Nearly half of gold traded in Brazil between 2015 and 2020 contains traces of illegality. The amount represents 229 tons of gold, with most of it coming from the Amazon rainforest.
This is the most fundamental evidence brought by Instituto Escolhas[1] – a Brazilian sustainability think and do tank – in the study Gold under the microscope: more than 200 tons of Brazilian gold are potentially illegal.
The research analysed more than 40,000 data records, including remote sensing data of gold mining areas, mining permits, trade data and exports, to estimate the amount of potential illegal gold circulating in Brazil and contaminating international markets.
The results evidenced that gold-laundering mechanisms generally covered up illegal gold from indigenous territories and other protected areas. Among them were gold transactions registered through ‘ghost titles’, i.e. apparently regular mining permits used for trade purposes but with no evidence of mining activity. Other irregularities were also found, such as gold sales without origin information, miners operating outside their authorisation limits, mining permits overlapping with protected areas and even gold exported without official production records. This information, and much more, is detailed in the online platform What they don’t tell you about the gold.[2]
The results evidenced that gold-laundering mechanisms generally covered up illegal gold from indigenous territories and other protected areas.
The Achilles heel of gold trade in Brazil: the good faith principle
One-third of the gold with traces of illegality (or 79 tons) was traded by five securities companies that buy gold from wildcat mines (garimpos, in Portuguese) in the Amazon region. It was found that 90% of their gold transactions were of dubious origin. It happens because the only proof of origin of wildcat gold in Brazil is paper forms and the good faith of those involved.
The law differentiates gold sales rules in Brazil regarding industrial mining and wildcat mines. The wildcat mines must sell their gold to financial institutions authorised by the Brazilian Central Bank. These institutions operate as securities companies (or Distribuidoras de Títulos e Valores Mobiliários, in Portuguese) and have branches spread all over the Amazon region to buy gold from wildcat miners (garimpeiros, in Portuguese).
When garimpeiros sell the gold to the securities companies, they only need to fill out a paper form declaring its origin. No one checks if the information provided is valid. Even worse, securities companies are exempted from any responsibility, as the law ensures their transactions are done “in good faith” if they keep the paper forms.
This flaw in the legislation makes it easy to launder illegal gold coming from protected areas. Transgressors may use fake mining permit numbers, with no one being held accountable for the fraud. Therefore, changing the current legislation is crucial to shutting the door on illegal gold and implementing gold origin traceability mechanisms.
What’s next? The implementation of a traceability system
It is a fact that the traces of illegality in the gold supply chain reach alarming volumes in Brazil. In the face of that, Instituto Escolhas proposes a complete gold traceability system that could support the country in putting an end to the problem, alongside its severe environmental, health and human rights impacts.
First, all gold in Brazil should receive a physical tagging. Tagging would allow gold to be traced from mining sites to the point of export, enhancing consumer transparency. Tagging could be implemented by adding silver isotopes to the gold, thus giving it a unique signature.
Also, a gold traceability system needs digital records – preferably supported by blockchain technology – monitoring all gold movements and transactions. In the 21st century, a significant share of gold transactions in Brazil is still based on paper forms and invoices, compromising information integrity and hindering oversight efforts. Thus, digitalisation is a deal breaker.
One-third of the gold with traces of illegality (or 79 tons) was traded by five securities companies that buy gold from wildcat mines (garimpos, in Portuguese) in the Amazon region.
In this sense, all documents must be digital and monitored by authorities in a central database. Electronic invoices should be adopted for all gold transactions, as they are broadly used in many other sectors in Brazil but not for such a precious metal as gold. Therefore, it is fundamental to have the receipts in an electronic and verifiable form. Besides, authorities need to trace gold transport and custody flows. For this, a Gold Shipment and Custody Form (GTCO) could be implemented, as is used for tracing other products in Brazil, such as timber.
Finally, a traceability system needs to be mandatory and engage all the players in the industry. It needs supervision from government agencies, such as the National Mining Agency, and collaboration with other authorities, such as the Central Bank, to oversee securities companies’ operations. Importing countries should also demand that the Brazilian authorities introduce traceability mechanisms to avoid exposure to illegal gold and its impacts.
Take-home messages to combat illegal gold and increase transparency
These four key takeaways are crucial to combat illegal gold in Brazil and to contribute to traceability and enhanced transparency in the industry:
- Firstly, we emphasise that a reform in the current legislation is needed to end the good faith principle. It fosters gold laundering schemes involving garimpeiros and securities companies.
- A traceability system is essential to curb the significant and permanent impacts illegal gold mining causes in Brazilian territories. Nowadays, in Brazil, the area of garimpos mining is larger than the area for industrial mining. This extensive and unprecedented growth impacts forests, water and indigenous communities.
- Physical tagging of gold, digitalising all documents and blockchain technology are all essential to ensure traceability. Environmental licences, electronic invoices and Gold Shipment and Custody Forms (GTCO) must be electronically available for further queries and verifications.
- A traceability system needs to be mandatory and engage the whole industry. The Brazilian Central Bank needs to supervise securities companies thoroughly. Importing countries should demand traceability from Brazil and stop buying from suspicious suppliers.
A traceability system needs to be mandatory and engage all the players in the industry.
