February 26, 2018

Money Laundering in Gold

BYTradition Gold

Is there such a thing as illegitimate or illegal gold?  An interesting article about this gold conundrum was published by the Miami Herald about a month ago.  To be more precise, the article reveals how international drug cartels are getting into the gold business.  Surprising to many, the precious metals business is far more profitable than the drug business.

In the article we read about a problem that has plagued the drug business since the beginning of the first cartel: cleaning the money.  Since the drug cartels are, by definition, illegal, the drug kingpins can not simply deposit huge sums of cash into an international bank.  There needs to be another step, a money laundering step, and that is where gold comes into play.  Across Central and South America the drug cartels are buying mining businesses with their profits and then selling the precious metal mostly to the USA.  When the gold profits come back to the drug cartel’s mining businesses, the original cocaine-tainted profits have been cleaned.

Why gold?  Because it is in high demand, legal on its surface, and rarely questioned.  Additionally, the more often that it is melted and remelted, it becomes impossible to determine its origination.

The Miami Herald…

And just like cocaine, a market for illicit metal has blossomed in South Florida, where nearly a third of the nation’s imported gold enters.

Over the past decade, Miami, a longtime point of entry into the United States for contraband, imported $35 billion worth of gold via air, according to U.S. Customs records analyzed by WorldCity, a Coral Gables-based economic data firm. That was more than any other U.S. city.

Some of the metal shipped to Miami is refined locally. Other batches are sent across the country to be melted down and manufactured into jewelry and bullion. Central banks around the world are major buyers of gold. So is the U.S. Mint. And electronics companies use small amounts of gold in consumer products because it is an effective conductor and doesn’t corrode.

Take Colombia, a country with a substantial mining industry that exported 64 tons of gold in 2016, much of it to the United States, according to government statistics. That same year, Colombia’s large-scale, legal mining operations produced only eight tons, according to the Colombian Mining Association. A significant part of the gap between what Colombia’s big mines produce and what the country exports is unlicensed gold — sometimes unearthed by operations controlled by narco-traffickers and other criminals.

The big Colombian mines that “[legally] produce gold can be counted on one hand,” said Jaime Pinilla, an engineer and legal gold mine owner in Colombia. “There’s a huge difference in the amount that is produced and the amount that is exported.”

And the discrepancy is not just happening in Colombia: Statistics from other Latin American gold-producing nations show similar ratios between legal and illegal gold mining.

It’s impossible to know where all the illegal gold is coming from — but it’s clear where most of it ends up. Latin America accounts for nearly three-quarters of the gold imported into the United States, roughly 200 tons in 2015, according to Miami-based trade analytics firm Datamyne and the U.S. Geological Survey. That’s not far off from the total amount of gold mined in the United States annually.

In 2014, a kilo of gold was worth between $30,000 and $40,000 in Colombia, according to Colombian intelligence figures obtained by the Miami Herald. By comparison, a kilo of cocaine sold for roughly $2,500. While drug trafficking in Colombia generated less than a billion dollars in total revenue in 2014, according to those same estimates, illegal mining produced roughly $2.4 billion.

OK, so today’s article does not discuss inflation, future price action of the yellow metal, preserving wealth and the like.  Today we wanted to go offtrack a little and discuss how a multi-billion dollar industry like drug trafficking finds gold alluring.  What’s more, it is even more profitable than the cocoa business.  If even the narco-traffickers find value (and lots of it!) in gold – why don’t you?

Contact Tradition Gold and buy some gold coins, even add it to your IRA, today.