Implications Intensify: Illegal Gold Mining in Brazil’s Amazon Region

Implications Intensify: Illegal Gold Mining in Brazil’s Amazon Region

Source: “Apoio da FAB a comunidades Yanomami” by Força Aérea Brasileira – Página Oficial is marked with CC BY-NC-SA 2.0.

A recent uptick in illegal gold mining in Brazil’s northern Amazon states is particularly concerning for private sector actors operating in the territory. It is also posing a serious challenge to the implementation of consistent and effective public policy to curtail such activities.

Organized crime and Illegal Mining

Amidst a significant spate of illegal gold mining activity in the country’s isolated northern region, Brazil’s O Globo newspaper reported that a major police operation in the state of Pará had resulted in the seizure and destruction of illegally operated mining machinery. Alarmingly, the subsequent investigation found that mining activities were taking place dangerously close to electricity transmission towers linked to the Belo Monte hydroelectric dam. The dam, one of the most important pieces of energy infrastructure in the country, provides electricity to approximately 60 million Brazilians. Rampant, unregulated gold mining can cause devastating and costly damage to infrastructure, which Brazil’s cash-strapped northern states are ill-equipped to protect or repair.

Intensifying police investigations also point to an ever-strengthening relationship between illegal gold mining and Brazil’s most powerful and well-resourced criminal organizations, including the First Capital Command (PCC). The PCC has historically operated in the southeast of Brazil since its inception in the 1990’s – its rapid expansion north (which started in earnest in 2018, according to the Federal Police) reflects not only the organization’s territorial ambitions but also their ability to infiltrate, coerce, and ultimately dominate and subsume localized criminal networks.

Whilst illegal gold mining has pitted criminal organizations against state and federal law enforcement, it has also bought them into conflict (often violent) with indigenous communities whose home territory spans much of the country’s mineral-rich areas. Criminal organizations have been increasingly active in the territory of one of Brazil’s largest indigenous communities – the Yanomami, in Roraima and Amazonas states. Mining on indigenous land in Brazil is illegal, though weak enforcement of the law and a low rate of prosecutions has not provided much of a deterrent. 

Additionally, the government of President Jair Bolsonaro has pushed for the legalization of illegal gold mining operations in the Amazon. Tight fiscal policy and competing policy priorities has left environmental agencies under-funded and under-resourced. In practical terms, this has meant substantially reduced monitoring on the ground which has in turn facilitated the spread of illegal gold mining activity across the region. Criminal organizations will likely want to seize the moment and intensify their activities before next year’s federal elections should a more environmentally conscious government take power and prioritize the monitoring of and combat against illegal gold mining. 

What is Driving Recent Growth?

There has been a notable and sustained increase in the value of gold since 2018. By November of this year, the spot gold price in global markets reached USD 1,866. Given the significant energy squeeze on fossil fuels, markets have increasingly been looking to invest in less volatile assets, including precious minerals. This recalibration has coincided with the Bolsonaro government’s zealous anti-regulatory drive, serving to further incentivise would-be gold miners.

Growth has also been driven in part by the relative ease by which gold can be acquired and exported to global markets. However, despite Brazil’s congress recently passing Bill 836/2021, which seeks to provide better standards for the trading of gold, the gold market remains notoriously opaque and supply chains are often murky. The so-called ‘Security Distributors’ (DTVM’s), intermediaries authorized to purchase gold who are contracted by multinationals, have themselves been targeted by Brazil’s Public Prosecutor’s Office for trading illegally extracted gold.

Thus, the complex network of supply, purchase by intermediaries and ultimately export to foreign markets, both obfuscates the source of origin and facilitates money laundering, not to mention the potential for reputational harm for gold importers largely kept in the dark as to where their raw material has actually come from.

Risk Outlook

Illegal gold mining will likely increase exponentially in the mid-term. Financial incentives coupled with a weak state presence in the Amazon region will galvanize criminal organizations operating in the area. Further, intensifying clashes with indigenous communities will occur against a backdrop of more entrenched criminal activity where illegal mining is prevalent.

There are also implications for actors in the supply chain concerned about how long-term environmental damage and conflict with indigenous groups can cause grave reputational harm. This is especially pertinent given that gold mining can pollute rivers and land with mercury often causing irreversible damage to ecosystems and thus the health of isolated local communities who rely on them. Illegal gold mining further requires vast tracts of land where tree cover is destroyed and so constitutes one of the main causes of deforestation.

It is also important to note that illegal gold mining is not the work of criminal organisations alone – many operate with the acquiescence of political and corporate actors who have seized upon an opportunity perceived as low risk and high yield. Effective public policy must focus not only on security but on addressing the political and corporate corruption which function as key drivers in illegal gold mining activities.

Companies operating in Pará, Roraima and other northern states engaged in legitimate mining activities will likely remain exposed to road blockades, intimidation tactics and aggressive land encroachment by illegal gold miners, who often seek to shield their own activities by operating in close proximity to legitimate companies.

Growing scrutiny by regional and international organizations towards the government’s environmental policies, amid record levels of deforestation, will persist as a source of integrity risk for companies with exposure in protected areas. Those companies already operating in the sector will likely strengthen Environmental, Social and Governance (ESG) standards in response. Thus, this exposure could disincentivize foreign investment at a time when Brasília is in desperate need of fiscal maneuverability.

Importantly, prosecution for non-compliance with environmental legislation, though often slow and inefficient, shows investors that Brazil is serious about pursuing criminal actors. This is however unlikely to deter criminal organizations who are actively and energetically looking to diversify their portfolios and increase revenue squeezed by the Covid pandemic.

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