The Eastern Cigarettes Underground

This dialogue recurred dozens of times on the illegal cigarette route along the Romanian-Ukrainian border. A team of undercover reporters from the Romanian Center for Investigative Journalism (www.crji.org) together with Ukrainian colleagues tracked down smuggling routes through the European Union’s Eastern borders.

Romanian and Ukrainian smugglers offered the investigative team duty-free cigarettes, illegally manufactured cigarettes, fake brands such as LML (an imitation of L&M) as well as legally produced Ukrainian cigarettes that illegally entered Romania through border check points or the so-called “green zone,” the mountainous areas between them 

Officials from both countries complain about the growing level of cigarette smuggling but little is done to stop it. Huge quantities of legally produced Ukrainian cigarettes find their way into Romanian and other EU illegal markets. There is evidence that Ukrainian politicians are involved in the illegal tobacco trade along the borders. At the same time, overwhelmed law enforcement authorities can only rely on tips before attempting seizures of smuggled cigarettes, and even these operations target just a fraction of the trade: duty-free land border shops allowing small-scale, “legal” smuggling are the main sources of contraband.

The Smugglers’ Bazaar

The investigative team’s journey began in Suceava, a town in northeast Romania not far from the Ukrainian border. The Suceava bazaar is a main hub for the distribution of Ukrainian goods onto the Romanian market. Trucks and vans collect all sorts of merchandise, food and spirits for transport. Ukrainian goods are considerably cheaper than their Romanian versions, so sellers can easily find customers. The bulk of the trade is in cigarettes. Ukrainian-made cigarettes are found in the Suceava bazaar at prices well below the Romanian official market price. A pack of Marlboro, for example, can be bought for €1  while the pack’s price in a Romanian shops is at least 50 percent higher.

In fact, cigarette prices in Romania for brand names like Marlboro, Kent or Winston are three times higher than the legal Ukrainian price. In the case of cheaper cigarettes such as St. George or Ronson, both popular among smugglers, the price is five times as high.

The illegal cigarettes trade starts in the Suceava bazaar at about 4 am in the morning, when smugglers display their merchandise on the ground.  Prices listed according to brand name serve as a base for bargaining.  The smugglers don’t want to sell individual packs. They’re more interested in selling larger wholesale amounts in the hope of unloading their merchandise before sunrise, when they can be easily spotted by the officials who might raid the bazaar.

The Romanian Border Police acknowledge that the cigarettes reach the Suceava bazaar after being smuggled in from Ukraine.  Smugglers, who are legally allowed to bring in two cartons per day, make up to four trips across the border daily. Locals from Siret, a Romanian village just across the Ukrainian border, are hired as mules for these runs. Once a full box is collected, it’s brought to the Suceava market for vendors to sell. From here the cigarettes are distributed throughout Romania.

While cross-border cigarette trafficking might seem like a small business, the bazaar in Suceava is always full of smuggled cigarettes and supplies large quantities to other markets in Bucharest. The investigative team was offered bulk sales of More, Saint George, Ronson, Pall Mall, L&M, Marlboro and other brands. The cigarettes offered all bore Ukrainian excise stamps or duty-free labels. 

Police officials say that smugglers are given fines, but that they can afford paying these on the spot and simply continue smuggling. It’s a highly lucrative business and fines are hardly a deterrent from smuggling, one customs worker told the investigative team.

Authorities in Romania last year took more drastic efforts to fight illegal border trafficking.  The Ministry of Foreign Affairs and law enforcement worked together to identify Ukrainian citizens who crossed the border with cigarettes regularly.  Those that did had their Romanian visas cancelled.

Ukrainian citizens who live in the borderland area with Romania are able to obtain a multiple-entry visa for $20 a year. There is a similar agreement with Hungary.
According to a Romanian Border Police response to a freedom of information request, over 100 Ukrainian citizens had their Romanian visas cancelled in 2008.

The measure is controversial, and according to sources in the Romanian Ministry of Foreign Affairs, is already being challenged in Romanian Courts. Romanian citizens, on the other hand, have carried on their smuggling without concern for their Ukrainian visas. The visa regime is even more lax after the 1^st of January 2008, when Ukraine lifted the visa requirements for Romanian citizens.

Across the Border

Despite the optimistic Ukrainian customs reports on their successful battle with smuggling, cigarette producers claim that out of 120 billion cigarettes annually produced or legally imported into Ukraine, 20 billion disappear unaccountably.  According to the State Customs Service, during the first 9.5 months of this year, only 78.5 million cigarettes were confiscated at the border.  Far more are likely flooding markets in Romania, Hungary and other EU countries.

On Ukrainian territory, the situation is only slightly different from that across the Tisa River.

Reporters visited the Ukrainian village of Dibrova, between Solotvino and Tyachiv, and asked local residents where they could buy “a large quantity of cigarettes cheaply, and also cigarettes without stamps.” The reporters were directed to a house on one of the central streets, where the family “a lu Pavel” lives.

Entering through open doors, reporters met a burly man in his fifties standing next to a cargo van. When the reporters asked where they could buy cigarettes for illegal importation into Romania, he called for a woman named Ana.

Inside the family’s warehouse, next to boxes of instant coffee, were a huge quantity of cigarettes stored in boxes and separate cartons. After being told that the cigarettes would be smuggled to Romania she relaxed. This is where they have been supplying their goods for the last four years.”

She offered the reporters any amount of cigarettes they needed. All she asked for was advance notice of the quantity.

“If you need cigarettes without stamps – fake Marlboro – we can deliver any quantity within an hour,” said Ana, adding that this area of business was her son’s responsibility.

“But they are of very bad quality,” she warned. “Recently our clients have had big problems selling them.”

Among the brands Ana had at her warehouse were the exotic Jin Ling, whose design looks like Camel’s, but with a goat on the pack instead of camel. They are manufactured in Lviv by the Baltic Tobacco Company from Kaliningrad, Russia. Another brand LML – an L&M knock-off–  is manufactured in Donetsk by Hamadey Ukraine. Both brands cost UAH 16 per carton or €2.5  or half the price of the well-known brands they resemble.

Ana’s neighbor Mihai also sells cigarettes. He has a legal kiosk on the Solotvino- Tyachiv highway. But he immediately agreed to sell fake Marlboro at 50 cents per pack. Locals said the “workshop making fake Marlboro” is located near Dibrova.

The Wholesalers

Dmytro Redko, director of corporate affairs of JTI, which produces cigarette brands such as Camel, Winston and More, is no stranger to the issues of contraband. Among the numerous brands his company produces are the St. George and Ronson labels, both favorites among smugglers.

Redko notes that after JTI bought Gallaher, the company that originally produced the brands, they decided to quarter their production, reasoning that fewer cigarettes would lead to less smuggling. He explains that this was probably the only way out of the crisis. And the company went on with it, despite significant losses.

“No matter where the contraband is found, everyone points their finger at the producer,” Redko said.  It significantly hurts the company’s image, he said.
At the same time, Redko says that JTI initiated a program of monitoring wholesalers, their ownership structure and the way they operate. They also have a security department which monitors unusually large orders, especially in the western region of Ukraine. He says such purchases automatically raise suspicion of being connected to contraband.

Yet during the visit to the Berehi-based “West” trade house less than 1 km from the Hungarian border in Transcarpathia, smuggling was still present. Despite making it clear to employees that undercover reporters needed 50 to 100 boxes of Marlboro and Kent to smuggle into Romania, they were given a price list with almost every known brand of cigarettes. We were also told that to deliver such quantity they would need approximately one week notice.

The company did, however, have one condition.  The reporters would need to have a  personal conversation with their director Volodymyr Bortnichuk, who was absent at the moment.

According to Ukraine’s Central Election Commission, Bortnichuk is connected to Yulia Tymoshenko, one of Ukraine’s most influential politicians.

The reporters encountered the same response at the Chernivtsi office of the Ternopil-based company “Podillya – Tiutiun”. Everything was dependent on a personal conversation with the director.

“He has to see what kind of people you are,” a company’s employee explained.
Yuriy Pikulsky, head of the alcohol and tobacco licensing and control department of the State Tax Administration, sees no violations of the license conditions of these wholesalers.

He explains that fighting contraband and preventing suspicious deals is not required from wholesalers by the licensing terms. Currently, 99 companies in Ukraine have such licenses, paying $100,000 a year for the privilege.

He doesn’t think that imposing limits on how much alcohol or tobacco a wholesaler can sell at a time makes any sense.

“The State Committee on Entrepreneurial Matters will immediately accuse us of violating the rights of entrepreneurs,” Pikulsky said.