‘Blood gold’ in your jewelry is poisoning workers and the rainforest. Here’s how to stop it.

Illegally mined gold molded into our wedding rings, dangling around our necks and hidden in our smart phones pollutes the rainforest with toxic chemicals and exploits workers in Latin America.

Gold miners have stripped roughly 415,000 acres of tropical forest, an area twice as big as New York City, according to researchers at the University of Puerto Rico — and the rate of deforestation is only getting worse.

In Colombia, teenagers swim in mercury-filled pools of water as they use powerful hoses to suck up gold, an investigation by Massachusetts-based nonprofit Verité found. Mercury, a dangerous chemical that harms miners and people living nearby, is still widely used in Latin America’s gold mining industry.

Pope Francis will bring his moral authority to the issue this week when he visits Peru’s epicenter of illegal gold mining, Madre de Dios.

Solutions won’t be easy — but they exist.

“There are ways of mining gold without mercury, without massive deforestation, without child slavery,” said Douglas Farah, a national security consultant who has studied illegal gold mining.

To stop the unrelenting environmental and human devastation, an array of competing interests will have to collaborate to extract gold in a more humane way, according to human rights advocates and industry experts. In the mix of this crisis — fueled by South American drug traffickers who have infiltrated the industry — are large multinational companies that use gold in their products, U.S. and foreign law enforcement agencies, non-governmental organizations in and outside the region, precious-metals refineries and the miners themselves.

American consumers, who ultimately end up with gold, can play a role, too.

Image-conscious companies, whose hunger for gold is fueling the deforestation, and governments that benefit from the gold trade need to feel a moral imperative to act, Farah said. It has happened before.

Take “blood diamonds.”

Today, no company wants to buy or sell diamonds that exacerbate violent conflict in Africa. That’s because consumers, advocacy groups and world governments woke up to the havoc caused by their extraction — and pressured big companies not to trade them anymore.

It worked. Since 2003, more than 75 countries, including the United States, have signed onto a United Nations-backed accord called the Kimberley Process that certifies diamonds as “conflict-free,” meaning African rebel groups do not profit from their sale.

The campaign “brought the issue to people’s attention in ways that people like myself never thought possible,” Farah said. “I think the same thing is entirely possible with gold.”

In from the cold

Without more stringent precautions, American consumers should be aware “there is a strong likelihood that a percentage of gold in their jewelry or electronics comes from illegal gold mines,” said Quinn Kepes, program director for Verité, which investigates abuses in the international gold industry.

Illegal miners have invaded pristine forests and turned them into “toxic desert” where wildlife cannot thrive, said Luis Fernandez, a tropical ecologist at the Center for Amazonian Scientific Innovation at Wake Forest University.

Machines chew up the forest, digging 30 feet down into the soil bed and then sifting it for gold while leaving behind massive piles of dirt and rocks. The mining work clogs up riverbeds and poisons waterways with mercury used to separate gold from rock.

“It completely destroys the area,” said Fernandez. “You don’t expect these areas to reforest in hundreds of years. There’s no more soil. You’re basically doing strip mining on a massive scale.”

In Peru’s Madre de Dios, where Fernandez’s center runs a research laboratory, aerial imagery shows that roughly 235,000 acres have been deforested. He and a team of researchers are leading efforts to study how to reforest such a devastated ecosystem, including using charcoal-enriched soil to grow vegetation again and testing a mix of 40 native plant species for their viability.

“How do you reforest something like that?” Fernandez said. “We have to figure how to do this efficiently and cost effectively.”

Much of the damage is happening in national parks and ecological preserves.

“It would be the equivalent of having thousands of acres of illegal strip mines in Yellowstone National Park — and the government not being able to stop it,” Fernandez said.

One of the most horrific by-products of illegal mining: widespread mercury poisoning.

Gold miners in the Amazon region pollute rivers and lakes with more than 30 tons of mercury every year, according to the Global Initiative, a New York nonprofit that researches organized crime.

Artisanal miners have used mercury for centuries. They mix rocks containing gold with the toxic chemical to form an amalgam. Then they heat the mixture, burning the mercury away — and sending it into their own lungs and the environment — and leaving behind gold.

Pits left by miners fill with mercury-contaminated water — and local people sometimes use those pits to farm fish, Fernandez said. His research shows that across Madre de Dios — where there are tens of thousands of small-scale “artisanal” miners — three in four people suffer from dangerous levels of mercury. Indigenous tribes are particularly vulnerable, he said. They are three times as likely to suffer from mercury poisoning as other residents.

Prolonged exposure to mercury can harm nervous, immune and digestive systems, and lead to respiratory and kidney failure and even death.

Mercury is fast, cheap and produces gold immediately, meaning instant profit — but much of the precious metal is lost in the process.

Many miners are only vaguely aware of the health risks posed by mercury, just like smokers of previous generations, said Kevin Telmer, executive director of the Artisanal Gold Council, a Vancouver-based organization that advocates for improving the conditions and practices of artisanal miners.

Telmer said convincing miners to stop using mercury is not as daunting as it might seem.

“You’ve got to give them a solution,” he said.

That means finding ways to mine gold without mercury.

Those methods exist — and they make miners more money because more gold is recovered, according to Telmer.

“We typically get a 30 percent lift in their recovery,” he said. “There’s a big incentive for them to want to go through this process. ... If it’s going to induce a pay cut, they’re not going to be interested.”

The Artisanal Gold Council has launched three pilot mining projects, including one in the Peruvian rainforest, to showcase mercury-free methods of extracting gold.

These include basic gravity techniques, such as panning, shaking tables and centrifuges. Large-scale industrial mines, which are regulated by the government, have long stopped using mercury because it is inefficient.

Telmer said the government could help by abandoning prohibition-style, drug-war tactics that include airborne rainforest raids.

“All of the government initiatives — blowing up dredges — that’s been going on for 40 years. Has it diminished artisanal mining?” Telmer said. “They blow up some dredges this week and then next week the dredges are back in there.”

That means providing resources for artisans.

One organization doing that is the Global Environmental Facility, a Rio de Janeiro-based group funded by the United Nations, development banks and international nongovernmental organizations. The group is providing $45 million in financing to help artisanal gold miners eliminate the use of mercury in Peru, Colombia and six other countries.

Both Peru and Colombia have signed the U.N. Minamata convention, which is intended to phase out the use of mercury in traditional gold mining by the end of the year.

“What’s really needed are some success stories,” Telmer said. “The only way to fix this problem is to bring [small miners] into the formal sector and that includes formal financing.”

Drug trade

Even as they fend off harsh tactics from South American law enforcement, the artisanal miners are vulnerable to extortion and outright takeover by drug cartels, who see the gold trade as a way to launder their drug profits. In effect, the miners are squeezed between the government and the cartels.

This is where U.S. law enforcement can play a critical role — by aggressively attacking the cartels’ use of gold to launder their drug profits.

For decades, however, the United States has taken a haphazard approach to regulating the international gold market.

Criminals manipulating the gold market knew no one was “looking at them,” said Lou Bock, a retired agent with the Department of Homeland Security who argued for greater enforcement.

Consider the Financial Crimes Enforcement Network, a U.S. Treasury Department agency responsible for enforcing anti-money laundering laws. FinCEN imposed only one civil sanction against a U.S. precious-metals company — a $200,000 fine in 2015 against a Los Angeles dealer that failed to set up an anti-money-laundering program.

John Cassara, a retired U.S. Treasury agent who worked in FinCEN, said his bosses forbade him from going after the industry following the 9/11 attacks. Top officials wanted to focus on traditional targets like money laundering through banks.

“I was literally given a gag order,” Cassara said.

(A FinCEN spokesman did not respond to requests for comment.)

Those days of lax oversight may be over.

Last year, federal prosecutors in Miami uncovered a staggering $3.6 billion money-laundering scheme by employees of a major South Florida precious-metals company, Doral-based NTR Metals.

“We’re now putting pressure on the money-laundering end of it,” said John Tobon, deputy special-agent-in-charge of Homeland Security Investigations in South Florida, which, along with the FBI, investigated the NTR case. “The criminal organizations have been able to infiltrate the [precious-metals] industry to a level we were not familiar with.”

A reflection of this shift in emphasis: Almost a year ago, the U.S. attorney’s office in Miami renamed its narcotics division to reflect a sharper focus on money laundering: It’s now the International Narcotics and Money Laundering Section.

Peter Quinter, a former U.S. Customs attorney now in private practice representing Miami gold dealers, said his clients are eager to assist federal authorities as they pay closer attention to the industry.

“There has definitely been increased scrutiny,” including more gold seizures and stricter examination of Customs forms, Quinter said.

But the fallout extends far beyond Customs searches, all the way to the banks that prop up the international precious-metals market.

Scotiabank, the Canadian lending institution that services NTR’s parent company, Elemetal, is looking to sell off its gold-lending arm, the world’s oldest, according to the Financial Times.

That is no small matter.

If the banks pull out, the U.S. gold industry would be undermined: Banks provide financing to dealers and refineries for a steady stream of shipments to the United States.

“A major aspect of this racket is the banks,” said Charles Intriago, a money-laundering expert and former federal prosecutor in Miami. “Where are they when these multibillion-dollar gold transactions are conducted? The Justice Department, FBI and IRS should not leave the banks on the sidelines.”

Just as the U.S. government has awoken to the threat of money laundering in the gold industry, America’s largest companies are taking a keener interest in the source of their gold.

Elemetal supplied dozens of Fortune 500 companies, according to corporate disclosure forms, including Tiffany & Company and Apple. Those companies said they constantly check to make sure they aren’t using “blood gold” in their products.

Tiffany & Co. said it bought only domestic “scrap” from Elemetal, rather than mined materials from Latin America. Scrap gold is collected from pawn shops and jewelry stores in the United States.

Apple, which also bought gold from Elemetal, declined to comment. But a spokesman last year said the company had conducted audits and found “no evidence of illegal gold entering our supply chain.”

Fernandez, the tropical ecologist, said that as a matter of policy U.S. companies should only buy gold that is certified as “fair-trade.” That means the mining process does not damage workers or the environment.

“That could be a game-changer,” he said.

One Colombian nonprofit, the Alliance for Responsible Mining, has already created a fair-trade brand of gold it calls “Fairmined.” The group works with artisanal miners in Latin America, Asia and Africa to make sure they follow environmental and labor laws and don’t use mercury or interact with criminals.

That comes at a price, just as organic foods cost more than processed ones.

Fairmined gold is sold for a premium between $2,200 to $4,000 per kilogram above the spot price. Some of that money is shared with the miners. (In January, a kilogram of gold cost more than $42,000.)

But the program has had success: Swiss watchmaker and jeweler Chopard uses Fairmined gold. And when Colombian President Juan Manuel Santos was awarded the Nobel Peace Prize in 2016, the medal was minted from Fairmined gold from Colombia. Last year, Fairmined produced roughly 250 kilograms of gold. In 2018, the Alliance for Responsible Mining hopes to double that.

“What we need is to certify more mines to be able to supply the market,” said Yves Bertran, the group’s executive director. “It’s a slow process but we are really making progress.”

Dirty metal

Cleaning up the gold trade can’t happen without a commitment from U.S. and international refineries that buy precious metal from Latin America and sell it to jewelers, banks and electronics companies.

They need to know their suppliers aren’t criminals.

“Anybody dealing in gold legally has to trace it back to the source and confirm that it’s legitimate,” said David Bolton, a Miami private investigator who has worked for U.S. refineries and Latin American gold exporters.

There are two major sources for buying gold from Latin America: Large mines controlled by multinational conglomerates, and gold brokers known as “aggregators” who buy from the artisans.

Aggregators offer a riskier business model, experts say, because it’s so difficult to trace the origins of their gold. They are known to buy gold from mines controlled by criminals — and to cover it up by falsifying paperwork and bribing officials, as NTR did.

“It’s impossible to know the original source of the gold” when dealing with aggregators, said Mike Riess, a precious-metal consultant who sits on a U.S. Treasury Department anti-money-laundering advisory board. “It’s more likely at this point that you’re dealing with a criminal organization.”

Despite the risks, many global gold firms seeking to meet endless demand still buy from aggregators, instead of large mines. That includes two of the world’s biggest refineries, Switzerland-based Metalor and Japan-based Asahi, which both have operations in the United States.

Jorge Ramon Camino, Metalor’s general counsel, acknowledged in an email that buying from large, regulated mines “reduces the risk.”

“However, in Colombia, the majority of the mining operations are small,” Camino said. “Business can still be done, provided that compliance is not compromised in any way.”

Camino said Metalor compliance officers visit Latin American suppliers to ensure that they have permits, pay taxes and meet regulations.

“If there are doubts that we cannot clarify, we stop the business,” he said.

Asahi declined to answer questions. But spokesman David Dorris said Asahi’s suppliers “are conducting business and sourcing material in a legal and responsible manner.”

The companies themselves say vetting aggregators is no easy task, nor foolproof.

“Even though we carry out exhaustive due diligence and know-your-customer processes, there’s never any guarantee of certainty,” said Pacco Liano, compliance officer for Miami-based Kaloti Metals & Logistics, which buys most of its gold from Latin America and sells it to a refinery in Dubai.

Republic Metals, an Opa-locka-based refinery that is one of North America’s largest, once bought from aggregators, too. But no more.

Republic stopped dealing with aggregators in 2014. It now buys only from big, regulated mines in both Colombia and Peru.

CEO Jason Rubin says large mines owned by publicly traded companies are less vulnerable to criminal infiltration because of greater government scrutiny and resources for due diligence.

In fact, executives at Goldex, an aggregator that once supplied Republic, were charged in Colombia in a scheme to launder almost $1 billion through gold exports. The case is ongoing and Goldex denied wrongdoing.

“I don’t want to risk our reputation,” said Rubin, whose father started Republic in 1980 and grew it into a massive operation where cauldrons pour molten gold in a searing furnace straight out of Tolkien.

But dealing only with large mines cuts out subsistence miners from the global gold economy.

One start-up Miami gold company that still uses aggregators believes that “fair-mined” branding can help distinguish legitimate artisanal miners from those with ties to criminals.

Alejandro Esponda, vice president of Doral-based Universal Precious Metals, said U.S. companies have a duty to support small miners who labor in remote jungle regions where mining has been practiced for centuries.

“It’s a social enterprise,” he said.

This story was originally published January 16, 2018 at 8:05 AM with the headline "‘Blood gold’ in your jewelry is poisoning workers and the rainforest. Here’s how to stop it.."