Gold Flows from Venezuela: Supporting due diligence on the production and trade of gold in Venezuela
Date of Publication
1-1-2023 12:00 AM
Security Theme
Illegal Mining
Keywords
Venezuela, gold, illicit finance, laundering, Orinoco Mining Arc (AMO), Centralized flows, Dispersed flows, Venezuelan military, Colombian militant groups, Transnational dispersed flows, Illicit financial flows (IFFs), Free Trade Zones (FTZs), illegal mining
Description
As highlighted by the Financial Action Task Force, gold is a preferred medium for illicit finance (FATF, 2015; 2021). It is highly valuable, portable and capable of holding its value even during significant market shocks in markets around the world. As an element, it is very difficult to trace through chemical analysis. It can be reshaped in myriad ways, or literally blended into anonymity. Perhaps most importantly, gold is not intrinsically illicit, so it can be laundered easily into legitimate supply chains, contributing to the greying of local, national and regional economies, and even the global financial system. In this context, gold flows from the Bolivarian Republic of Venezuela (hereafter “Venezuela”) present serious challenges. Since the nationalisation of Venezuela’s mining industry in 2011, criminals of various kinds have encroached on the country’s gold mining sector. In the five years since the 2016 decree establishing the Orinoco Mining Arc (AMO) in the south of Venezuela, gold mining has expanded beyond the confines of the AMO. Over the same period, the volumes of gold flows out of the country have only grown in scale. The risks linked with those flows extend beyond human rights abuses and environmental destruction and include criminal economies linked with various forms of trafficking and money laundering, as well as the financing of terrorism. While it is extremely difficult to estimate gold production in Venezuela, processing capacity and reporting suggest that it could conceivably amount to as much as 75 t per year; as of July 2021, the market value of that production would exceed USD 4.4 billion (United States Dollars). Research suggests that actual current production throughout Venezuela amounts to a third to half that amount. Gold flows within Venezuela can be categorized under two broad headings: centralised and dispersed. In a rough metaphor, the centralised flows run to the tap, while the dispersed flows are the plumbing leaks. The centralised flows carry a portion of production from the country’s myriad small mining operations – there is no large-scale mining currently in Venezuela – to the government-monitored trading hubs in cities such as El Callao, where some is purchased by buyers representing Venezuelan elites. These flows also include the substantial and expanding trucking of gold sands and other crude material from shuttered and operational mines as well as alluvial deposits to cyanidation plants in Bolívar state. The production from those facilities appears to be divided between the Central Bank of Venezuela (BCV) and politically exposed persons (PEPs). While centralised flows of gold out of Venezuela might be considered legal, it is still necessary to carry out enhanced due diligence to ascertain whether conditions of extraction and trade are associated with actual or potential risks of severe human rights abuses, conflict financing and other financial crimes as per Annex II of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (“OECD Guidance”), as well as environmental harm. In contrast, dispersed flows are those that leave the country from mining areas by various other routes. The Venezuelan military and political elites, Colombian militant groups, and domestic gangs are reported to be key actors in both categories of domestic gold flows. While centralised flows reportedly include gold transfers from the BCV to foreign governments and other entities in Turkey, the United Arab Emirates, Iran and elsewhere, transnational dispersed flows reportedly benefit a wider and more overtly criminal range of 8 | GOLD FLOWS FROM VENEZUELA © OECD 2021 actors, including criminal cartels, Colombian grupos armados organizados (GAOs) and designated terrorist organizations. Gold from dispersed flows departing Venezuela appears to be laundered primarily within the Latin America and Caribbean (LAC) region, mainly in one or more key regional transit hubs. Currently, these have been identified as Colombia, the Dominican Republic, Brazil, Suriname, Guyana and Panama, and some reports of potential laundering elsewhere in Central American and in Mexico. Laundering networks can, however, extend across the globe and actors connected with Europe, the United States, the People’s Republic of China (hereafter “China”), the Middle East and possibly West Africa have also been implicated. Reports suggest that some gold laundering may involve informal value transfer systems that reach the Middle East and China. As pointed out by this and other reports, all risks listed in Annex II of the OECD Guidance are reported to be prevalent across supply chains of gold from Venezuela. Companies sourcing gold need to determine whether they purchase, handle, process or transport gold associated with any red flags linked to country of origin or transit, suppliers or other circumstances listed in the OECD Guidance to make sure they do not contribute to human rights abuses, conflict financing or financial crimes. Existing regulations and industry due diligence programmes have thus far been inadequate for ensuring due diligence is carried out on Venezuelan gold flows – making it likely that international purchases of Venezuelan gold may be contributing to abuses linked to Annex II risks. In addition to increasing regulatory consistency and implementation across legal regimes on due diligence for minerals in key mineral importing, transit and exporting jurisdictions, internal silos need to be dismantled. In particular, closer and more sustained collaboration between financial regulators including financial intelligence units and industry actors would allow for better detection of the links between gold flows and illicit financial flows (IFFs). The resulting picture is revealing but also preliminary, as more research is needed, including on a detailed mapping of gold flows from Venezuela, the illicit financial flows linked with that gold, and the ensuing risks for and responsibilities of actors connected with these gold supply chains. While this report is hence intended to provide only a baseline assessment, its preliminary findings already reveal areas in which further analytical work is necessary. The role of the maritime space in high-risk gold flows needs more attention; so does the role played by Free Trade Zones (FTZs) in facilitating gold flows and related financial crimes.
Gold Flows from Venezuela: Supporting due diligence on the production and trade of gold in Venezuela
As highlighted by the Financial Action Task Force, gold is a preferred medium for illicit finance (FATF, 2015; 2021). It is highly valuable, portable and capable of holding its value even during significant market shocks in markets around the world. As an element, it is very difficult to trace through chemical analysis. It can be reshaped in myriad ways, or literally blended into anonymity. Perhaps most importantly, gold is not intrinsically illicit, so it can be laundered easily into legitimate supply chains, contributing to the greying of local, national and regional economies, and even the global financial system. In this context, gold flows from the Bolivarian Republic of Venezuela (hereafter “Venezuela”) present serious challenges. Since the nationalisation of Venezuela’s mining industry in 2011, criminals of various kinds have encroached on the country’s gold mining sector. In the five years since the 2016 decree establishing the Orinoco Mining Arc (AMO) in the south of Venezuela, gold mining has expanded beyond the confines of the AMO. Over the same period, the volumes of gold flows out of the country have only grown in scale. The risks linked with those flows extend beyond human rights abuses and environmental destruction and include criminal economies linked with various forms of trafficking and money laundering, as well as the financing of terrorism. While it is extremely difficult to estimate gold production in Venezuela, processing capacity and reporting suggest that it could conceivably amount to as much as 75 t per year; as of July 2021, the market value of that production would exceed USD 4.4 billion (United States Dollars). Research suggests that actual current production throughout Venezuela amounts to a third to half that amount. Gold flows within Venezuela can be categorized under two broad headings: centralised and dispersed. In a rough metaphor, the centralised flows run to the tap, while the dispersed flows are the plumbing leaks. The centralised flows carry a portion of production from the country’s myriad small mining operations – there is no large-scale mining currently in Venezuela – to the government-monitored trading hubs in cities such as El Callao, where some is purchased by buyers representing Venezuelan elites. These flows also include the substantial and expanding trucking of gold sands and other crude material from shuttered and operational mines as well as alluvial deposits to cyanidation plants in Bolívar state. The production from those facilities appears to be divided between the Central Bank of Venezuela (BCV) and politically exposed persons (PEPs). While centralised flows of gold out of Venezuela might be considered legal, it is still necessary to carry out enhanced due diligence to ascertain whether conditions of extraction and trade are associated with actual or potential risks of severe human rights abuses, conflict financing and other financial crimes as per Annex II of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (“OECD Guidance”), as well as environmental harm. In contrast, dispersed flows are those that leave the country from mining areas by various other routes. The Venezuelan military and political elites, Colombian militant groups, and domestic gangs are reported to be key actors in both categories of domestic gold flows. While centralised flows reportedly include gold transfers from the BCV to foreign governments and other entities in Turkey, the United Arab Emirates, Iran and elsewhere, transnational dispersed flows reportedly benefit a wider and more overtly criminal range of 8 | GOLD FLOWS FROM VENEZUELA © OECD 2021 actors, including criminal cartels, Colombian grupos armados organizados (GAOs) and designated terrorist organizations. Gold from dispersed flows departing Venezuela appears to be laundered primarily within the Latin America and Caribbean (LAC) region, mainly in one or more key regional transit hubs. Currently, these have been identified as Colombia, the Dominican Republic, Brazil, Suriname, Guyana and Panama, and some reports of potential laundering elsewhere in Central American and in Mexico. Laundering networks can, however, extend across the globe and actors connected with Europe, the United States, the People’s Republic of China (hereafter “China”), the Middle East and possibly West Africa have also been implicated. Reports suggest that some gold laundering may involve informal value transfer systems that reach the Middle East and China. As pointed out by this and other reports, all risks listed in Annex II of the OECD Guidance are reported to be prevalent across supply chains of gold from Venezuela. Companies sourcing gold need to determine whether they purchase, handle, process or transport gold associated with any red flags linked to country of origin or transit, suppliers or other circumstances listed in the OECD Guidance to make sure they do not contribute to human rights abuses, conflict financing or financial crimes. Existing regulations and industry due diligence programmes have thus far been inadequate for ensuring due diligence is carried out on Venezuelan gold flows – making it likely that international purchases of Venezuelan gold may be contributing to abuses linked to Annex II risks. In addition to increasing regulatory consistency and implementation across legal regimes on due diligence for minerals in key mineral importing, transit and exporting jurisdictions, internal silos need to be dismantled. In particular, closer and more sustained collaboration between financial regulators including financial intelligence units and industry actors would allow for better detection of the links between gold flows and illicit financial flows (IFFs). The resulting picture is revealing but also preliminary, as more research is needed, including on a detailed mapping of gold flows from Venezuela, the illicit financial flows linked with that gold, and the ensuing risks for and responsibilities of actors connected with these gold supply chains. While this report is hence intended to provide only a baseline assessment, its preliminary findings already reveal areas in which further analytical work is necessary. The role of the maritime space in high-risk gold flows needs more attention; so does the role played by Free Trade Zones (FTZs) in facilitating gold flows and related financial crimes.
