Much of the gold used to make the components for your smartphone, or the gold band for your engagement ring, has a secret criminal history that, before a stunning report published by the Miami Herald on Tuesday, wasn’t widely known to the US public.
In parts of Peru, drug cartels operate illegal gold mines to pull the lucrative gold metal out of the Earth. Much of this inventory is then sold to multinational companies, where illegally harvested gold blends with the legitimate supply from larger, established mines. Some of it ends up in jewelry, in smart phones and even in the vaults of the US Mint, the Federal Reserve and other global central banks, which are liberal buyers of gold.
Like the illegal shipments of cocaine in the Netflix series Narcos, much of the illegal gold flowing into the US enters in Miami. Last year, more than $ 35 billion in gold cycled through Miami.
And just like cocaine, a market for illicit metal has blossomed in South Florida, where nearly a third of the nation’s imported gold enters.
Over the past decade, Miami, a longtime point of entry into the United States for contraband, imported $ 35 billion worth of gold via air, according to U.S. Customs records analyzed by WorldCity, a Coral Gables-based economic data firm. That was more than any other U.S. city.
Some of the metal shipped to Miami is refined locally. Other batches are sent across the country to be melted down and manufactured into jewelry and bullion. Central banks around the world are major buyers of gold. So is the U.S. Mint. And electronics companies use small amounts of gold in consumer products because it is an effective conductor and doesn’t corrode.
One way or another, almost everyone has Miami gold in their pockets, portfolios or jewelry boxes.
Simple math shows it can’t all be clean.
Years ago, South American drug smuggling networks realized that they could easily wash billions of dollars in profits through illicit gold mining.
Local governments say the prevalence of illegal gold mining can be seen in the official statistics. Colombia, for example, has only a handful of mines. But government export data shows tens of billions of dollars in gold leave the country every year.
This difference is the illegal mines, which are typically run by organized crime groups.
And while Cocaine is obviously illegal, gold can be melted and remelted until its origin is impossible to pinpoint.
Take Colombia, a country with a substantial mining industry that exported 64 tons of gold in 2016, much of it to the United States, according to government statistics. That same year, Colombia’s large-scale, legal mining operations produced only eight tons, according to the Colombian Mining Association. A significant part of the gap between what Colombia’s big mines produce and what the country exports is unlicensed gold — sometimes unearthed by operations controlled by narco-traffickers and other criminals.
The big Colombian mines that “[legally] produce gold can be counted on one hand,” said Jaime Pinilla, an engineer and legal gold mine owner in Colombia. “There’s a huge difference in the amount that is produced and the amount that is exported.”
And the discrepancy is not just happening in Colombia: Statistics from other Latin American gold-producing nations show similar ratios between legal and illegal gold mining.
It’s impossible to know where all the illegal gold is coming from — but it’s clear where most of it ends up. Latin America accounts for nearly three-quarters of the gold imported into the United States, roughly 200 tons in 2015, according to Miami-based trade analytics firm Datamyne and the U.S. Geological Survey. That’s not far off from the total amount of gold mined in the United States annually.
Aside from being easier to conceal, illegal mining is also far more profitable than cocaine trafficking.
In 2014, a kilo of gold was worth between $ 30,000 and $ 40,000 in Colombia, according to Colombian intelligence figures obtained by the Miami Herald. By comparison, a kilo of cocaine sold for roughly $ 2,500. While drug trafficking in Colombia generated less than a billion dollars in total revenue in 2014, according to those same estimates, illegal mining produced roughly $ 2.4 billion.
Here’s how drug cartels use gold trading as a front for their money laundering operation, which allows them to mix their illegitimate drug-dealing profits with the money they earn selling gold.
But banks can’t accept big deposits of cash, let alone duffel bags of coke-dusted bills, without checking how the funds were made. One solution for criminals: investing in supposedly legitimate businesses.
Here’s how gold fits in: Drug-cartel associates posing as precious-metals traders buy and mine gold in Latin America. Cocaine profits are their seed money. They sell the metal through front companies — hiding its criminal taint — to refineries in the United States and other major gold-buying nations like Switzerland and the United Arab Emirates.
Once the deal is made, the cocaine kingpins have successfully turned their dirty gold into clean cash. To the outside world, they’re not drug dealers anymore; they’re gold traders. That’s money laundering.
As one might imagine, human rights abuses abound at illegal gold mines hidden deep in the Peruvian or Colombian jungles. Workers are treated like slaves and forced to work in dangerous conditions. Heavy machinery is abandoned in the jungle, and dynamite and chemicals – like mercury – used to extract the gold do irreparable damage to the environment.
The human rights abuses and deforestation are a “bleeding sore that affects millions of people and their future livelihoods,” said Douglas Farah, a national security consultant and visiting fellow at the Pentagon-funded National Defense University in Washington, D.C.
“It’s become an enormously damaging industry that very few people are looking at seriously,” Farah said. “Just as with ‘blood diamonds,’ the gold issue … brings together money laundering, forced prostitution, drug traffickers, human trafficking and child slavery.’
Until now, the international gold market’s dark side has drawn little public attention in the United States.
That lack of scrutiny has allowed the trade in dirty gold to grow more profitable than cocaine, according to government estimates in Latin America.
“Criminal groups make so much more money from gold than from coca, and it’s so much easier,” said Ivan Díaz Corzo, a former member of Colombia’s anti-criminal-mining task force.
In its report, the Herald focuses on the case of NTR Metals, a local gold broker that was busted by federal authorities for purchasing illegally sourced gold and using the precious metal to help launder illegal drug profits. It’s the largest example of gold being used to mask drug profits in US history.
The company’s parent company, Dallas-based Elemetal, sold gold to Apple and other Fortune 500 companies.
In Latin America, criminals see mining and trading precious metals as a lucrative growth business, carefully hidden from U.S. consumers who flaunt gold around their necks and fingers but have no idea where it comes from — or who gets hurt. The narcos know their market is strong: America’s addiction to the metal burns as insatiably as its craving for cocaine. NTR, for instance, was the subsidiary of a major U.S. gold refinery that supplied Apple and 67 other Fortune 500 companies, as well as Tiffany & Co., according to a Miami Herald analysis of corporate disclosures.
Last March, federal prosecutors in Miami charged Granda, his boss, Samer Barrage, and another NTR trader, Renato Rodriguez, with money laundering, saying the three men bought $ 3.6 billion of illegal gold from criminal groups in Latin America. They claimed the gold traders, who eventually pleaded guilty, fueled “illegal gold mining, foreign bribery [and] narcotics trafficking.”
Now, those prosecutors are investigating other U.S. precious-metals dealers suspected of buying tainted gold from drug traffickers, law enforcement sources say. Their goal is not just to take out crooked gold firms like NTR — they also want to kneecap the drug cartels.
The indicted gold brokers are expected to be sentenced later this month. They’re each facing up to 10 years in prison, though they’ve agreed to cooperate with the government’s probe. The fallout from the probe has thrown a business with billions of dollars in sales – and a gold refinery in rural Ohio – into disarray, and could lead to its closure.
A Peruvian businessman suspected of working on behalf of the cartels was also indicted as part of the probe. But while this prosecution was successful, US law enforcement have barely scratched the surface of this industry.