Keywords

1 Introduction

In the late 2000s, the world experienced a mining boom that had a major impact on countries with large gold reserves like Colombia. Around this time, Colombia occupied the 48th position as a gold producer in the world. By 2019 it became the 19th largest (WGC 2019). As described in Chapter 3, the global mining boom was driven by the spike in the international gold price, the rise of gold as an investment asset, and a generally investor-friendly regulatory environment. In Colombia, internal causes for the boom included economic decisions and changes in the national regulatory system. Different measures were taken during the governments of Álvaro Uribe (2002–2010) and Juan Manuel Santos (2010–2018). Economic decisions were reflected in a new mining code in Law 685 of 2001, enacted during Uribe’s presidential term, and in the National Development Plan (NDP), where Santos termed mining as the “locomotive of development.” Several measures were put in place that aimed at attracting new foreign direct investment and transforming Colombia’s extractive sector into one of the most important industries of Latin America (Sankey 2013). As will be explained below, however, the vast majority of gold mining operations have remained small-scale, with large-scale industrial operations taking up only 2%. Moreover, the overwhelming majority of small-scale operations are informal. This means that, by definition, they do not comply with the abovementioned regulations.

The global mining boom found fertile soil in Colombia to “touch ground,” as this volume suggests. In this sense, apart from the regulatory changes, it is also important to highlight the country’s high rate of inequality and the limited availability of alternative livelihood options for the rural population. These pushed the migration of a poor rural population into gold mining areas. Informal small-scale and artisanal gold mining became an attractive opportunity to make quick money, even for newcomers who did not have special skills or previous knowledge. ASGM has been practiced in different forms (underground and alluvial) in several regions in Colombia. As will be explained below, these types of mining have been called “traditional” or “subsistence” mining. More recently, thanks to the introduction of new (technologies) and equipment to mechanize extraction and processing, the scale of ASGM significantly increased. Thus, the combined factors of technological innovation and a presence of cheap, unskilled laborers produced a fertile ground for ASGM to boom.

However, these realities on the ground have been largely neglected in the regulations the Colombian government has realized over the past two decades. Pressured to obtain a strong position in the global gold market, the Colombian government concentrated on facilitating the entrance of industrial gold mining in the country. However, it did not take into account the dynamics around gold mining and land ownership that were already present long before the mining boom. A lack of knowledge on cultural diversity, the use of the land by indigenous communities, and local socio-political dynamics resulted in contradictions between the law and local realities. With a stroke of the pen, most preexisting ASGM-activities were rendered illegal. Preexisting mining titles and land tenure arrangements needed to pass through a new, extensive bureaucratic process in order to be formalized. As this administrative process was too burdensome for many ASGM operators, their concessions were given to large-scale mining companies, creating an overlap between new and old mining titles. This resulted in numerous conflicts with local miners. To make this scenario even more complex, the mining boom also fostered the arrival of armed groups (FARC, paramilitaries, criminal bands) seeking to benefit from gold profits, invading and occupying local miners’ plots and in most, if not all cases, subjecting miners to forced labor under the threat of death. In this landscape, boundaries between what is formal/informal and legal/illegal mining become even more blurred.

In this chapter, we will demonstrate that these contradictions in the governance of Colombian mineral resources have resulted in a series of legal loopholes that are now used as windows of opportunity for the illegal commercialization of gold by powerful intermediaries. We define legal loopholes as vacuums or ambiguities within the regulatory system that can be used to circumvent the law for a purpose. In the first section of the chapter, we zoom in on the global and local factors that have contributed to the gold mining boom in Colombia. In the second section, we look at the regulatory changes and their effects on gold commercialization, as they result in ambiguities and insecurities that facilitate illegal mining operations. Finally, we identify who benefits the most from the gold commercialization system and the legal loopholes created by the Colombian government. We conclude that at the top of this system we find intermediaries, international distributors, and public servants while at the middle local vendors, and at the bottom miners.

The chapter uses data from Colombian national statistical sources as well as qualitative data from field and ethnographic research done by Maria Eugenia Robles Mengoa during three months in the mining areas of (1) Union Panamericana, Condoto, Tado, in the region of Chocó; (2) Marmato, Department of Caldas; and (3) Remedios and Segovia, Department of Antioquia. During this time, 50 surveys were implemented in the region of Chocó. More than 40 semi-structured interviews were conducted in all the areas mentioned involving local actors, such as mining leaders, gold shop owners, mineworkers, local authorities, and national authorities. Desk research included consultation of national statistics and the existing literature on gold mining in Colombia, annual reports from institutions working on the topic of mining, and legal documents. Moreover, Alexandra Urán has been researching gold mining since 2010 and brings her experience of researching the following areas: Antioquia, Cordoba, and Chocó y Darién.

2 ASGM in Colombia

Colombia is a country rich in gold resources where, like in neighboring countries, artisanal mining has existed for centuries and precedes the colonization period. In this sense, mining carries traditional and ancestral methods of extraction within it that indigenous and afro-descendant communities have been trying to preserve from generation to generation (Urán 2013). Some methods of extraction have remained intact like the practice of panning (barequeo or mazamorreo), which makes use of manual rotation to separate gold particles from the river sand. Others, however, have evolved throughout time, incorporating new machinery and technologies to facilitate the extraction of gold depending on the type of extraction.

There are three types of gold extraction in Colombia: alluvial, open-pit, and underground (Urán 2013; Rettberg and Ortiz-Riomalo 2016). Underground operations, which are targeting primary deposits, may make use of heavy machinery, but some of them also rely on manual labor and low-tech practices. Alluvial mining is mainly non-mechanized and low-tech, although in some cases more advanced technology is used as well. Open-pit mining commonly makes use of heavy machinery such as excavators. In terms of ecological impact, this kind of mining has important consequences as it requires removing one ton of material in order to get one gram of gold. The latter two types mine secondary deposits. The latest report of the Colombian Mining Information System—(SIMCO 2011) indicated that in 2011, 18% (10.06 tons) of gold production in Colombia came from primary deposits, whereas 82% (45.84 tons) came from secondary deposits. According to this report, a high percentage of both types of mining remains without a mining title: 95% of alluvial and open-pit mines and 77% of underground mines. This means that most mining operations in Colombia take place informally.

Currently, the most common labor system in informal ASGM is hierarchal, as visualized by the pyramid in Fig. 8.1. Always male, he provides the capital or financial means to operate the mine. This means that he buys machinery, electricity, fuel, dynamite, and so on. Sometimes the capitalista also owns the tunnel (in the case of underground mining) or the land (in the case of alluvial mining) that is being worked. When this is not the case, the capitalista and the owner of the tunnel or land will negotiate the terms of investment and compensation. The capitalista and landowner get the largest part of profits. These profits are counted in the form of ore sacs, which contain a variable amount of gold depending on the quality of the deposits. These sacs are usually gathered every Saturday after a week of work. The capitalista and tunnel-/landowner get between 60 and 70% of the total of ore sacs. The remaining 30–40% is shared among the operators and miners, including workers, and in the case of alluvial mining, barequeros.

Fig. 8.1
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Labor arrangements in Colombian ASGM (own elaboration)

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Decree 1666 of Law 1753, 2016, defines small, medium, and large-scale mining based on type and volume of production, as we see in Fig. 8.2. Small-scale mining represents 72% of all existing mining in the country.1 It extracts the following: precious stones (2%), coal (15%), gold (30%), and construction materials (53%). As for gold extraction, 86% is considered illegal, taking place without a recognized mining title or without being registered. This makes a gross income of around 1200 million USD per year (Guiza 2013: 112). Medium-scale mining constitutes up to 26% and large-scale mining only takes up 2% of the total (Guiza 2013: 112) (Fig. 8.3).

Fig. 8.2
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(Source Guiza [2013])

Mining in Colombia

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Fig. 8.3
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Small-, medium-, and large-scale mining (own elaboration)

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However, Colombian law defines a fourth type of mining, “subsistence mining,” as

mining work carried out by natural persons who are engaged in the open-pit extraction of precious metals, precious and semi-precious stones, river sands and gravels (destined for the construction industry), and clays, by means and hand tools, without the use of any type of equipment and machinery. (Art. 2.2.5.1.3., Decree 1666 of 2016)

Subsistence mining, therefore, is what we would commonly call artisanal mining, mining that makes use of manual labor only and is not mechanized. According to the law, a subsistence miner cannot extract more than 400 grams of gold per year.2 Colombian miners themselves, finally, use a different term. They refer not so much to production volumes, but to history and identity issues, invoking the “traditional” character of their mining activities. For them, traditional mining includes operations relying on the non-mechanized techniques such as barequeo or mazamorreo, but also some more advanced techniques.

3 Untangling the Gold Mining Boom

As mentioned above, poverty and a lack of economic alternatives provided a conducive environment for the mining boom to touch ground in Colombia. In the early 2000s, Colombia had a Gini index of 56.0 (Mundial 2018) and was known as one of the most unequal countries in the region. The rate of unemployment reached 20% (CIA Factbook 2019), with a large part of the rural population subsisting on agriculture. In this landscape, gold mining appeared as an attractive economic alternative for farmers, many of whom migrated to mining areas in different regions of the country to start extracting gold. But they were not the only ones. During that period, different armed groups, who were previously managing coca farming, turned their interest to gold. Their arrival led to the disruption of the social fabric, bringing fear, chaos, and violence to mining areas. In the slipstream of these newcomers and armed groups, new (technologies) and financial capital also flew into the mines, creating possibilities to scale up production and generating more profits.

This can be illustrated with the case of Chocó, the afro-descendant region that is also known as the poorest region in Colombia. Here, artisanal/traditional/subsistence gold mining was widespread long before the mining boom. Underground excavations in the form of timber tunnels (locally called guaches) were the preferred method of gold extraction. During a focus group with legal representatives from different mining communities in Chocó in 2018, miners remembered how the mining boom period brought chaos to the region. At the time, guaches were used by newcomers and armed groups as reference points to start performing mechanized excavation with retro excavators. The land in the region was usually family-owned, but the high demand for gold pushed families to negotiate with owners of retro excavators over access to their lands. In the case of armed groups, there was no negotiation. Families were forced to let the retro excavators onto their lands, work for the groups, and receive only a small percentage of the profits in return. One of the focus group participants summarized these changes as follows:

Before, your word was fundamental. You could trust people, but with the economic interests that appeared (after the mining boom), that word has become something secondary. Now what we have are guns, shouts, threats and even the disappearance of entire families. (interview with legal representative, 2018)

As a consequence of all this, the previously unmechanized and low-tech, so-called artisanal/traditional/subsistence gold mining, was also gradually replaced by mechanized small-scale operations, although the former does continue to exist.

As mentioned, the mining code of 2001 recognizes both production modes (in addition to large- and medium-scale). But in practice, very few of these operations comply with the legal requirements. Small-scale miners who decided to enter into this legalization process realized that this was not only an expensive bureaucratic process but also a very long one. Many of them complained about the lack of support and information provided by the government. They were discouraged when they were notified that while the legalization was in process, they could not perform any extractive activity. This meant that they had no means to keep financing the costs of legalization, which in most cases led to its abandonment. As a result, most ASGM miners continued mining without a legalized mining title. The remoteness of mining areas and scarce presence of the state allowed for this situation to persist without control or penalties.

In parallel, industrial mining companies initiated the process of acquiring titles for large-scale mining. As requirements for legalization were similar to those for small-scale miners, companies did not find it very complicated to cope with the costs. Because of their financial status, they were also given preferential treatment in order to reduce waiting time. The government’s strong desire to attract new foreign direct investment facilitated the entrance of industrial companies into old and new mining areas. As we mentioned earlier, this was facilitated through changes in the regulatory system, which led to a number of institutional complexities that we will explain in the next section.

4 Institutional Complexities and Legal Loopholes

For many decades, Colombia was considered a high-risk country for foreign direct investment. The continued presence of insurgent groups (guerrillas) and illegal militias (paramilitaries) in rural areas posed a serious threat to the security of large companies. However, after the mining boom took off, governance strategies focused on peacebuilding and the creation of a favorable investment environment.

Over the two terms of President Uribe’s administration (2002–2006 and 2006–2010), a military and paramilitary control system was launched aiming at the surrender of insurgent armed groups (Urán 2011). In 2016, during the administration of President Santos, a peace agreement seemed to seal the end of the conflict period. From an international perspective, this created a more secure investment environment. According to Colombia’s Bank of the Republic, foreign direct investment increased by 15.8% in 2016 compared to 2015.

4.1 Institutional Complexities in Mineral Tenure

In the desire to encourage foreign investment, the government decided to explore new mining areas by implementing geographic information systems such as a mining census and mining registry verification processes. These were part of the 2001 mining code. Later, in the same mining code and by Decree 1382 of 2010, mining reserve areas (abbreviated as ARE in Spanish) entered a re-demarcation process. This meant that more territory was freed up and offered to companies under concession contracts. As a result, over the past decade, the area covered by approved gold titles increased by over 700%: from 3583 km2 in 2001 to 29,361 km2 in 2016.

These mining titles, however, have been granted on land covered by collective ethnic rights, national parks, and paramo (alpine ecosystem) areas. The overlapping of mining titles with these lands implied not only a violation of indigenous and afro-descendant communities’ rights, but also created legal ambiguities that have produced more conflicts. Vélez explains this legal ambiguity as the co-existence of two official “architectures” of rights: one supporting the private accumulation of capital through the foreign and capital-intensive exploitation of mining resources, and the other focused on securing land rights and access to natural resources for indigenous peoples. This situation has produced several violent disputes over access to land (Vélez 2014: 49), as has been described in many other contexts in Africa (Fisher 2008; Benjamin 2008; Geenen 2015) and Asia (Verbrugge 2015).

In Colombia, one case of legal ambiguity occurs in the municipality of Marmato in the Department of Caldas. In this area gold has been mined since colonial times, about 500 years ago. The Marmato conflict started in 2007, when the Colombian state granted mining titles for mine pits that had been inactive for over a year3 to the Canada-based multinational Gran Colombia Gold (GCG).4 GCG subsequently aimed to acquire more titles, seeking to take possession of the entire El Burro mountain—the mountain where gold had been extracted for about 500 years. They turned to the small-scale miners, many of whom also had legal titles, to buy more. Of the 121 mining titles that belonged to small-scale miners in Marmato, 96 were bought by GCG. Those who sold their mining titles to the company claim that although these arrangements were consensual, selling prices were “ridiculously low” at the time. Furthermore, they feared they would be fined or would have to enter a more complicated judicial process with the government if they did not comply with GCG. As the small-scale miners’ legal advisor said:

At that time, they came [GCG] and told us we were in violation of the law, and that if we wanted to avoid fines or a legal process, we would have to sell our mining titles to them. Many of our miners got scared and sold their mines for nothing! Later on, we realized that it was actually the government that gave the rights to that company, and left nothing to us, and we have been here for 500 years! – Legal advisor, Marmato’s Mining Association.

Since 2007, miners in Marmato have organized ongoing, peaceful protests and have mobilized local leaders and authorities to negotiate with GCG and the government. They have networked and obtained support by consulting with different indigenous organizations as well as local mining leaders and professionals from the area in order to take on the GCG through Colombia’s constitutional court. After ten years of negotiations, in 2017 the constitutional court ruled in favor of the miners’ petition for a previous consultation (consulta previa) to be made on who can mine gold and how in the El Burro mountain. From the miners’ standpoint, this resolution was interpreted as a partial victory. Since then, GCG has returned 13 mining titles to local small-scale miners.

The case of Marmato is exemplary as it is the first case in Colombia where a conflict between ASGM miners and a company has turned out in favor of the former. It is also particular as Marmato is one of the few mining areas in the country where armed groups are not present. According to its inhabitants, Marmato has always been a pacific town. They avoided violence by isolating outsiders or possible paramilitaries without fighting back. If armed groups are present in a mining territory where a dispute between ASGM miners and a company is at stake, a layer of complexity is added and ASGM miners usually end up disadvantaged.

4.2 Legal Loopholes in Gold Trade

Colombia’s gold trade is one of the most regulated in South America. However, the regulations focus on registering the volume of sales and do not reach up to the production level. The Unique Registry of Mineral Merchants (RUCOM in Spanish) is a registry system designed for ASGM miners who already have formal mining titles and/or are enrolled in the formalization process. It enables municipal authorities to determine the allowed sales volumes per month according to the number of registrants. Local vendors must keep these records and report the seller’s data. This is the first level of the sales chain. It depends on the approval of municipal authorities, public officials who, in turn, gain significant electoral capital through the certifications they grant.

It is difficult to identify who is responsible for controlling gold production, as opposed to gold sales. At the selling point, miners need to declare in which concession the gold had been mined. Yet miners who work without a mining title or in restricted areas commonly arrange to have a copy of a mining title and falsely report that they actually work in a legalized concession. In many cases, people who are not miners register themselves as miners and allow those who mine illegally to use their mining registry information.

Initial information from ongoing research by one of the authors of this chapter shows that the lack of control over production volumes in areas with mining titles is one of the legal loopholes that intermediaries and/or international distributors use to justify the buying or selling of gold. To understand this, it is important to discuss the actors in the chain. First, ASGM miners sell to local vendors. But as these ASGM miners are commonly not registered and/or they may have exceeded the amount of gold RUCOM allows them to sell, this gold needs to be justified. This is the stage where intermediaries come in. Intermediaries buy the gold from local vendors. Intermediaries are not legally recognized, but perform a crucial role in the chain. They have a substantial network of local authorities and public servants who provide them with a list of mining titles that can be used to justify the volumes of gold produced. In some cases, these titles are owned by public servants; in others, public servants provide copies of mining titles to intermediaries. Often, these are titles of inactive mining areas. In many cases, owners of these lands are unaware that their mining titles are being used for this purpose. Intermediaries then take the gold to an international distributor or ID. An ID is a legal entity that purchases raw gold, smelts it, and sells it to refining companies abroad or to jewelers within Colombia. For each sale, an ID must submit a purchase and payment of royalties report to the National Mining Agency and a billing report to the National Directorate of Taxes and Customs. IDs not only work with intermediaries but also obtain registered gold from certified mining companies.

This system allows actors at all levels to take advantage of the loopholes left by the lack of traceability of gold production, which in turn allows for the legalization of what is technically illegal production. As we have seen before, this is the case for the majority of the gold produced in ASGM. ASGM operations increase production volumes. As they grow, selling locally becomes less relevant. Sales are therefore made through regional sales companies or directly to IDs, leading to the parallel strategy of incorporating technically illegal production in the formal marketplace (Fig. 8.4).

Fig. 8.4
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Actors in the Colombian gold chain (own elaboration)

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In other words, illegally mined gold is being legalized at different levels of the chain, with actors combining strategies such as identity theft in the commercialization process (RUCOM), the trafficking of non-productive mining titles, fraudulent production records, registering a percentage of gold as recycled through jewelers, mining gold without registering it (these assets are then laundered abroad), hiding capital through the sale of other goods, and arranging the manipulation of measurement tools with vendors (see Rocha 2014). The money-laundering operations surrounding these practices give the appearance that these resources are legal. It is important to note that Article 323 of the Penal Code, Law 599 of 2000, classifies this as a crime.

To better understand the legal loopholes that allow for money laundering to occur, it is important to revisit the distinction between the concepts of informal and illegal mining. While production may be illegal, the commercialization process is not entirely dependent on legality either. It is also dependent on how formality is demonstrated in the sales process, as anyone who has RUCOM (or an authorized title) can sell in volumes that may combine legal and illegal gold production. While in theory, records of gold production must be kept, in practice, production processes can be manipulated, even to the point that it is feasible to register gold that has not been produced in the country.5 This shows that the gold trade control system is broken: A producer uses invoices with fraudulent amounts to report an amount of gold that is lower than the one he is actually selling. All this is possible because of the state’s failure to enforce its regulations, as well as its lack of capacity to oversee in situ production.

4.3 Who Benefits and Who Loses?

Actors benefiting the most from this trade chain are those who have powerful political connections, have legal documents, and negotiate with local vendors. Specifically, those are intermediaries, IDs, and public servants. IDs take the highest share, as they can work with multiple intermediaries and obtain the benefits without having to risk anything. They are also very well connected to public servants and in some cases armed groups, who provide protection in exchange for gold.

Intermediaries are key actors in this chain. They play a central role as they not only have connections with local vendors, whose trust they have gained, but also with IDs and public servants. They constantly risk being mugged or killed. However, they can also collect large amounts of gold and disappear with it. This has happened to many local vendors who, even after having worked with and trusted the same intermediary for years, were deceived and never saw their money back.

Public servants are important, yet they are not always stable. Hence, negotiations with new authorities are important in every election. This political game is something that intermediaries and IDs have already identified and they are constantly creating new connections with future candidates.

Local vendors, on the other hand, depend on intermediaries. Without them, they cannot sell their gold. However, there are many intermediaries that need to gain local vendors’ trust. Local vendors do not rely on only one intermediary but have at least two or three. When the gold price decreases, intermediaries play with transaction costs. This means that they will compete with other intermediaries offering a higher price to local vendors. When this happens, local vendors usually sell their gold to the highest bidder.

Miners are the last to benefit from this chain. Even if they extract the gold, they are subjected to the prices paid by local vendors, who in turn have negotiated a price with the intermediaries. This means that the selling price of gold for miners is reduced to an average of 30% of its actual value. Although miners are aware of this difference in their income, they have accepted it. It is a cost of opportunity that they are willing to take in order to continue working informally.

5 Conclusion

This chapter has presented some of the challenges Colombia faces in regard to gold production and trade. The analysis has focused on understanding how the global mining boom has touched ground in Colombia, and how it has changed the face of ASGM as well as industrial mining. The Colombian government, while targeting its regulatory reforms toward large-scale corporate investment, has created more ambiguity around ASGM. At the same time, it has created what we have called legal loopholes, which allow different actors in the gold trading chain to benefit from vacuums or ambiguities within the law. In this process, international distributors, intermediaries, and public servants benefit most as they manage to buy and sell large volumes of illegally mined gold, and legalize this.

The solution to this problem is not to implement more vigorous control and monitoring over the production and trade of gold but to restructure a regulatory framework that is more flexible and that can adjust to each local context. The restructuring of this regulatory framework must start with understanding the nature of power interactions, the actors involved, and their use of legal loopholes. Legal loopholes are important because they show the magnitude and the size of the mismatch between what a regulation dictates and what actually happens. The restructuring of regulations must account for those who are involved in these activities—and who facilitate and sanction them—while simultaneously having a thorough understanding of those who benefit from and are harmed by them. Instead of maintaining a dualistic vision of who is legal or illegal, a new regulatory framework should analyze how to integrate a production chain that counts with the participation of informal actors and their networks.

Notes

  1. 1.

    From the 1119 municipalities in the country, 247 are known to have a mining tradition (DANE 2011). The departments with a higher number of small-scale mines are Boyacá (2024 mines), Antioquia (1395 mines), Bolivar (967 mines), Santander (954 mines), Cundinamarca (764 mines), and Magdalena (505 mines). Of these, 66% are considered illegal. The departments with the highest percentage of what is considered illegal mining are Choco (100%), Magdalena (100%), Cordoba (95%), Bolivar (92%), Atlantico (91%), Risaralda (91%), Cauca (90%), and Antioquia (85%) (Guiza 2013: 111–112).

  2. 2.

    400 grams of gold is equal to 12 ounces. 1 ounce of gold in the Colombian market is 1338 euros. However, an informal miners gets approximately 83% of the total value of this amount because he/she is transacting in the informal market.

  3. 3.

    According to the Mining Code of 2001, mines that remain inactive for more than a year have to be returned to the state.

  4. 4.

    The GCG is the result a merge between the Canadian mining company “Medoro Resources” and the Colombian company “Colombia Goldfields Ltd.”

  5. 5.

    “A phenomenon [is occurring] in which gold is purchased from small-scale miners at a lower price than the national price by illegally importing ore from the neighboring countries with which it shares a border (Peru, Ecuador, Venezuela, Brazil, etc.). This ore is reported as being produced nationally by using the government-issued ID card of citizens registered as barequeros and scrap merchants in RUCOM, sometimes with their consent and sometimes by falsifying their identity. The ore is then sold to local distributors and is divided by the number of government-issued IDs, which can sell 35 grams a month until the maximum is reached. What is sold is recorded together with the royalty payment (4% of the sale). To make the transaction appear transparent, the vendor applies a greater deduction (a decrease in the sale price according to a law or due to the purity of the ore sold) to justify the small DIAN payment for a quantity of ore that is worth much more” (UMPE-UNAL 2017: 12).