Duty Free Highway

“I can offer you red Marlboro or L&M at 3 pounds for a single. If you buy more packs I can offer you 2.50. How many do you want?” he asks.  At less than half of the cost of cigarettes in a local convenience store, it’s a good deal. He says the cigarettes come from “Eastern Europe” but they have no tax stamp identifying them. They are identical in look and packaging to cigarettes the project reporters found in the Suceava open air market near the Romanian and Ukrainian border.

Cheap, duty free, cigarettes are illegally sold in most of the European Union countries. The cigarettes are bought from duty free shops at the borders of Romania, Bulgaria, Moldova and, until recently, Montenegro. The same offer can be found in Suceava to European capitals like Paris, Rome or London. The differences in prices keep the business alive. The same pack of Marlboro may cost 1 Euro in Romania, three Euros in France or six Euros in the UK.

“One of the important sources of illegal cigarettes in the Romanian market are the duty free shops” says Iulian Butnaru, a representative of  the Romanian Customs. The Romanian border police also agree that duty free shops are the source for much of the smuggled cigarettes.  

This is an opinion shared by police in Moldova, Bulgaria, Ukraine and other countries. In Bosnia-Herzegovina, police say large amounts of cigarettes are laundered through duty free shops in Montenegro.  In one shop, local police said duty free shops sold more than 500,000 Euros in one month at a border crossing where there was almost no traffic. In January of this year, Montenegro, which is trying to clean up its image as a haven for cigarette smuggling, closed the shops but they could open again.  

„The problem of cigarette smuggling (from Montenegro) was noticeable until 2000, but … then the Montenegro government decided to close the free shops of the borders. That’s when this cigarette trade stopped. Two years ago, when the duty free shops opened again, cigarette smuggling started again,” said Sasa Govedarica, a policeman in the border town on Trebinje.
 
A Romanian Ministry of Finance report obtained by the reporting team also points out to the growing problem of illegally sold duty free cigarettes. Despite all the law enforcement opposition, duty free stores on the land borders are still open and selling.

The failure by politicians to close the shops has not gone unnoticed.  The European Commission released an interim report in February of 2007 on the progress Bulgaria made in implementing justice reforms.  The report concluded that Bulgaria has not made convincing progress.  The report notes that duty free shops were “tolerated” despite evidence they were seeing substantial turnover. The report called them focal points for organized crime and local corruption.

Across the Balkans, the story of the duty free shops on land borders is a story that connects politics to big money and to very controversial businessmen and organized crime figures.
 
A Hard Business to Close

On December 18, 2006, just days before Bulgaria joined the European Union, the Bulgarian Parliament decided that all duty free shops at land borders must be closed down after entering the European Union. Authorities in Romania took the same step after the Ministry of Justice pointed out to the growing cigarettes smuggling generated by these stores. As a consequence, duty free stores on land borders were shut down right in Romania and Bulgaria.

Intensive lobbying and pressure from the operators of the duty free businesses reversed the situation just a few months later despite opposition from law enforcement.

In Romania, the decision was made during a few weeks when the Romanian president, Traian Basescu, was suspended in the spring of 2007. The debate for keeping or dismantling the duty free businesses brought arguments from both sides. According to a Ministry of Finance document, the duty free operators claimed that closing shops would cost 2,500 their jobs. The same document mentions that the Romanian state budget earns one million Euros in taxes from these shops. On the other hand, the Ministry of Finance document considers the benefits of shutting down the businesses: “it would limit the tax evasion and would reduce organized criminality and corruption”.

Attempts to halt the duty free business in Bulgaria failed, too. The first such attempt was made in the end of the nineties, when the right wing government of Ivan Kostov was in power. In 2003, then finance minister Milen Velchev, tried the same move without any success. Even the International Monetary Fund put pressure on Bulgaria for many years trying, in vain, to stop the business.

The Romania and Bulgaria government’s decisions to allow the continuation of the duty free businesses may speak more to the political power of their owners.

Bulgarian owners

The Bulgarian duty free operators managed to re-open their stores after successfully lobbying of the government by the Association of the Enterprises for Duty Free and Travel Retail Trade. The organization, which was registered in 1998 in Sofia, includes a 5 member management board, each of them being a representative of a company that is licensed for duty free trade.

The Association is registered at the same address in Sofia as the duty free company Transimpex which is tied to Vassil Bozhkov, one of Bulgaria’s richest and most poweful businessman.

According to the data of trade register, the president of the Association is Radostin Genov, a former manager of Transimpex between 1997-1998. Another manager is Orlin Hadjijankov, a business partner and manager in more than 10 companies, all controlled by Bozhkov.

Assen Assenov, another member of ruling body of the Association, is a representative of Corecom-Prinzess. This company controls hotels and casinos in Bulgaria and is part of the gambling empire of Turkish businessman Sudi Ozkan. Ozkan has business interests in Romania, too. Members of his family operate exchange houses and he was also a sponsor of the DINAMO sport club, a club that once belonged to the Ministry of Internal affairs in Romania. Ozkan was investigated in Turkey for money laundering and, according to law enforcement reports, moved his assets to Bulgaria, Romania and the Caribbean region.

One other manager is Veselin Balevsky, the owner of B.N.K. Ltd. In 2000 the company was investigated by the National Service for Fight against Organized Crime for cigarette smuggling although no charges were filed. Balevsky was an advisor to the former Prime Minister Ivan Kostov who served from 1997 and 2001. In 1992, Kostov, then a Finance Minister, awarded B.N.K. Ltd a license for trading in cigarettes in the duty free zone of Kalotina on the border between Bulgaria and Serbia.

The Romanian Traders
 
The Romanian traders are also well connected and influential.

GFS Investment Romania is a duty free company founded in 2006 according to data from the Romanian National Companies’ Register. It is owned by the C.F.S. Trading (Overseas) Limited an off-shore company based in Limassol, Cyprus. The company has 20 working points at the frontier, in free zones across Romania, and different addresses in Constanta, Dolj, Bihor, Caras – Severin, Timis, Arad, Mehedinti, Vaslui and Iasi counties, and in Bucharest as well. GFS was founded by Razvan Petrovici, Virgil Magureanu’s godson – Magureanu is a former head of the Romanian Intelligence Service.

Euroavipo & Euro Trade Invest is a chain of duty free shops owned by brothers Serban and Emanuel Dobronauteanu, and Catalin Bucura and George Ivanescu. George Ivanescu is a business partner of the Social Democratic Party senator Ion Vasile.  The four also control companies trading in alcohol, wine, mineral water and were investigated in a major scandal that involved tax evasion and fraud using offshore accounts.   

Heinrig Impex & Andradi Com are connected to Catalin Lascut, son of Pavel Lascut, who is the former chief deputy of the National Customs Authority Surveillance and Control Department. Andradi Com is owned by the Spanish company Tabacmesa which has duty free shops and warehouses in Spain, Czech Republic, Slovakia, Belgium, and Romania. Tabacmesa was founded in 1987 in Madrid and since July 2007 is a subsidiary of Uniprex a company which owns TV and Radio stations, and deals with tourism as well.

Transeuro is owned by Lucian Orban and Virgil Visenescu. The company is
the main shareholder of other companies involved in various activities, including film. Lucian Orban owns the SDV Company together with Teodor Cristodor who was involved in Omer Radovancovici network as well. On the other hand, Orban owns the Turnuri Company along with father of Iulian Teseleanu, chief of the Customs Bureau in Constanta Sud – Agigea Black Sea harbour.

Andrei Panaitescu is one of the shareholders of the duty free company Distribution General Value, and the former son in law of the chief prosecutor of the Iasi County, Dan Badarau. Panaitescu was in 2002 a shareholder of Agrostar 2000 together the Social Democratic Party deputy Adrian Ionel, and a business partner of the businessman Dorin Cocos, Elena Udrea’s husband. Dorin Cocos was very close connected to the former Romanian premier Adrian Nastase, while Elena Udrea is the executive secretary of the Democratic Party and was a personal advisor of the Romanian president Traian Basescu.