Nearly all Brazilian gold imported by EU is likely illegal, report says
Mon Sep 02 2024
The European Union is leading global efforts to curb the imports of deforestation-linked products, issuing a regulation in 2023 banning the import of such goods across a range of commodities, including beef, timber and soy. But there appears to be one glaring omission: gold, and in particular gold from Brazil, nearly all of which is likely tainted with illegality.
That’s the conclusion of a recent report from the Escolhas Institute, an advocate for sustainable development of natural resources, which found that 94% of the EU’s gold imports from Brazil in 2023 were exposed to a high risk of illegality — the equivalent of 1.5 metric tons of the metal, valued at $93 million.
The researchers rated as high risk all those areas where gold is produced primarily in wildcat mines known as garimpos, which aren’t subject to the same stringent rules and oversight as large-scale commercial mines. Garimpo hotspots include the Amazonian states of Amazonas and Pará, with the high-risk trade also extending to the commercial hub of São Paulo, where part of this gold finds its way into the international supply chain.
“I’m not saying that all the gold that comes out of Pará or Amazonas is illegal, but it comes from areas where it’s very risky,” Larissa Rodrigues, a researcher and portfolio manager at the Escolhas Institute, told Mongabay. “It has been proven that there is a lot of illegality in these regions because there is a lot of extraction from within Indigenous lands and conservation units,” she added, referring to areas where mining isn’t allowed.
However, tracking the origin of gold from garimpos is extremely tricky. Once extracted, the metal is split between the mine workers, or garimpeiros, and the owner before circulating in the local economy and ultimately reaching what is known as DTVMs, a category of financial companies that are the only ones authorized to trade gold in Brazil.
“The gold mining market is made up of intermediaries,” Rodrigues said. “The gold leaves the mine in the hands of many people, who eventually sell it to a DTVM, which passes it on to other companies that export it.”
Germany is the leading buyer of high-risk gold from Brazil, importing 1,289 kilograms (2,842 pounds) in 2023 from high-risk areas. Italy’s a distant second, with 254 kg (560 lbs) of imports, of which 71% came from high-risk areas. Switzerland, Brazil’s second-largest gold export market after Canada, wasn’t included in the report because it’s not part of the European Union. In 2022, Swiss refineries vowed to stop importing gold mined from Indigenous territories.
“The data is not surprising. It is very much in line with other studies that have been published over the last few years,” said Maurício Angelo, founder of the Mining Observatory, an investigative journalism outlet and think tank, and researcher at the Center for Sustainable Development at the University of Brasília. “The amount of gold with signs of illegality exported by Brazil is massive.”
Illegal gold mining drives deforestation and contaminates rivers with mercury, a highly toxic substance smuggled into Brazil and used to separate the gold from the ore. The practice has severely affected the health of traditional communities who rely on these water sources. Illegal gold mining within Indigenous territories in Brazil has increased sixfold recently, especially inside the Kayapó, Munduruku and Yanomami territories, while gold extraction in general doubled across the whole Amazon since 2018.
Separate research has put the cost of deforestation, land degradation and mercury contamination from illegal gold mining at $187,200-$389,200 per kilogram of gold extracted, or $84,900-$176,500 per pound — more than twice the market value of gold. In 2020, the socioeconomic costs generated by 4,547 hectares (11,236 acres) of small-scale alluvial mining in the Tapajós River Basin — the largest small-scale mining region in the world — were valued at more than $1 billion by the researchers.
Brazil exports most of its gold, and the European Union is one of the top destinations. “The European Union is an important market for Brazilian gold and a captive market. We export to the European Union every year,” Rodrigues said.
In 2021, the bloc enacted the Conflict Minerals Regulation, establishing requirements for due diligence in the supply chains of tin, tantalum, tungsten and gold imported from conflict-affected and high-risk areas.
For Rodrigues, however, European buyers need to be even more transparent about their purchases. “You are buying gold from very troubled areas. How are you ensuring that this gold doesn’t come from illegal regions?” she said, adding that importers should disclose the entirety of their supply chain, step by step.
For Rodrigo Bellezoni, an expert in the gold supply chain, increasing surveillance of the financial sector is also necessary: “Most of the gold exported by Brazil goes into the financial reserves of global institutions in countries like Switzerland, Italy and the United Kingdom, which are buying gold with at least questionable origins in the Amazon.”
The gold blind spot
The Escolhas Institute report used data from 2023, when gold exports plummeted as a result of a crackdown on illegal mining. At the beginning of the year, the administration of Luiz Inácio Lula da Silva intensified raids against illegal mines following a global uproar over mining’s dire humanitarian impact on the Yanomami Indigenous people.
New regulations on the gold trade followed. In July of that year, the federal government mandated the use of electronic invoices for gold trading; until then, trade records were largely drawn up by hand. The following month, the central bank complied with a Supreme Court decision to end the “good faith” concept that had exempted DTVMs from verifying the origin of the metal. That law, now overturned, had left the door open for gold illegally mined from protected areas and Indigenous lands to be laundered into the legitimate supply chain, simply on the basis that the seller was acting in “good faith” when declaring that their gold had legal provenance.
DTVMs quickly withdrew from the gold market, and according to experts, all these changes contributed to a 30% drop in Brazil’s gold exports in 2023. “But it doesn’t mean this gold isn’t being exported,” Bellezoni said. Like other researchers, he said he suspects much of this metal is now being traded through even more opaquely, leaving no traces in the official data. “It can continue to be exported, but this time through completely illegal channels,” he said.
Angelo, from the Mining Observatory, said garimpos still are very difficult to regulate, even with the sustained crackdown since last year. He cited the Gold Transparency Portal, launched in June by WWF, which showed that only 9.5% of gold mining sites in Brazil are 100% legitimate.
The platform, currently restricted to a group of government officials, gathers information on all mining requests submitted in Brazil, including environmental licenses issued, tax payments made, and approvals given by the National Mining Agency.
“This shows that there is at least a serial problem,” Angelo said, adding there’s not enough coordination between various agencies to fight illegal gold mining. “It’s very difficult to expect another country to be able to influence this chain effectively when Brazil’s internal organizations [can’t]. First, you have to put your house in order.”
Garimpos are deeply rooted in the local economy of the Amazonian region. Some communities depend heavily on money from the precious metal, and local citizens often elect mayors and legislators who openly advocate for looser regulations on gold mining, including mining in Indigenous territories — which is prohibited outright under Brazil’s Constitution.
But there appears to be pushback to this paradigm. Three bills currently before Congress call for tighter regulation of the gold trade, similar to legislation that’s already been passed to regulate the timber and cattle trades, two other key drivers of Amazon deforestation. Among the provisions in the bills is the implementation of a “gold guide,” to keep track of every time gold is moved from one place to another.
Source: https://news.mongabay.com/