By Ahmed ElShamy, Marko Vesovic, Greek reporters, Visar Prebreza, Naima Chougui, Lawrence Marzouk and Ivan Angelovski
For four years, officials in Cairo, London and Brussels rang alarm bells over the production of billions of cigarettes bearing the name of Egypt’s most popular brand at a state-run factory in Montenegro and, they believed, smuggled across North Africa from lawless Libya. Montenegro, despite negotiating to join the European Union, ignored them.
Egypt’s No. 1 brand of cigarette, Cleopatra, was born in 1961 when Egyptian ruler Gamal Abdel Nasser asked for a local version of the smuggled American Kent brand he liked to smoke.
Created by the century-old Eastern Company S.A.E., Cleopatra is now one of the most widely smoked cigarettes in North Africa and one of the top sellers globally.
So it is perhaps ironic, given its copycat roots, that the brand should be undercut by a state-owned factory across the Mediterranean in Montenegro, a former Yugoslav republic negotiating to join the European Union.
But that is precisely what authorities in Egypt, Britain and the European Union flagged for four years, according to confidential correspondence obtained by reporters from Balkan Investigative Reporting Network, BIRN, and Arab Reporters for Investigative Journalism, ARIJ.
And Montenegro ignored them.
The warnings, BIRN/ARIJ can reveal, went to the highest echelons of the Montenegrin government, raising questions over the country’s claim to have turned a page on the 1990s, when cigarette smuggling was effectively a government-sponsored means of financial survival amid the war and sanctions of Yugoslavia’s bloody collapse.
It also speaks to the scale of the task to ready Montenegro, an Adriatic country of 620,000 people, for accession to the EU after almost three decades of rule of by the same party and, effectively, the same man – President Milo Djukanovic.
According to the findings of the BIRN/ARIJ investigation, Cairo, London and the EU’s anti-fraud office, OLAF, considered the flood of cigarettes coming out of Duvanski Kombinat Podgorica, DKP, “counterfeit”, suspecting they were being channelled to Libyan smugglers who distributed them illegally across North Africa.
Egypt asked repeatedly through diplomatic channels for Montenegro to shut the operation down.
Production did stop, finally, in 2016, but only after the factory was privatised and came under new ownership. But the offshore firm that contracted the factory to produce the cigarettes has not given up, according to the BIRN/ARIJ investigation; it has explored setting up production in Kosovo and has invested 1 million euros in a new operation in Montenegro.
This story reveals the unusual cast of mostly Greek characters behind the “counterfeiting” operation, including a man who has hosted Djukanovic at his Athens restaurant on more than one occasion.
Production lists seen by reporters show that besides Cleopatra, the factory also produced smaller quantities of Tunisian Mars 20, Algerian Rym and Libyan Riyadi.
“We all know how strict EU rules are on smuggling,” Sami Ben Jannet, managing director of the RNTA factory in Tunisia which produces the Mars 20 brand, told BIRN/ARIJ. “That’s why when we found out the factory belonged to a government we were shocked.”
From port of Bar to lawless Libya
DKP denies any wrongdoing. It says it was contracted by an offshore company called Liberty FZE, which it said showed the factory a trademark registration to produce the cigarettes.
According to contracts obtained by BIRN/ARIJ, DKP was expected to produce 400 million packs, or about eight billion individual cigarettes, between 2010 and 2016, though the actual number that left the factory is not known.
A DKP official, who spoke on condition of anonymity, said that the North African brands mentioned on the production lists were all made on behalf of Liberty FZE, a fact later confirmed by DKP as part of an investigation into the tobacco trade that concluded in November.
In court proceedings in Greece concerning two seized shipments of Cleopatra, Liberty FZE has insisted its exports of Cleopatra were entirely legal.
But this is disputed by the owner of the brand in Egypt – Eastern Company S.A.E. – as well as by British and EU authorities, according to emails submitted to the Greek courts and others leaked to BIRN/ARIJ.
Eastern Company S.A.E. told BIRN/ARIJ: “Our company has not issued any licence, authorisation or declaration to the Emirates LIBERTY FZE Company.”
The Egyptian company, according to a report seen by BIRN/ARIJ, estimated that the proportion of smuggled cigarettes on the Egyptian market had rocketed from less than one per cent in 2010 to 20 per cent in 2012, and that, as a result, the Egyptian state had lost in excess of 100 million euros in uncollected taxes.
Egypt, according to correspondence seen by BIRN/ARIJ, took its concerns to Montenegro’s then ambassador to Cairo, Gojko Celebic, as well as directly to the Montenegrin foreign ministry and to a foreign policy adviser to the then Montenegrin president, Filip Vujanovic, an ally of Djukanovic. It complained “over and over”, according to a note sent from Egypt’s foreign ministry to Eastern Company in January 2016.
Outlining a meeting between Egypt’s ambassador to Prague and Celebic, the note cited Celebic as saying that he had received Egyptian protest letters since 2012 but that he had been unable to secure any “official explanation” from his superiors as to why production had not been stopped.
Celebic was quoted as citing the “complexity and sensitivity related to the issue,” including the fact DKP was in the process of being privatised and that “there is a possibility that some officials in Montenegro have stakes in the tobacco company in Montenegro.”
Celebic said he would ask Montenegro’s foreign minister to raise the issue again with the minister of agriculture, who was ultimately responsible for the factory.
Nothing ever came of it.
Ben Jannet said that RNTA had not issued a licence for the production of Mars 20 cigarettes in Montenegro, and, though he was well aware there were counterfeit cigarettes on the market, Jannet was startled to learn from reporters about the operation at a state-run factory in an EU candidate state.
He also noted the link between cigarette smuggling and funding for terrorism.
“Terrorism needs cash,” he said, “and one of the biggest sources is the smuggling business.”
Crucial to the operation was the power vacuum in Libya, which has become a smuggler’s paradise since a 2011 war ended the 41-year rule of Muammar Gaddafi but left the country divided between rival administrations, tribes and militias.
While weapons, migrants and refugees have flowed from its ports, the Montenegrin-made cigarettes went the other way, arriving by boat to Libyan firms in Benghazi, Tobruk and Misrata. Eastern Company and RNTA believe they were then smuggled over dangerous desert borders into Egypt, Tunisia and beyond.
In 2012 and 2015, Greek coastguard patrols seized two shipments on their way from the Montenegrin port of Bar to Libya.
Sailors on the boats – the Noah and the Genc 3 – were charged in Greece with smuggling, and the 2015 cargo was destroyed under EU trademark protection rules after Greek customs accepted Eastern Company’s argument that the cigarettes were counterfeit. But in both cases the defendants were cleared as it could not be proven that the cigarettes were destined for the black market in Greece, the alleged offence.
French customs emailed their Egyptian counterparts describing the cigarettes seized on board the Genc 3 as “fake Cleopatra”.
And in an email to the Greek coastguard, an OLAF official wrote: “I can inform you that Cleopatra cigarettes are probably destined for the contraband market in North Africa, especially Egypt.”
BIRN/ARIJ have found no evidence that Liberty FZE, DKP or the Libyan importers – including El Liboo of Tobruk, Al Manaraa of Benghazi , Al Watania of Benghazi – have been accused of any crime.
A third boat, Skylark, was identified in an October 2015 letter from HMRC to Egyptian customs as carrying goods “believed to be counterfeit product manufactured without the authority or permission of the legal trademark holder”.
“The cigarettes should be considered high risk for diversion to the illicit markets in Egypt and Europe,” it wrote.
OLAF told BIRN/ARIJ that the Genc 3 was one of eight unnamed ships mentioned in a 2018 report as carrying cigarettes from Montenegro which were believed destined to be smuggled.
BIRN/ARIJ has learnt that in 2017 OLAF launched an investigation related to the movement of ‘cheap white’ cigarettes through Montenegro. The investigation is ongoing and no further details were available. BIRN/ARIJ understands that OLAF has, as part of a separate investigation, also looked at the activities of suspicious offshore firms in the free economic zone in the port of Bar. OLAF said it had received good cooperation from the Montenegrin authorities following the 2017 investigation.
‘More Catholic than the Pope’
The cigarettes produced in DKP would have been virtually indistinguishable from the originals produced by Eastern Company in Cairo. The label bears the words ‘Made in Egypt’, as well as Egyptian health warnings and a claim to be produced by “Eastern Company”.
Photos from inside the DKP factory show that the Rym cigarettes bore labels that claimed they were made by the Algerian firm associated with the brand, SNTA.
BIRN/ARIJ reporters were unable, however, to obtain comment from the firms producing SNTA or Riyadi in Libya.
In confidential 2015 correspondence, seen by BIRN/ARIJ, HMRC described an unnamed factory in Montenegro as producing “100 million counterfeit Cleopatra cigarettes every month”. It later specified DKP as the source of cigarettes “believed to be counterfeit.
Slavoljub Vukasinovic, the former executive director of DKP, denied the factory did anything wrong, saying Liberty FZE had presented a trademark for the brand from “another country”
“I really do not know from what country,” he told BIRN/ARIJ in an interview. “They had a registration of that brand, they brought those papers, and based on those papers we produced that brand.”
Liberty FZE later registered the trademark for Cleopatra, Rym and Mars in Montenegro in 2015, three years after production started.
But Stanford Law Professor Mark Lemley, an expert in intellectual property, said that made little difference if the cigarettes were due to be sold in North Africa, where Eastern Company, for example, has registered trademarks in Libya and Egypt.
“Because trademark rights are territorial, the normal rule is that the first person to register and use the mark in a particular country gets the rights in that country,” he said. “So while Cleopatra marks can coexist in different countries, a registration in Montenegro would not give the registrant the rights to sell anywhere except Montenegro.”
“If Eastern owns the rights in Libya, importing the cigarettes from Montenegro would be infringement.”
Trademark infringements are usually regulated at the point of import, Lemley noted, but given the conflict in Libya the country was unlikely to paying much attention to intellectual property rights. If the Montenegrin government, however, “produced the cigarettes and knew the cigarettes were being exported for illegal use abroad they could be liable for trademark infringement,” he said.
The former head of human resources at DKP, Nebojsa Stankovic, said the factory had never been asked to halt production, and in November a report by Montenegro’s special prosecution, which had been asked to look into DKP’s cigarette production by the opposition political movement Alternativa, concluded there was no evidence of irregularities as each export had been properly documented.
“Unfortunately, someone expects us to be more Catholic than the Pope and that we should be on the look-out for something,” Stankovic told BIRN/ARIJ, meaning whether Liberty FZE really had a licence or not.
Had it been asked, “I guarantee you that production in Podgorica would be immediately suspended,” he said. “But four years passed, and no one reacted.”
But in fact, besides the Egyptian diplomatic pleas, pressure was also coming from HMRC.
Emails leaked to BIRN/ARIJ show that both were carefully monitoring the movement of counterfeit Cleopatras, with Britain one of the biggest markets in Europe for counterfeit and contraband cigarettes.
In a letter to Egyptian customs in May 2015, HMRC said it was determined “to eradicate the counterfeit production of Cleopatra brand cigarettes with the help of The Eastern Company, the legitimate licence holder for the brand.”
The Greek connection
On paper, Liberty FZE is based in the small emirate of Ras Al Khaimah. Little, to date, was known about who ran it, but the 2016 Montenegrin parliamentary committee provided a clue when it repeatedly referred to the firm as “Greek”.
Through official documents, interviews with factory workers and business associates and detailed analysis of social media profiles, BIRN/ARIJ reporters have confirmed the Hellenic connection, and the identity of those behind the operation.
While the business registry in Ras al Khaimah does not provide information on company ownership, through a Freedom of Information request BIRN/ARIJ got hold of documents filed with Montenegro’s business registry for the opening of a subsidiary of Liberty FZE.
They name the firm’s owner as Konstantinos Fyrogenis, a Greek from Athens who until recently, according to his Facebook profile, live in the Romanian town of Brasov.
Based on company records, Fyrogenis owns a small stake in Explosal Ltd,
a cigarette factory located in a Cypriot free trade zone and which
legally produces the Raquel brand, a common product on Europe’s black
market. Marlboro is
currently fighting it in the EU for allegedly aping its distinctive design..
Despite being formally registered in Ras Al Khaimah, Liberty FZE appears in one online listing with an address in Romania: Str.Valea Parcului 42B, 077135 IIfov.
Another tobacco company connected to Fyrogenis was listed at the same address – Italia Tobacco Production SRL.
According to Romanian company records, Fyrogenis was director of the firm between May and Decemberof 2009. Italia Tobacco Production was linked to a 2011 bribery case involving a Romanian tax official and a lawyer, although the firm was not found to have committed an offence and Fyrogenis was not accused of committing a crime.
In the 1980s, Fyrogenis studied in the western Romanian city of Timisoara. So too did another Greek called Ioannis Zinas.
‘Yes, Ioannis. He is the president’
Fyrogenis and Zinas have joint business interests in the
cafe/restaurant and marketing sectors in Greece through two companies – C&C and Cinnamon Communications.
But Zinas’s main business appears to be tobacco, based on his history, social media postings and interviews Multiple sources say Zinas is the unofficial ‘president’ of Liberty FZE.
“When he needed to sign something, he would literally avoid it, he did not want to sign anything,” a former senior official at DKP told BIRN/ARIJ of Zinas. Speaking on condition of anonymity, the former official said Zinas was “certainly” at the helm of Liberty FZE. [Transkript_novo EN Signal-Audio-2018].
Stankovic, the HR manager at DKP, told BIRN/ARIJ: “Yes, Ioannis, Ioannis. He is the president of Liberty”.
The factory’s former executive director, Vukasinovic, described Zinas as a “mediator in the whole story” between Liberty FZE and DKP. “I really don’t know who stands behind [Liberty],” he said in an interview.
Intriguingly, in December 2017, an obituary was taken out in the Montenegrin daily newspaper Pobjeda to mark the death of a businessman called Jovan Jovetic. It was signed, with a possible typo, ‘Zinas Loanis Liberty FZE UAE’.
A former export manager at one of Greece’s main tobacco firms, privately-owned SEKAP, Zinas was convicted in 2015 of cigarette smuggling in one court, only to be acquitted in another Greek court looking at the same allegations, but which had been led by a different police force.
Independently of the criminal case, in 2016, SEKAP, Zinas and three other individuals were fined a total of 28.1 million euros for lost tax revenues, according to documents filed by Greek customs to parliament. The fine is currently being appealed.
Zinas said he stood down from SEKAP in 2010. In November 2010, Liberty FZE signed its first contract with Montenegro’s DKP.
Social media profiles show that Zinas and his family were frequent visitors to Montenegro, enjoying a jet-set lifestyle with powerful friends.
One photo, posted to Zinas’s Facebook profile in September 2015 , shows him with Djukanovic, then Montenegro’s prime minister, and hotel owner Dragan Perovic.
Zinas, Fyrogenis and Perovic failed to respond to requests for comment. Djukanovic has always denied involvement in cigarette smuggling in the 1990s and has never been charged with any crime.
In a statement to BIRN/ARIJ, a spokeswoman for Djukanovic said the president knew Zinas and had dined in his restaurant in Athens, but denied any knowledge of his business activities or the allegations contained in this article.
“President Djukanovic, in his capacity as prime minister, never had any contact with this topic during the period you are looking into,” the spokeswoman said.
“… he never received any warning of any illegal activity anywhere in Montenegro. If he did, he would react by asking the authorities to investigate.”
With regards Zinas, the spokeswoman said Djukanovic “knows the aforementioned gentleman.”
“The president was sometimes a guest in his restaurant in Athens when he owned it. The president has no knowledge of what he was doing in Montenegro, nor whether it was legal or not. That is beyond the scope of the work of prime minister.”
DKP’s production of Cleopatra and other brands eventually halted in 2016, when the factory was sold by the state to BMJ Industries, a firm based in the United Arab Emirates.
Profit margins for the illegal tobacco trade can reach 900 per cent, an EU-backed event was told recently, making the smuggling of Cleopatra a lucrative business. But the benefits for the Montenegrin state of producing the “counterfeits” were less obvious.
According to the publicly-available reports of a parliamentary committee that looked into its 2016 privatisation, DKP was officially operating at a loss of 70,000 euros a month, meaning the state was effectively subsidising Liberty FZE’s production.
Opposition MP Aleksandar Damjanovic, the reports show, told the committee he had been informed by DKP that the production of 3,000 tonnes of cigarettes, as per the contract with Liberty FZE, would generate profits of 1.8 million euros, meaning workers could be paid properly.
Despite the fact DKP surpassed its targets, he said, it still made a loss on paper and did not keep up with salary payments.
The privatisation of DKP snuffed out Liberty FZE’s lucrative Podgorica operation, but that did not spell the end of the Cleopatra operation.
In March 2016, the company applied to trademark Cleopatra in Kosovo.
Zinas and two former DKP workers were photographed in a café in the eastern Kosovo town of Gjilan/Gnjilane in pictures posted on one of the worker’s Facebook profiles in April 2016. Around the same time, the workers uploaded photos of themselves in a cigarette factory in the town.
Gazmend Abrashi, political adviser to the Kosovo prime minister, Ramush Haradinaj, and president of Exclusive Group, which owns the Gjilan/Gnjilane factory, told BIRN that nothing came of the visit as he hoped to develop his own brands.
“We heard that Liberty FZE was trying to register the Cleopatra brand in Kosovo, but I do not know this progressed,” he told BIRN. “I remember that we met these people two to three years ago but I do not remember their names.”
Then, in June 2017, Liberty FZE opened a branch in the Montenegrin Free Zone of Bar. Slavoljub Vukasinovic, the former DKP executive director, was named as director.
Vukasinovic told BIRN/ARIJ that Liberty FZE had invested “about a million euros” in cigarette-making machinery and renovating a warehouse in the port’s free zone, but that the plan was on hold as Liberty FZE had yet to secure a permit.
“The plan is on hold,” he said, but the warehouse “is still under lease.”
Additional reporting from Dusica Tomovic, Jelena Cosic, Lindita Cela and Milena Perovic Korac.