Late last month, my colleague Justin Scheck, a London-based investigative reporter who writes about money and power, and the intersection of wealth and deep poverty, published several articles about how drug cartel gold found its way to the mints in the United States and even Canada. I talked with Justin about his investigation, and our conversation is an intriguing glimpse into his reporting. It revealed the origins of the gold at the Royal Canadian Mint, and made for a rewarding follow-up to his original article.
[Read: Canada Says Its Gold Is Clean. So We Traced It.]
You set out on this story looking at American gold. What did you find that then led you to look at Canada?
I began looking at the origins of the gold the United States Mint uses to make investor-grade coins. U.S. law requires that those coins be made of gold mined in the U.S.
The U.S. Mint buys gold that comes from a small group of refiners. One of them (somewhat confusingly) is the Royal Canadian Mint. So I called the Royal Canadian Mint to ask where their gold originates.
And what did you find?
When I first called, the Royal Canadian Mint told me that all of the gold it refined originates in North America. I turned my attention elsewhere until the chief executive at Dillon Gage, a gold dealer in Texas, told me something surprising: He imported South American gold, melted it together with U.S. gold and sent the mixture to the Royal Canadian Mint to be refined. I decided to figure out where his South American gold originated.
How did you go about tracing the gold?
I used trade records to find out who had been shipping gold to him from Colombia, and learned that one of the companies sourced a lot of its gold from an area controlled by a drug cartel called the Clan del Golfo. My colleagues and I visited the area and started talking to people in the gold trade. Eventually they brought us to a large, illegal mine called La Mandinga that is controlled by the cartel. (Miners told us they paid the Clan a monthly fee to mine there, and it controlled access and set rules.) The miners use heavy equipment, diesel pumps and high-pressure hoses to tear up the soil, turn it into mud and eventually extract gold from it.
[Read: U.S. Mint Buys Drug Cartel Gold and Sells It as ‘American’]
[Watch: How Drug Cartel Gold Ends Up at the U.S. Mint]
We also spent time in a nearby town at shops that buy this gold from the miners and sell it to the exporter that supplies the Texas company. In short, we followed the gold from the mine to buyers to exporters to Texas, where the company melts it down and sends it to Canada.
The Royal Canadian Mint has knowingly been buying Colombian gold with questionable origins linked to cartels. Is that legal, and why is the Mint passing it off as North American gold?
The gold from this cartel mining is illegal in several ways. Notably, it is a crime to mine at this site (which is a government-owned cattle ranch), and it is illegal to use mercury in Colombia, but the miners use it to separate the gold from sand.
We found that this illegal Colombian gold transformed into legal North American gold through bureaucratic sleights of hand.
It starts with Colombia’s system for making sure gold is legal. The Colombian authorities do not inspect the origins of a gold shipment to determine if it is legal. Instead, they ask only if the company selling it has proof of who produced it, in the form of mining permits.
Pretty much anyone can get a small-scale mining permit from the local government. It lets a person produce a small amount of gold using a shovel and pan in areas where it’s legal to mine. But because nobody is checking on where people produce their gold in the area, people who mine at La Mandinga using heavy equipment and mercury can sell their gold to shops that record the producers as small-scale miners.
This is where the illegal gold becomes legal: Each gram of gold the shop acquires is recorded in a government computer system as being produced by a specific small-scale miner. As long as the quantities and permit names line up, the Colombian authorities treat it as legal. And if the Colombians consider it legal, so do the U.S. importers.
The Colombian gold becomes American in Texas. When the importer mixes it with recycled gold that originates in the U.S. and sends it to Canada, the Royal Canadian Mint says this makes it — technically, if not literally — North American. The Mint said it had always known it was getting Colombian gold (the Texas supplier was open about it), but felt justified calling it North American.
Why does the provenance of gold matter?
Most of the world’s newly mined gold is processed by a small group of reputable refiners that includes the Royal Canadian Mint. If those refiners can cut illegally produced gold out of their supply chains, it could shrink the market and decrease the incentive to mine in harmful ways.
How is accountability in the gold trade ideally supposed to work?
Each institution is supposed to inspect its supply chain, from the Royal Canadian Mint on down. If one knows it’s getting gold from what the industry calls a “high risk” place — and Colombia is one — it’s supposed to do what is called “enhanced due diligence,” meaning a more detailed inspection of it supply chain. In theory, the Mint could trace its gold back to the mine.
What does this mean for Canada’s gold supply and the Mint in real terms?
In real terms, everyone in this supply chain foisted the responsibility down a level. The Royal Canadian Mint told me it did “enhanced due diligence” — which involved asking the Texas supplier to look into its gold supplies. The Mint said it was the Texans’ responsibility to inspect where the gold came from. The Texan supplier said he relied on a guy in Mexico, and on the paperwork provided by the Colombian exporter. The Colombian exporter said it relied on the small-scale mining license paperwork from the small stores.
What this means is that the Mint treats a relatively transparent supply chain leading back to the Clan mine — one that I was able to follow through trade records and some phone calls — as something that it has no obligation to follow.
How has the Royal Canadian Mint responded to your article?
The Royal Canadian Mint insists that it is accurate to classify this Colombian gold as North American, but said it would nonetheless start disclosing the actual countries of origin of its gold. It said the Texas supplier had suspended the Colombian gold source.
Shawna Richer is an editor on the International desk at The Times who oversees coverage of Canada. She lives in Toronto.
A Busy Week in Alberta
It was a big week of news in Alberta, where the petition to hold a referendum on independence suffered a blow. A court ruling found that the provincial government and its elections watchdog had an obligation to consult Indigenous groups before permitting signatures to be gathered.
[Read: Alberta Petition to Break Away From Canada Is Dealt a Blow in Court]
Premier Danielle Smith and the pro-independence activist group Stay Free Alberta said they would appeal the decision, but the delay could prove problematic for the separatists. Ms. Smith continued to work with Prime Minister Mark Carney to advance the cause of building a new pipeline taking Albertan oil to the coast of British Columbia. The two met in Calgary on Friday and unveiled a carbon pricing policy as part of their memorandum of understanding. Politically, the moves could take a little momentum away from the separatist push: Ms. Smith has said she considers the carbon pricing and pipeline construction core to a stronger and more sovereign Alberta within Canada.
[Read: Canada and Alberta Agree to Raise Carbon Prices as Pipeline Tradeoff]
“I’d like for us to have Albertans feel such confidence that Canada’s working for them that separatist sentiment goes back to historically low levels,” Ms. Smith said on Friday. “We’re not quite there yet. There’s a few more things that we need to do, but I think these kinds of agreements help to get us there, and that’s what I need to work towards.”
The New York Times is hiring for a Western Canada correspondent, as part of our mission to deepen and broaden our coverage of the country. Whoever gets the role will be greeted with a full plate.
Matina Stevis-Gridneff is the Canada bureau chief at The Times. She lives in Toronto.
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