COVID-19 & ASM: Illicit Traders Cashing In on Vulnerable Miners in Conflict-Prone Areas

COVID-19 & ASM: Illicit Traders Cashing In on Vulnerable Miners in Conflict-Prone Areas

By Alan Martin, Sechaba Consulting and Joanne Lebert, IMPACT’s Executive Director

As COVID-19 sweeps the globe, risking the health and lives of millions, it is clear the pandemic is also causing economic havoc.

IMPACT has been closely following how COVID-19 is affecting the artisanal gold mining sector in the Democratic Republic of Congo (DRC). It’s undeniable that the entire artisanal gold supply chain and the women and men that depend on artisanal mining face grim days ahead.

We are particularly concerned about the pandemic’s impact on livelihoods, how it will fuel the illicit trade of minerals, and undermine peace and security in the country.

Despite the remoteness of most artisanal gold mine sites in DRC, there is evidence that miners in DRC are already paying a heavy price as a result of the pandemic and measures implemented by the local authorities. There is reportedly a lack of liquidity among local gold buyers, forcing miners to take significant haircuts on the spot price of their gold—as much as 30-50%, depending on location.

According to IMPACT’s research, in one area of DRC’s gold rich Ituri Province, 79 out of 85 gold trading houses have shut down because they have no one to sell to. It is reported that some of those that are no longer operational have opted to trade in mercury instead—also discounted by as much as 60%— in an effort to secure some liquidity and to eventually reopen their gold buying businesses.

Closed borders and airspace have also interrupted traditional export patterns of gold, both in the Great Lakes region and beyond. The famed gold souk in Dubai, where much of the trade first enters international markets, is closed. As is the Zaweri Bazaar in Mumbai where it is often manufactured into jewellery.

But where there is crisis for many, there is immense opportunity for a few—even if it comes at the expense of the already marginalized miners, the already fragile peace and security of eastern DRC, or international efforts to legitimize the ASM sector through the implementation of such initiatives as the OECD’s Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High Risk Areas.

The industry is hurting but the pain is not spread evenly.

The ability to buy low and sell high means that business continues for traders with deep pockets and appetites for high risk. Production continues—despite the potential for outbreaks of COVID-19 in crowded mine sites. The logistical challenge of commercial flight bans aside, illicit exports continue to leave east Africa for international markets. What cannot be easily exported is being stockpiled.

One clue of what lies ahead came from Alain Goetz. The Belgian refiner recently convicted of money laundering was quoted in Reuters stating that “[f]or gold dealers, this is a once in a lifetime opportunity, but only if you can get it out of Africa and turn it into cash.”

A gold dealer in Nairobi—a main departure point for DRC artisanal gold—told IMPACT that while traditional flows from DRC have dried up, he was aware of several colleagues who were personally flying into the eastern DRC and neighbouring Uganda’s Entebbe on private jets to transact deals and export gold. Others, including himself, are considering going to DRC overland at some point to purchase directly from mine sites.

Once in Nairobi, gold can get to foreign markets one of two ways. IMPACT has been made aware of at least one Israeli businessman who is planning to fly the gold out on his private jet, while the more risk-tolerant are using daily cargo flights to Dubai or Istanbul—known gold refining hubs. However, the latter option brings risks, as highlighted by a Ugandan dealer who once had a $300,000 USD shipment stolen from the Entebbe airport.

Since the beginning of April, there were an average of eight cargo flights a day from Jomo Kenyatta International Airport in Nairobi, all but one going to Gulf countries. Of the incoming flights, one stood out: a mystery Boeing 737 (tail number N837DM) registered to the Bank of Utah. In previous days its flight path had deviated from its normal route between Riyadh and Addis Abbas to include stops in Nairobi, Entebbe, and Ahmedabad—a city close to Mumbai, the gold capital of India. The Bank of Utah air fleet was exposed in 2017 for allowing wealthy foreigners—some of whom were subject to US sanctions—to legally obtain American registrations for their aircraft while shielding their identities from public view. While the owner and cargo of this flight as well as its purpose remain unknown, the plane’s flight trajectory and history demonstrate the ease with which gold could be moved between East African, Middle Eastern and Asian gold hubs.

Gold prices have remained largely steady through the current crisis, at over $1,600 USD an ounce, well above $1290 USD a year ago. While a shortage in buyers is leading to price drops for local miners, scarcity at a regional and international level may push prices even higher for those who still manage to get gold out. In the current buyer’s market, a kilo of gold is going for as low as $28,000 USD in Nairobi, and reselling for as much as $46,000 USD. The prices depend on from whom and where the gold is sourced.

A Nairobi dealer told IMPACT: “The more hands involved, the more commissions you have to pay. Direct from the mines is best.”

It’s value-to-weight ratio makes gold one of the most lucrative of conflict minerals. It is the reason why gold has played a signature role financing the decades old civil war in eastern DRC. Any shortage in the gold supply, or issues of liquidity at the mine site level, can be like a match to a petrol can and spell trouble for the security situation in the country.

Shadow economies do not follow the same rules as formal ones. Gold payments, for example, often bypass formal banking channels entirely through the use of hawala, or by paying in commodities that can be easily sold at the point of export and converted to cash. Legitimate enterprises, such as grocery or import-export businesses, often convert local profits to gold as a way to evade strict foreign exchange controls. These shadow economies often thrive in unstable economic conditions.

Closed borders, stagnant trade and the loss of liquidity at the local level are likely to have three direct consequences for the security situation in artisanal mining communities:

  • The formal economy in Ituri, North and South Kivu provinces will become even more informal, as the artisanal mining sector becomes an attractive investment opportunity in uncertain times.
  • New buyers will arrive directly from outside, disturbing the local gold ecosystem and its hierarchy.
  • Various armed groups and political elites will begin competing for preferential access to these outside buyers but also for control of new territory (and mine sites).

This scenario has played itself out in conflict-affected mining areas from Central African Republic to South Sudan, from the diamond field of Marange in eastern Zimbabwe to DRC itself.

The COVID-19 pandemic brings an additional security threat: with the international community overstretched and focusing all resources on domestic responses to the virus, it’s uncertain whether there will be funds or troops to support the United Nations Organization Stabilization Mission in the Democratic Republic of the Congo (MONUSCO) should any instability worsen.

This makes for perfect conditions for highly opportunistic armed groups to step in and take over artisanal mines—including those that were previously validated as “conflict-free” under the International Conference on the Great Region’s (ICGLR) Regional Certification Mechanism, which aligns with the OECD’s Due Diligence Guidance.

This would represent a huge setback for global and hard-fought efforts to promote and legitimize artisanal gold mining to international refiners and jewellers.

Anything that jeopardizes these efforts to create more responsible supply chains—even those done under the expedience of relaxing these measures in this moment of crisis—is ultimately going to reinforce a system that severely disadvantages artisanal miners and contributes to the conditions that render them vulnerable in the first place. Most trading hubs and actors in the gold sector have been entirely indifferent to the working conditions and the well-being of ASM miners—turning a blind eye to their Dickensian existence and resisting opportunities that could connect them to legal sources of ASM gold.

Collectively, we will need a well-thought-out two-pronged approach to address both the short-term urgency of the economic collapse created by COVID-19 and the longer-term conditions that will make artisanal miners and their communities even more vulnerable due to this crisis.

As COVID-19 spurs the illicit gold supply and threatens DRC’s security, it is more important than ever that the gold industry exercise vigilance and avoid further entrenching the networks that hold the world’s poorest hostage.