ARTISANAL AND SMALL-SCALE MINING IN ECUADOR--BUILDING AND IMPLEMENTING AN EFFECTIVE LEGAL FRAMEWORK

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment (April 2017)
CHAPTER 20A
ARTISANAL AND SMALL-SCALE MINING IN ECUADOR--BUILDING AND IMPLEMENTING AN EFFECTIVE LEGAL FRAMEWORK
Andrew A. Irvine
Fulbright U.S. Scholar to Ecuador
Andrew A. Irvine, P.C.
Jackson, Wyoming ^{1 2 3}

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ANDREW A. IRVINE is an attorney at Andrew A. Irvine, P.C., in Jackson, Wyoming, where he specializes in environmental and natural resources law, including work in minerals and mining; energy; environmental regulatory compliance and permitting; public lands; endangered species; migratory birds; wildlife; and related litigation in federal and state courts. He was awarded the 2016-2017 Fulbright U.S. Scholar Program grant to Ecuador to investigate and develop regulatory solutions to problems resulting from artisanal and small-scale mining in the country. He has been living and working in Ecuador for the past five months. He received his B.S. in Geological Sciences from the University of Notre Dame in 2001, his M.S. in Mineral Economics from the Colorado School of Mines in 2003, and his J.D. from Lewis and Clark Law School in 2006, with a Certificate in Environmental and Natural Resources Law. Prior to opening his own law firm in 2014, he was an attorney with the environmental and natural resources group at the law firm of Holland & Hart, LLP from 2006-2013. He has also held positions with the Arvada City Attorney; Gold Fields Exploration; the Bonneville Power Administration; and the U.S. Department of Justice, Environmental and Natural Resources Division. He is active in the Rocky Mountain Mineral Law Foundation (RMMLF), American Exploration and Mining Association, and ABA, Section of Environment, Energy, and Resources. He is the Wyoming Mining Reporter for the RMMLF Mineral Law Newsletter, and frequently writes about and presents on environmental and natural resources topics, including authoring chapters of the American Law of Mining and leading workshops on the ESA, NEPA, and MBTA.

Abstract

Mining industries in Latin America and across the world are often dominated by artisanal and small-scale mining ("ASM") operations, which are marred by myriad health, social, economic, and environmental problems. Even with significant economic and social contributions, these operations are often considered illegal because they operate informally, outside legal frameworks. While approaches to addressing problems resulting from ASM have varied, scholars recognize that legalization of ASM is a fundamental condition for a legitimate, stable and responsible ASM sector.

New mining legislation in Ecuador provides for the regularization of ASM in an attempt to combat illegal mining in the country and solve many of the resultant problems. The impact of the new law on illegal mining, however, has been limited. With respect to gold laundering, the law may actually be contributing to this illegal activity rather than reducing it.

This paper provides an overview of the prevalence of illegal mining in Latin America and discusses the attendant problems, with a focus on Ecuador. Ecuador's law formalizing ASM is then presented and analyzed in the contexts of its contribution to gold laundering in the country and degradation of a popular river in Ecuador's "whitewater capital." The law's effects on mercury reduction and the coexistence between ASM and large-scale mining in Ecuador are also discussed. Based on these analyses, recommendations are made to improve the effectiveness of Ecuador's new mining law, both to reduce illegal mining activity in the country and to better protect Ecuador's natural environment. Overall, enhancement of Ecuador's legal framework for ASM is intended to contribute to the advancement of ASM as a formalized, socially and environmentally responsible means of livelihood in the country.

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Table of Contents

I. Introduction

A. The Prevalence and Problems of Illegal Mining in Latin America

B. Environmental and Social Impacts of Illegal Mining in Latin America

C. Distinguishing Between "Illegal" and "Informal" Mining

D. The Importance of Artisanal and Small-Scale Mining

II. Formalizing Informal Artisanal and Small-Scale Mining

III. Investigating the Impact of Ecuador's New Mining Law

IV. Status of Illegal and Informal Mining in Ecuador

A. Levels of Employment and Production

B. Environmental and Social Conditions

C. Current Outlook and Statistics from the Ministry of Mining

V. Overview of Ecuador's Mining Law

A. Promotion of Artisanal and Small-Scale Mining

B. Reforms to the Mining Law

C. Differentiating Between Types of Mining Under the Mining Law

VI. Ecuador's Legal Framework Formalizing the ASM Sector

A. Structure of the Artisanal and Small Mining Regimes

1. The Artisanal Mining Regime

2. The Small Mining Regime

3. Mining Control and Enforcement

B. Environmental Legal Framework for Artisanal and Small Mining

1. Environmental Registration for Artisanal Mining

2. Environmental License for Small Mining

3. Environmental Control and Enforcement

VII. Significant Regulatory Gaps in Ecuador's Legal Framework for the ASM Sector

A. The Legal Framework Contributes to Illegal Mining and Gold Laundering

1. Statistics Indicate that Ecuador is a Haven for "Dirty" Gold

2. Gold Laundering

a) Gold Laundering in General

b) Gold Laundering in Ecuador

3. The ASM Sector in Ecuador Facilitates Gold Laundering

4. Opportunities to Fix the Legal Framework for ASM to Reduce Illegal Mining and Gold Laundering

a) Implementation of Ecuador's Existing Controls on the Commercialization of Gold

b) Implementation of International Standards for the Commercialization of Gold

B. The Legal Framework Lacks Environmental Planning and Review

1. The GALO Mine Case Study

a) Permitting of the GALO Mine

b) Inspections of the GALO Mine

(1) Noncompliance from the First Inspections

(2) Noncompliance from the Second Inspections

c) Continued Noncompliance at the GALO Mine

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(1) GALO Mine Increases Production

(2) GALO Mine Submits Insufficient Action Plan

(3) GALO Mine Determined to be in State Patrimonial Forest

d) Operations at GALO Mine Suspended for Noncompliance

2. Opportunities for Increased Planning, Review and Enforcement

a) Need for Controls and Planning at the Front-End of the Mine Permitting Process

b) There are Limited Consequences for Violations of Applicable Environmental and Mining Regulations

c) The Responsibility for Enforcement and Monitoring Improperly Lies with the Parties Affected by Mining Activities

d) Control, Monitoring and Enforcement are Improperly Influenced by Corruption

VIII. Additional Opportunities to Enhance the ASM Sector in Ecuador

A. Reducing Mercury Contamination from ASM

1. Ecuador's Prohibition on the Use of Mercury in Mining Activities

2. Efforts to Reduce Mercury Use in Ecuador

B. Developing Relationships Between ASM and Large-Scale Mining

C. Regulating Alluvial Mining for Construction Materials

IX. Conclusion

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I. Introduction

A. The Prevalence and Problems of Illegal Mining in Latin America

Illegal mining has been described as the "new cocaine" of Latin America in terms of illicit trading, as countries such as Colombia, Peru, Ecuador, Venezuela, and Bolivia are said to be obtaining higher profits from the unauthorized activity than from drug trafficking.⁴ As with the illegal drug trade, illegal mining is associated with violence, other criminal activity and human rights violations.⁵ The ecological consequences are even greater as illegal mining has led to pollution, silting of rivers and destruction of precious rainforest, particularly in the Amazon, the so-called "lungs of the planet."⁶

In addition, illegal mine workers run great risks, from landslides and mine collapse, to poisoning from the mercury and cyanide used to process ore.⁷ Mercury dumped in rivers has entered the food chain in many mine areas, resulting in high concentrations of mercury and associated health impacts in local populations.⁸ Despite the enormous

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dangers, the potential rewards from illicit mining are irresistible, particularly in countries with high rates of poverty, as workers can earn significantly more than they might expect in other trades.⁹ Illegal mining provides one of the few paths out of poverty in rural Latin America.¹⁰

Despite a recent decrease in global gold prices, an increasing trend of illegal gold mining has continued.¹¹ In several Latin American countries, unregulated illegal and informal mines account for over 75 percent of gold produced (see Chart 1 below).¹² Over the last 15 years, factors that have contributed to the increase of illegal mining include: first and foremost, soaring gold prices that greatly increased the profitability of gold mining, and second, reduced profitability of drug trafficking from Latin America to the

United States.¹³ Criminal groups controlling the drug trade were incentivized to move into gold mining, where many were able to exploit artisanal gold mining and generate larger profits with lower risk.¹⁴ Illegal mining is now more important to organized crime in many countries of Latin America than narcotics and is reported to be the easiest and most

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profitable way to launder money in the history of Colombia drug trafficking.¹⁵ International organized crime groups, not only in Colombia and Peru, but also across the world, are known to directly control, invest in, and/or use illegal gold mining for money laundering.¹⁶

Chart 1: Value of Illegal Gold Production.¹⁷

The growth of illegal mining and increased presence of criminal groups in mining areas in Latin America also affects large-scale mining. For example, Mexico's Attorney General's Office reported that mining companies in Mexico are regularly extorted by criminal groups for between USD 11,000 and USD 37,000 per month for the right to...