$20 Million Illegal Gold Scheme Highlights Ongoing Vulnerabilities of Gold Supply Chains in Colombia

A Colombian precious metals company implicated in a $20 million dollar illegal gold scheme has sent at least 42 shipments of gold between July 2019 and September 2020 to a large smelter and international gold exporter based in Southwestern Colombia, according to Colombian trade records.

The international exporter has, over the same time period, sent over 100 shipments of gold to a company in the United Arab Emirates (UAE) and a company in India that has been previously identified as having sourced suspect gold from Peru.

The case demonstrates how a combination of public data – namely Colombian corporate and trade data — can be leveraged to identify upstream risk in increasingly complex global gold supply chains.

Authorities target illegal gold trading network in Southwest Colombia

In early October, Colombia’s Attorney General’s Office (Fiscalía General de la Nación, FGN) announced charges against a family clan for selling upwards of $20 million dollars in illegal gold over the past four years. In total, seven individuals, including a municipal-level government official, were charged with criminal conspiracy, money laundering, and procedural fraud.

The network allegedly used a company called Comercializadora Natan S.A.S. to purchase illegal gold from the southwest department of Cauca — a region known for alluvial gold mining — before selling it to an unidentified smelting company.

To formalize the illegally mined gold, the network allegedly falsified documentation stating that the gold had been purchased legally from artisanal miners (barequeros) in the region, a scheme commonly employed by illegal gold traders. However, according to the FGN, the artisanal miners listed on the documentation either did not sell gold to the company or did not sell gold to the company in the quantities listed.

What is more, Colombian authorities allege that the municipal government official implicated in the scheme provided the network with the names of the barequeros that were used to legitimize the purchase.

The charges come months after Colombian authorities brought down a different family network that allegedly used a similar scheme to obtain close to 1.7 metric tons of illegal gold from Cauca. Between 2015 and 2019, the network exported 117 shipments of gold to the U.S., Russia, UAE, and Turkey.

Risks in the Colombian gold industry

Colombia’s precious metals market is inundated with illegal gold. An estimated 80 percent of gold mined in Colombia is illegal, ranking it among the highest in Latin America, according to the Global Initiative Against Transnational Organized Crime.

The gold industry also presents a myriad of regulatory and reputational risks for companies sourcing gold from the country. From an environmental perspective, illegal mining has been linked to widespread deforestation and the poisoning of rivers and streams in Colombia and across Latin America. Moreover, illegal armed groups in Colombia directly or indirectly profit from the practice, either by running their own mines or extorting individuals and entities throughout the supply chain.

An increase in gold prices in recent years has provided incentives for opportunistic criminal organizations to make quick cash and for less risk compared to other criminal economies such as drug trafficking. And given the cash-intensive nature of the gold industry paired with relatively stable, if not increasing, prices, the metal also serves as a viable means to launder illicit proceeds from other crimes.

Colombia’s gold supply chain

A vast majority of gold in Colombia is sourced from small-scale miners. Artisanal miners then usually sell the metal to small-scale local traders and consolidators, who, in turn, sell the gold to international traders and/or smelters.

The cities of Medellin and Cali serve as two of the most important domiciles for large, international gold traders/smelters in Colombia. Many of these larger companies also control subsidiary trading companies in free trade zones, specifically Rionegro, which is close to Medellin, and Palmaseca, which is close to Cali.

Fig 1: The Gold supply chain in Colombia (Source: Organization for Economic Cooperation and Development (OECD)).

The international traders/smelters export the gold to large refiners in the U.S., Switzerland, and India, among other countries, which then sell the refined gold to jewellers and various technology and/or manufacturing companies.

Illegal gold is often intermingled or “laundered” at the small-scale local traders/consolidators stage, or international gold trader/smelter stage. Like with other commodities such as timber, once legal and illegal gold has been intermingled, it is virtually impossible to tell them apart.

How high-risk gold likely entered the global supply chain

A combination of publicly available trade and corporate data in Colombia provides insight into how suspect gold sold by Comercializadora Natan likely ended up in global supply chains. It also demonstrates the importance of conducting due diligence beyond the large international traders/smelters located in big cities like Medellin and Cali.

Comercializadora Natan was founded in August 2015 in the northwest municipality of Sabaneta. The company also has two establishments located in Cauca, which likely serve as purchasing centers that are in direct contact with miners in the region, according to corporate data from Colombia’s national business registry (RUES).

A company certificate from the Aburra Sur Chamber of Commerce lists five board members, at least three of them, including the legal representative, have been charged in the illegal gold scheme.

Based on information provided by its website, Comercializadora Natan is best described as a small-scale local trader and/or consolidator. The company claims to source gold from artisanal or “subsistence” miners and lists the subsidiary of a Cali-based gold smelter and international trader called Fundicion Ramirez S.A.S., along with the Bank of Colombia, as its two clients

Tracing suspect gold from Southwest Colombia to global markets

Publicly available trade data from Colombia’s tax and customs agency (DIAN) confirms Comercializadora Natan’s relationship as a gold supplier for Fundicion Ramirez Zona Franca S.A.S., a subsidiary of Fundicion Ramirez S.A.S. based in the Palmaseca free trade zone just outside of Cali.

Between July 2019 and September 2020, Comercializadora Natan sent 42 shipments of gold from Cali to Fundición Ramirez Zona Franca S.A.S in the free trade zone of Palmaseca. Over the same time period, Fundicion Ramirez Zona Franca, in turn, exported 16 shipments of gold to Dubai-based refiner SAM Precious Metals LLC and 85 shipments to India-based refiner Kundan Care Products LTD.

Fig 2: Sayari Graph network chart depicting the trade relationships between Comercializadora Natan S.A.S., Fundicion Ramirez Zona Franca S.A.S., SAM Precious Metals FZ LLC, and Kundan Care Products LTD.

It is important to note that Comercializadora Natan is one of dozens of suppliers that appear in the Colombian trade data for Fundición Ramirez Zona Franca, suggesting that the high-risk gold supplied by Comercializadora Natan likely only makes up a relatively small percentage of the overall gold shipped abroad. However, Natan’s role as a supplier of Fundición Ramirez Zona Franca raises questions as to the source of gold from other Fundición Ramirez suppliers.

Kundan Care Products is part of an India-based conglomerate that has business interests in a variety of industries. The company was recently identified as having imported suspect gold from a Peru-based consortium made up of three companies, one of which has been investigated for illegal mining, money laundering, and tax evasion, according to C4ADS, a Washington, D.C.-based think tank that studies transnational security issues.

The investigation also found that over 40 U.S.-based firms have sourced gold from Kundan since at least 2018, according to mineral due diligence reports filed with the U.S. Securities and Exchange Commission (SEC).

Sam Precious Metals FZ LLC, for its part, has sent over twenty shipments of gold bars and other gold compounds to companies in India and Indonesia since July 2019, according to commercial trade data from Panjiva. At least two shipments of gold bars were sent to Kundan Care Products. However, unlike Kundan Care Products, Sam Precious Metals does not appear on SEC mineral due diligence reports.

The need for enhanced due diligence of upstream suppliers

Downstream entities are receiving increased scrutiny from government regulators regarding their sourcing practices for gold and other precious metals. At the same time, global gold supply chains have become increasingly complex, with vulnerabilities of illicit gold laundering present in several steps.

It is crucial for companies to better understand their supply chain beyond the international smelters and traders located in big cities. Even in cases where the international smelters/traders themselves have not been publicly identified for exporting suspect gold, an examination of their suppliers through corporate and trade data can be crucial to identify points of risk.

Panjiva Data: Copyright 2020, S&P Global Market Intelligence (and its affiliates as applicable). All rights reserved.

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