes Nóvita’s rise particularly interesting is that, as of 2012, the municipality did not have any registered gold exploitation permits. In other words, the more than four tons of gold produced in the area in 2012, according to the Colombian government’s Mining Information System (SIMCO), were mined illegally.
The rise of Nóvita is not uncommon in Colombia, where gold has become one of the most important export products. However, according to some sources, a mere 14% of total gold production comes from legal mining operations, with the remaining 86% (more than 40 tons) coming from the grey area between artisanal, small-scale and criminal mining. Although the government is committed to formalising mining activities and cracking down on illegal operations, the sheer extent of the problem puts companies seeking to operate legally in a complex position vis-à-vis artisanal miners, local communities, and any of the multiple illegal armed groups that continue to operate across the country.
When discussing illegal mining in Colombia, it is important to differentiate between small-scale artisanal mining – illegal because miners do not have official government permits – and so-called ‘criminal’ mining, i.e. unlawful industrialised mining operations, often either run or at least influenced by illegal armed groups, such as paramilitary-successor criminal gangs or guerrilla groups. Although small-scale and artisanal miners do not account for a significant amount of the country’s total output, in several regions, such as Antioquia and Bolívar departments, associations of small-scale miners hold considerable influence within local communities given the long history of mining and the importance of their activities for local subsistence and livelihoods. While these groups frequently violate health and environmental standards, the impact on local communities is often manageable. On the other hand, large industrialised operations are of growing concern to both the government and international companies, given the extent of their impact on the environment, local communities and the gold mining sector as a whole.
Drug traffickers, demobilised paramilitaries and guerrilla groups have flocked to criminal gold production as rising prices allow them to generate astounding revenues. The relatively high price of gold, coupled with the fact that the final product is legal and its production sources cannot easily be traced, mean that illegal groups can operate large, profitable operations without the risks involved in the drug trade, including government pressure and the ever-present threat of extradition to the US. Armed groups are adopting increasingly sophisticated means of enriching themselves from gold mining, including the direct management of operations, extortion of local mining operators (both legal and illegal) and the involvement in services companies, particularly linked to transportation. In some parts of the country, anecdotal evidence even suggests that illegal armed groups are involved in creating local NGOs, purportedly dedicated to protecting ecosystems and national parks, in order to limit the rival presence of legal mining operations in their areas of influence.
International companies operating in Colombia, or considering entering the booming mining sector, face several challenges from illegal and criminal mining operations. Ironically, these problems may be further exacerbated by government efforts to curtail illegal mining. For example, relations with local communities can be soured by opposition, either real or artificially created, to international companies’ presence, with reasons ranging from alleged environmental degradation to the social implications of large-scale industrial mining. As the government cracks down on illegal mining, the stakes for armed groups, and with them the pressure on communities and foreign companies, are likely to increase. Companies that fail to assess local stakeholder and power relations may be subject to further problems if they fail to differentiate between legitimate NGOs and organisations created or managed by illegal armed groups.
Direct pressure on companies may take a variety of forms, though extortion is often a favoured method given the low investment required and high returns offered. Armed groups can make staggering amounts of money from extortion. For example, military reports suggest that the income for armed groups from extortion payments on mining machinery may be as much as US$2 million per month in southern Córdoba and Bolívar departments alone. At the same time, giving in to extortion payments not only subjects companies to significant reputational damage, but also to legal action in the context of both Colombian legislation and international anti-bribery laws such as the US Foreign Corrupt Practices Act and the UK Bribery Act.
Gold mining is undoubtedly a flourishing sector in the Colombian economy and the government has prioritised its regulation in order to attract greater foreign investment. The natural wealth and abundance of resources continues to make Colombia an attractive target for international companies. However, understanding and navigating local complexities, including the social, political and reputational risks associated with illegal mining operations in the area of interest, is a necessary prerequisite to sustaining successful investments in the country.
By Oliver Wack, Control Risks