REUTERS INSIDE STORY: Metalor’s gold was used in phones including those from Apple and Samsung.
How suspect gold reached top brands
PHOTO ESSAY LONG READ
Sleeping Beauty
In the Peruvian highlands, a Swiss refinery said it had a sustainable source of artisanal gold. Prosecutors suspect its main supplier was a front for dirty money. What went wrong?
By BRENNA HUGHES NEGHAIWI, MITRA TAJ and PETER HOBSON March 6, 2020
From the Andes mountains, thousands of artisanal gold diggers for years sent fragments of metal to a Swiss valley. There, a refinery purified the gold to sell to banks, watchmakers, fine jewelers and electronics companies. It circulated as ingots, phones and trinkets - some branded with names including Apple and Tiffany & Co.
A trade worth billions of dollars, it was championed by the Swiss refinery, Metalor Technologies, as part of a program with Peru’s government to integrate gold prospectors into the economy.
In early 2018, Metalor stopped taking the gold. The reason: It couldn’t be sure where the metal came from. Peruvian prosecutors had come to suspect Metalor’s main supplier was a front used by criminals to filter illegally produced gold into the world market.
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Metalor is not under investigation in Peru, and there is no suggestion of illegality by the refiner. But the story of the project - and of how it was monitored by the companies and regulators involved - illustrates the risks of illicit commerce that lie beneath gold’s glamor.
Peruvian authorities are exploring criminal charges against Metalor’s supplier, a trading firm named Minerales del Sur, after seizing a cargo worth nearly $4 million destined for Metalor in 2018, prosecutorial and customs documents seen by Reuters show. Customs inspectors found some participants in the program were selling more gold than they could produce, according to customs reports. The prosecutors allege these inflated volumes suggest Minerales del Sur was a cover to launder metal from illegal sources, such as mines financed by narcotics dealers or in banned sites in the Amazon rainforest.
Minerales del Sur, which declined to comment for this article, has told Peruvian authorities it obtained gold legally.
RICH ROCK: Miners in one of the gold tunnels in La Rinconada.
REUTERS/Nacho Doce
Bullets Through the Head
As global hunger for gold accelerates, so too do problems in its production.
Industrial mines have long been accused of depriving indigenous people of land, polluting their homes and breeding crime. Now, high gold prices are making it attractive for individuals to try what the industry calls artisanal and small-scale mining. Every year around 500 tonnes, worth $25 billion at current prices, of gold is dug in this way, according to industry estimates - 15% of all the gold that is mined.
Metalor is one of at least five major refineries, including two in the United States, which have come under legal scrutiny in the last two decades after taking artisanal gold from countries including Colombia and Peru, where most of the world’s cocaine is produced and narcotics gangs have invested in gold production. One U.S. refinery closed after its employees were jailed for trading illegal and smuggled gold.
People of La Rinconada’s “forgotten zone.”
This Metalor program was supposed to be part of the solution - a state-backed scheme to bring informal diggers into the formal market and improve their conditions.
Minerales del Sur was hired to collect and check gold from small miners across the highland region of Puno, which extends from the fringes of the Amazon to Lake Titicaca. The region’s apex, and the source of some of the gold, is a shantytown of about 50,000 people located 16,700 feet above sea-level. Called La Rinconada, it sits below a glacier-capped mountain known as La Bella Durmiente, or Sleeping Beauty.
Said to be the highest permanent human settlement in the world, La Rinconada is no fairytale. Last year, authorities reported rescuing at least 68 trafficking victims from the shantytown’s nightclubs. Last April, seven gold miners were found in a tunnel beneath the mountain with bullets through the head.
Media organizations and NGOs repeatedly published reports that Metalor’s Peruvian gold suppliers may have been infiltrated by criminals. The Swiss company - which prosecutors estimated processed about 106 tonnes of gold worth $3.5 billion from Minerales del Sur since 2001 - said it was confident of the checks it imposed on its suppliers.
“We believe this was done in a proper way.”Metalor CEO Antoine de Montmollin
“To our knowledge, we believe that this was done in a proper way,” said Metalor CEO Antoine de Montmollin. “But due to the complexity of the supply chain, we cannot have 100% certainty. We await the conclusion of the current investigation.”
In 2018, Metalor supplied gold to firms including Tiffany, Samsung Electronics Co. and Apple Inc. Gold is used to conduct electricity in phones and other electronic devices.
Apple said it is committed to setting the highest standards for responsible sourcing, and has stopped working with 60 gold refiners since 2015 because they were unable or unwilling to meet its standards. It declined comment on whether it continued to accept gold from Metalor.
Tiffany said it upheld industry-leading standards aligned with its commitment to responsible sourcing. It said Metalor was among several refiners which provided gold used in non-jewelry items. Its website shows these include $375 golden drinking straws and $1,500 paper-clips.
Samsung declined to comment.
INSIDE STORY: Metalor’s gold was used in phones including those from Apple and Samsung. REUTERS/Elijah Nouvelage
Bullets Through the Head
As global hunger for gold accelerates, so too do problems in its production.
Industrial mines have long been accused of depriving indigenous people of land, polluting their homes and breeding crime. Now, high gold prices are making it attractive for individuals to try what the industry calls artisanal and small-scale mining. Every year around 500 tonnes, worth $25 billion at current prices, of gold is dug in this way, according to industry estimates - 15% of all the gold that is mined.
Metalor is one of at least five major refineries, including two in the United States, which have come under legal scrutiny in the last two decades after taking artisanal gold from countries including Colombia and Peru, where most of the world’s cocaine is produced and narcotics gangs have invested in gold production. One U.S. refinery closed after its employees were jailed for trading illegal and smuggled gold.
People of La Rinconada’s “forgotten zone.”
This Metalor program was supposed to be part of the solution - a state-backed scheme to bring informal diggers into the formal market and improve their conditions.
Minerales del Sur was hired to collect and check gold from small miners across the highland region of Puno, which extends from the fringes of the Amazon to Lake Titicaca. The region’s apex, and the source of some of the gold, is a shantytown of about 50,000 people located 16,700 feet above sea-level. Called La Rinconada, it sits below a glacier-capped mountain known as La Bella Durmiente, or Sleeping Beauty.
Said to be the highest permanent human settlement in the world, La Rinconada is no fairytale. Last year, authorities reported rescuing at least 68 trafficking victims from the shantytown’s nightclubs. Last April, seven gold miners were found in a tunnel beneath the mountain with bullets through the head.
Media organizations and NGOs repeatedly published reports that Metalor’s Peruvian gold suppliers may have been infiltrated by criminals. The Swiss company - which prosecutors estimated processed about 106 tonnes of gold worth $3.5 billion from Minerales del Sur since 2001 - said it was confident of the checks it imposed on its suppliers.
“We believe this was done in a proper way.”Metalor CEO Antoine de Montmollin
“To our knowledge, we believe that this was done in a proper way,” said Metalor CEO Antoine de Montmollin. “But due to the complexity of the supply chain, we cannot have 100% certainty. We await the conclusion of the current investigation.”
In 2018, Metalor supplied gold to firms including Tiffany, Samsung Electronics Co. and Apple Inc. Gold is used to conduct electricity in phones and other electronic devices.
Apple said it is committed to setting the highest standards for responsible sourcing, and has stopped working with 60 gold refiners since 2015 because they were unable or unwilling to meet its standards. It declined comment on whether it continued to accept gold from Metalor.
Tiffany said it upheld industry-leading standards aligned with its commitment to responsible sourcing. It said Metalor was among several refiners which provided gold used in non-jewelry items. Its website shows these include $375 golden drinking straws and $1,500 paper-clips.
Samsung declined to comment.
INSIDE STORY: Metalor’s gold was used in phones including those from Apple and Samsung. REUTERS/Elijah Nouvelage
TRINKET TROUBLE: Tiffany & Co. was another customer for the metal. REUTERS/Gonzalo Fuentes
Metalor said its executives and local staff made dozens of visits, including to Minerales del Sur’s offices, to ensure suppliers were operating legally. Each time gold was shipped, it also verified documentation to ensure the metal came only from members of the state formalization program.
But Metalor told Reuters it did not inspect mines. And its executives were not aware of two independent audit reports, produced for a Peruvian state firm involved in the program and seen by Reuters, that found flaws which made it easy for gold from unknown sources to be slipped into shipments.
$4 billion
Worth of gold traded illegally in Peru in 2015
Peruvian prosecutors have said their investigation will remain open in a preliminary phase through 2020. No charges have been issued, and the case may be closed if not enough evidence is assembled.
Peru’s Energy and Mining Ministry said it was working on improvements to the program, which it said has helped hundreds of thousands of people. In 2014, the incomes of as many as 600,000 people in Peru depended on artisanal and small-scale mining, according to estimates accessed on Delve, a global platform for information on such mines.
“You’re not going to find any country where traceability of small-scale mining is 100% trustworthy,” Lenin Valencia, director of mining formalization in the ministry, told Reuters. Small-scale mining is so important to society and the economy that compromises have to be made, he said. “If we stuck to the law, there probably wouldn’t be enough jails in the country to imprison so many people.”
Minerales del Sur declined to comment. A company representative told a judge in Lima its gold was all sourced legally. Daniel Jo Villalobos, attorney for Minerales owner Francisco Quintano Mendez, did not respond to emails.
Metalor has been owned since 2016 by Japan’s biggest gold retailer, Tanaka Kikinzoku, which said it had nothing to add.
Metalor said its executives and local staff made dozens of visits, including to Minerales del Sur’s offices, to ensure suppliers were operating legally. Each time gold was shipped, it also verified documentation to ensure the metal came only from members of the state formalization program.
But Metalor told Reuters it did not inspect mines. And its executives were not aware of two independent audit reports, produced for a Peruvian state firm involved in the program and seen by Reuters, that found flaws which made it easy for gold from unknown sources to be slipped into shipments.
$4 billion
Worth of gold traded illegally in Peru in 2015
Peruvian prosecutors have said their investigation will remain open in a preliminary phase through 2020. No charges have been issued, and the case may be closed if not enough evidence is assembled.
Peru’s Energy and Mining Ministry said it was working on improvements to the program, which it said has helped hundreds of thousands of people. In 2014, the incomes of as many as 600,000 people in Peru depended on artisanal and small-scale mining, according to estimates accessed on Delve, a global platform for information on such mines.
“You’re not going to find any country where traceability of small-scale mining is 100% trustworthy,” Lenin Valencia, director of mining formalization in the ministry, told Reuters. Small-scale mining is so important to society and the economy that compromises have to be made, he said. “If we stuck to the law, there probably wouldn’t be enough jails in the country to imprison so many people.”
Minerales del Sur declined to comment. A company representative told a judge in Lima its gold was all sourced legally. Daniel Jo Villalobos, attorney for Minerales owner Francisco Quintano Mendez, did not respond to emails.
Metalor has been owned since 2016 by Japan’s biggest gold retailer, Tanaka Kikinzoku, which said it had nothing to add.
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