In Financial crime & money laundering, Publications

The GIFF Project partners – the Global Initiative against Transnational Organized Crime and Estelle Levin Ltd. (ELL) – are proud to release the culmination of many months of discussion and research: Follow the Money: Financial Flows linked to Artisanal and Small-Scale Gold Mining and the accompanying case study Follow the Money: Financial Flows linked to Artisanal and Small-Scale Gold Mining in Sierra Leone.

We look forward to seeing what advances can be made through application of the handbook’s tools now that it is ready to use! Do keep in touch and tell us if/how you use it, what you found, and what impact this had on realising your goals.

Gold and Criminal Exploitation

Artisanal and small-scale gold mining (ASGM) has long been demonized by governments, environmental groups, and large-scale mining companies amongst others, resulting in efforts across the globe to eradicate ASGM. However, attempts to stamp out ASGM are not only futile, but can also have devastating consequences for vulnerable populations. Fortunately, there has been a growing recognition that initiatives which aim to formalise the sector and draw it into the legal sphere are more likely to find success and contribute to developmental goals.

While ASGM plays an important role as a livelihood option to millions of people around the world, we cannot ignore the fact the high-value, low-risk nature of the gold sector makes it ripe for criminal exploitation. Upstream ASGM activity is often best characterised as an informal livelihood activity, but it is this informality that renders the sector and those involved vulnerable to exploitation. Furthermore, gold is unique in that it has significant value as a monetary instrument in both legal and illegal markets. This makes gold especially attractive as an avenue to launder money and finance threat operations. Thus, weak regulation of ASGM mining operations and the global gold trade makes entry into the sector very low-risk for illicit actors, including organized crime groups, aiming to maximise profits.

Illicit financial flows (IFFs) have been identified in the vast majority of ASGM financial flows, although the scale and frequency of transactions, depravity of actors, and impacts greatly vary. Defined as ‘money illegally earned, transferred or used’, IFFs can play an instrumental role in shaping ASGM activity and flows. Actors whose profits depend on IFFS can be powerful inhibitors to formalisation efforts. ASGM financial flows tend to be cyclical in nature, with profits from illicit activity reinvested into gold operations, perpetuating IFFs. As such, downstream actors, who are more likely to be engaging in illicit activity, can wield a great deal of influence over activity, supply chains, and financial flows.

As such, without a nuanced understanding of financial flows, especially IFFs, attempts to formalise the ASGM sector risk being ineffective and risk pushing the sector further into dark and the influence of illicit actors. In line with the Global Initiative’s overall stance on responses to illicit networks and organized crime, a development response is needed. We need to find ways for millions of ASGM miners to be brought into the fold in order to disempower the criminal actors exploiting the ASGM sector.

Building Understanding and Strengthening Responses

Although ASGM formalisation efforts have identified a wide range of priorities and created tools, approaches and policies to realise their objectives, a financial lens to has been missing. Follow the Money: Financial Flows linked to Artisanal and Small-Scale Gold Mining is designed to satisfy this need, empowering stakeholders to investigate, map and analyse financial flows linked to the ASGM sector.

Credible, comprehensive, and comprehensible data is desperately needed to better understand financial flows linked to ASGM. This landmark handbook provides practical tools, techniques, methodologies and pointers for stakeholders seeking to broaden their understanding of and engage with the financial flows linked to ASGM, including IFFs that implicate parts of the sector with corruption, money laundering and organized crime.

The handbook provides actors with:

  • A primer on terminology to ensure comprehension of key issues;
  • Analysis of the key issues pertaining to ASGM and IFFs; and
  • The tools needed to:
    • increase knowledge and understanding of financial flows, IFFs linked to the ASGM sector;
    • build capacity to analyse and effectively capitalise on opportunities; and
    • mitigate and respond to challenges and obstacles IFFs pose to the formalisation of the ASGM sector and other development objectives.

With these tools, stakeholders will be better positioned to develop, advocate for and implement evidence-based interventions and responses that are more likely to deliver the formalisation of the sector. The handbook will also serve as a guidebook and resource to inform the evolving discussion around and examination of financial flows, IFFs, and ASGM.

Case Study: Sierra Leone

 

Alongside the handbook we are also releasing our first case study: Follow the Money: Financial Flows linked to Artisanal and Small-Scale Gold Mining in Sierra Leone. The case study demonstrates application of the handbook’s methodology to analyse financial flows, showing its practical application and the importance of financial mapping to a meaningful understanding of ASGM. The case study presents findings of desk and field research conducted from June to September 2016 in various regions of Sierra Leone.

Our investigation reveals that Sierra Leone’s ASGM sector is generating significant economic value. However, gold is mined, bought, sold and exported through informal networks that only occasionally and selectively intersect with formal supply and value chains prior to crossing the border. The informality of Sierra Leone’s gold sector is perpetuated and exacerbated by downstream IFFs.

IFFs are paradoxically dualistic. On the one hand, IFFs linked to ASGM serve a critical economic function, fuelling an informal sector which plays an important role in poverty alleviation and economic development in Sierra Leone. On the other hand, IFFs are facilitating complicated layers of exploitation and victimisation by opportunistic actors along the value chain. Upstream actors who engage in IFFs tend to reinvest profits, thus perpetuating supply chains and financial relationships reliant on informal and illicit activity at all levels.

Any attempt to formalise Sierra Leone’s ASGM sector must acknowledge the complex nature and impacts of IFFs if they are to hope to be successful without further marginalizing vulnerable populations.

Recommendations

  • Develop interventions which look beyond the mine site;
  • Make a better offer: interventions need to identify ways to create a positive business environment and incentivise to draw ASGM stakeholders into the formal sector and engage with formalisation efforts;
  • Make financing options available generally and to ASGM operators;
  • Engage in efforts to standardise regional tariff rates; and
  • Conduct further investigations.