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In Colombia only 30% of the exports from gold mining are carried out in a legal manner. (Photo: Colombia's National Mining Agency)
Wednesday, April 5, 2023

Mining: Money Laundering Risks

The risks of money laundering in mining -- and recommendations.

Holland & Knight

Although it is an extremely important activity for the global economy, ranging from the commercialization of precious stones and metals to the exploitation of strategic minerals that allows the development of clean transition energies, the extractive industry, particularly mining, is widely exposed to risks derived from criminal activities that permeate the transnational economy, such as the laundering of assets derived from illicit exercise of mining.

Specific relevant figures that exemplify the above hypothesis are highlighted. For example, the United Nations Trade database has revealed that a little more than $4 trillion from minerals such as gold that is circulated globally has links to areas of armed conflict, illegal mining or slavery. The FATF [The Financial Action Task Force] also pointed out that illegal mining generates profits of approximately $12 billion to $48 billion per year.


If this statistic is compared to the fact that in Colombia only 30% of the exports from gold mining are carried out in a legal manner, one finds that the risks derived from this activity requires particular attention from the organizations involved in this industry. Unlike other criminal typologies related to the environment, transnational crime uses mining to generate illicit income that is then camouflaged in the different transactional channels, and to launder money derived from other crimes, taking advantage of the constant use of cash that characterizes this activity .

Based on the recommendation made by the FATF, in which it was ordered to extend the requirements of due diligence and prevention of ML/TF/FPWMD to sellers of precious stones and metals, the Superintendence of Companies of Colombia included this specific sector within the Regime of Self-Control and Integral Risk Management of ML/TF/FPWMD ("SAGRILAFT") contained in Circular 100-000016 of 2020. This aspect, in general terms, imposes on a large percentage of companies in the extractive industry the obligation to adopt systems of identification, control, risk monitoring, as well as due diligence processes to identify possible warning signs in the framework of their commercial relations.

According to ACAMS [The Association of Certified Anti-Money Laundering], specific warning signs that can be identified along the supply chain (upstream and downstream) in mining are: (i) companies not having proof of royalty or tax payments, or not complying with local environmental requirements; (ii) the existence of false shipping documents; (iii) shipments to jurisdictions without competitive advantages and with deficient KYC  regulations; (iv) evidence of frequent and unexplained cash deposits; (v) substantial exports that do not match the company's profile or size, among some other aspects.

Thus, the most appropriate way to identify, control and mitigate money laundering conducts in the mining industry must begin with the application of suitable, rigorous and effective due diligence procedures that allow for identifying warning signals in the different actors involved in this industry. To this end, it is particularly important to fully apply the standards set forth by the Superintendence of Companies in Colombia and the FATF, as well as a cross-cutting understanding of the other regulatory instruments that frame this industry.

In this manner, operational, reputational, legal and economic risks can be mitigated in the companies of this sector, taking into account the increasingly rigorous and extensive control of compliance regulations by national and international authorities.

This overview was written by Holland & Knight Partner José Vicente Zapata, Senior Counsel Esteban García and Law Clerks Janine Acosta and Alejandro Bravo. All are based at Holland & Knight’s office in Bogota, Colombia.

Republished with permission from Holland & Knight.


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