Synonymous with cigarette smuggling in the 1990s, Montenegro is again the hub of a global tobacco smuggling scam funnelling millions of copycat cigarettes into the EU through the use of ‘ghost’ ships, shell companies and fake paperwork.
By Visar Prebreza, Marko Vesovic, Vladimir Otasevic, Naima Chougui, Lawrence Marzouk, Ivan Angelovski, Jelena Cosic and Ahmed ElShamy
In the early hours of March 16, 2015, a fishing boat named the Zahra moored metres off a rocky, remote stretch of Messara Bay, on the southern coast of the Greek island of Crete.
The Zahra sailed under the flag of the African island nation of Sao Tome and Principe. Its crew was Ukrainian and its cargo – 34 million cigarettes – had likely been produced in Bosnia and Greece for companies based in Kosovo before being sold to a Liberian offshore firm based in the Montenegrin port of Bar.
The cargo’s final destination was, on paper, Libya, but waiting on the shore of Crete was a convoy of trucks ready to receive the cigarettes via conveyor belt, before fanning out across the European Union.
It was smuggling operation with links across the globe.
Using shipping notes, leaked emails and law enforcement reports, the Balkan Investigative Reporting Network, BIRN, has uncovered that up to 840 million so-called ‘cheap white’ cigarettes have been exported from Montenegro by a clutch of mostly offshore firms using similar routes and often the same ‘ghost’ fishing boats or small cargo ships, sailing the Mediterranean without transmitting their positions. Most shipments listed Libya as their final destination, but Egypt, North Cyprus and Lebanon also featured.
Cheap white cigarettes are produced legally in one country, but frequently end up being smuggled and sold elsewhere.
BIRN, working with the Arab Reporters for Investigative Journalism, ARIJ, has identified at least 17, possibly as many as 20, questionable shipments from Bar since 2014. The EU’s anti-fraud office, OLAF, which has been investigating the trade, found that seven had been “seized for smuggling” and a further three raised red flags. The remaining seven to ten share many of the same characteristics as those being investigated by law enforcement.
Less than half of the “cheap white” cigarette cargo leaving Montenegro was seized. The rest, if successfully smuggled into the EU, would have brought profits of roughly 52 million euros for those selling the goods on the black market – and a loss of up to 153 million euros to EU taxpayers, based on the UK’s current excise for cigarettes, where duty is highest.
In the EU’s most recent report, from April 2018, on Montenegro’s progress towards meeting the criteria set for its eventual accession, the bloc’s executive arm, the European Commission, described the port of Bar as “a platform for smuggling counterfeit cigarettes into the EU together with legally produced and illegally traded cigarettes”.
Scrutiny from the EU appears to have slowed the flow of ‘cheap whites’ and OLAF insists it has since received good cooperation from the authorities in Podgorica, but the offshore firms behind the scheme do not appear to have faced any sanction.
Fresh fears have now been raised about the opening of a new free trade zone in Montenegro for a new cigarette factory producing “cheap whites”.
This has renewed doubts over the willingness of Montenegro’s leadership – largely unchanged at the top for some 30 years – to root out the organised crime and cigarette smuggling that flourished during the collapse of socialist Yugoslavia in the 1990s and has now infiltrated the port of Bar.
The inaction may have consequences for Montenegro’s 620,000 people by complicating the country’s path to EU membership.
Montenegro’s customs administration told BIRN it was making progress in the fight against cigarette smuggling.
To date, dozens of sailors have been thrown in jail, or are facing prison sentences, for their part in smuggling cigarettes into the EU from ships travelling between Montenegro and Libya.
But four firms linked to the mass export of cheap whites from Bar – New Eastern Management, Kosova Tobacco, Range Enterprises and Velex Europe Corporation – as well as intermediaries, factories, customs officials and others in the wider logistical operation have not been accused of any offence nor faced any sanctions.
Officials from OLAF argue offshore cover makes it difficult to identify the people behind them, but reporters from BIRN and ARIJ have uncovered important leads for three out of the four.
New Eastern Management Inc, a Liberian company whose ownership is blanketed in secrecy, even for offshore standards, is one such firm. It was behind the Zahra shipment seized by Greek coastguard in March 2015.
It is headquartered at a non-existent address – 80 Broad Street – in Liberia’s capital, Monrovia. The address is home to tens of thousands of other offshore firms, all legally administered by a privately run registry based in the US state of Virginia, which itself is managed by an offshore company.
The Liberian registry told BIRN/ARIJ that it could not provide details of the owners or directors.
But while the ownership of New Eastern Management may be nebulous, its actual home is much more down to earth, according to numerous public records: a rusty warehouse, No. 25, in the Free Zone Port of Bar.
From there, the Zahra picked up its cargo of 34 million ‘cheap white’ cigarettes in February 2015 including ‘Royal Blue’, likely produced in the then state-controlled Tobacco Factory Sarajevo, FDS, in the Bosnian capital. GR-branded cigarettes found on board the seized vessel are made by the SEKAP plant in northern Greece, at the time controlled by Greek-Russian billionaire businessman Ivan Savvidis, who was described in a recent New York Times article as “the Kremlin’s man in Greece.”
Neither firm would confirm or deny whether these specific packets had been made in their respective factories – counterfeits of “cheap whites” are not uncommon – but court documents and interviews with intermediaries and producers show that their products have been exported by New Eastern Management to Libya in recent years.
The cigarettes on board the Zahra were destined, on paper, for Libya but the cigarettes never arrived, or at least were never offloaded in Libya.
Instead, the Greek coastguard caught the ship’s six Ukrainian sailors offloading boxes of cigarettes along specially designed conveyor belts, powered by generators, onto four waiting trucks.
EU and Greek authorities believe that, had they not been intercepted, the cigarettes would have wound up on the black market, likely in duty-heavy countries such as the UK or Ireland, evading six million euros in taxes and netting the smugglers an estimated 3.4 million euros in profits.
The six Ukrainians sailors were each sentenced to eight years in prison in June 2016 based on reports in the local press.
BIRN and ARIJ have discovered that this was not the first time the Zahra had left Montenegro laden with ‘cheap whites’, and not the last time New Eastern Management Inc would be caught allegedly smuggling cigarettes from the port of Bar.
A lick of paint
Shipping documents obtained under Freedom of Information requests from Montenegrin customs show that the Zahra had already made two identical voyages for New Eastern Management in 2014 and January 2015, apparently undetected, carrying at least 72.8 million cigarettes from Montenegro to, purportedly, the Libyan company Umal Behar Shipping.
The Kosovo firm with which New Eastern Management cooperates – Kosova Tobacco – made two earlier deliveries from 2014 when the ship was under its previous name of Ar Raqqah, carrying 40 million cigarettes to the same Libyan firm.
While Ar Raqqah and Zahra have never been formally linked, BIRN/ARIJ have determined that the ships are one and the same, according to an analysis of damage to the vessel as well as the positioning of signs and lettering [insert picture of analysis here].
Based on photos posted to ship-spotting websites, it is likely that the Ar Raqqah was renamed and repainted cobalt blue in Montenegro’s Bay of Kotor after the two Kosova Tobacco deliveries in 2014.
Winterfell, a cargo ship registered in Togo, left Montenegro in May 2014 carrying 170 million cigarettes of an unspecified brand – described as a “huge quantity” by OLAF – for New Eastern Management to an Egyptian company in Port Said.
This information was contained in a letter sent by OLAF, in April 2017 [Salvatore Catania], and obtained by BIRN/ARIJ, requesting assistance from Egyptian customs to trace the shipment and outlining its concern about “bulk loading” in Bar, Montenegro. “Bulk loading” is when boxes are stored loosely on the vessel, rather than in a container, making it easier to unload goods outside of a port.
OLAF’s head of the ‘tobacco and counterfeit goods’ unit, Salvatore Catania, told BIRN that the use of fishing boats to transport cigarettes was also a red flag to authorities.
There is no direct evidence that the New Eastern Management and Kosova Tobacco shipments that escaped interception – four carried by the Zahra/Ar Raqqah and another by Winterfell – ended up being smuggled into the EU, but the transfers bore many of hallmarks as those halted in Greece and raised a number of OLAF’s red flags.
In June 2017, New Eastern Management repeated a similar operation to the earlier Zahra trip with identical results: the ship, the Golendri, was seized as it was about to unload around 31 million cigarettes onto the Crete coastline. The cigarettes likely came mainly from SEKAP, but also “Royal Blue” cigarettes were found on board, a brand produced by FDS.
Six Ukrainian sailors denied charges of smuggling according to local media. A lawyer involved in the case, speaking to BIRN on condition of anonymity, said that all the accused had been found guilty in November 2018. BIRN was unable to confirm this independently with the court. .
Catania told BIRN that OLAF launched its own action in 2017 into the activities at the Free Zone. He declined to elaborate.
“We carried out an investigation in Montenegro in 2017, and the cooperation we received from authorities was good,” Catania said.
He said that since then fewer vessels had been “loading cigarettes in bulk from Montenegro” but that the job of identifying the firms behind the operation remained difficult.
“If the ship owners and the business owners are in Liberia or British Virgin Islands it is difficult to get information,” he said.
Lamenting a “lack of international judicial cooperation,” Catania said the smugglers were smart. “They have made it difficult to see who is behind a company.”
In response to questions about attempts to disrupt the wider smuggling network behind the “cheap white” scheme, Greek customs said it could not comment on ongoing investigations.
New Eastern connections
While it is not known who are the actual owners of New Eastern Management, documents obtained by BIRN/ARIJ show the firm works closely with Kosova Tobacco, which is owned by a wealthy Kosovo family.
The FDS factory in Sarajevo told BIRN/ARIJ that Kosova Tobacco had an exclusive contract to distribute Royal Blue in Africa and the Middle East but never had a direct relationship with New Eastern Management. All New Eastern Management exports of FDS products from Bar to Libya should, however, have passed through Kosova Tobacco.
Montenegrin shipping documents also show New Eastern Management and Kosova Tobacco exported from Bar to the same Libyan firm, Umal Behar, with the same ship in 2014.
And shipments by New Eastern Management purchased from SEKAP in Greece were routed through Pristina-based International Trade Inc Sphk, according to a statement by the firm’s owner provided as evidence to Greek courts related to the Golendri ship and obtained by BIRN/ARIJ. On paper, International Trade Inc’s director is Kosova Tobacco employee Lulzim Gashi, and is based at the same address, further proving the close ties between Kosova Tobacco and New Eastern Management.
International Trade Inc’s owner, Evangelos Siontas, told BIRN that he had sold SEKAP cigarettes for both the Golendri and Zahra ships, but insisted that neither he nor New Eastern Management had done anything wrong.
“The problem wasn’t through the Montenegrin [New Eastern Management] or our side, the problem was the Libyan side,” he said, referring to the Zahra. “We received documents showing the goods had reached Libya.”
BIRN was unable to contact the Libyan firm Umal Behar, which was not accused of any wrongdoing in the Greek court case.
Siontas added that International Trade Inc had not worked with New Eastern Management for the last three years. He said that although Lulzim Gashi was, on paper, still a manager of International Trade, in practice this was no longer the case.
Kosova Tobacco is owned by the Govori family, which controls a string of companies including a major bank, Banka Për Biznes.
Despite Kosova Tobacco’s links to these smuggling operations, it appears to have faced no sanction or been accused of any crime. It did not respond to requests for comment.
Since 2014, the Sarajevo cigarette factory FDS has sold goods to Kosova Tobacco, which listed New Eastern Management as the consignee, some of which appear to have ended up being allegedly smuggled on board the Zahra and on the Golendri.
FDS continued to make sales to Kosova Tobacco for delivery to Libya until at least July 2017, even after multiple seizures, according to a Bosnian tax spreadsheet secured by BIRN/ARIJ.
In 2014, FDS was majority-owned by the state, but in 2016 it was purchased by an Austrian investment fund.
FDS director Mustafa Bibic said Kosova Tobacco had worked with the Sarajevo factory since 2002 and was a reputable firm.
“We continued to work with Kosova Tobacco. I think they acted completely reasonably,” Bibic told BIRN/ARIJ. “As far as I know,” he said, “Kosova Tobacco had stopped doing business with New Eastern Management.”
New Eastern Management is not the only group to have been accused of international smuggling out of Montenegro’s port of Bar with SEKAP-purchased cigarette.
Montenegrin shipping documents show that Velex Europe Corporation of Panama has also been exporting large quantities of cheap whites to Libya.
BIRN/ARIJ have pinpointed four shipments of ‘cheap whites’ by the firm between August 2014 and November 2016. Three appear to have been investigated by Greek authorities, although Velex’s name has been mentioned in connection with only the most recent case, involving a Russian fishing boat – RS 300 number 97. It left Montenegro with 20 million cigarettes on board, declaring its final destination as the Lebanese capital Beirut. On November 27 2016, Greek authorities seized the fishing vessel with its cargo.
According to a letter provided to the Greek parliament by customs, the ship had been commissioned by Velex but the receiver, Beirut for Transit SAL, claimed it had no involvement in the transfer, raising suspicions that the cigarettes were again destined to be smuggled. Among the cigarettes found on board were brands made by SEKAP and exported to Montenegro in 2014.
A criminal investigation was launched into the case in September 2018, according to Greek media.
BIRN/ARIJ has been unable to identify the owners of Velex, of which no clues are provided in paperwork obtained from Panama.
In a statement issued by its new owners, Japan Tobacco International, SEKAP told BIRN that it was “aware of the historical allegations regarding SEKAP”.
“It would be inappropriate for us to comment on the specifics of ongoing investigations or legal proceedings,” the firm added.
Tug boats and tow contracts
Another Liberian firm, Range Enterprises, has also made at least one shipment of “cheap whites” from Bar to Libya aboard the fishing boat Grot Yug.
The same ship was seized in September 2015 off the northern coast of Crete by the Greek coastguard, which reported finding “a large quantity of smuggled cigarettes” for which there was no bill of lading. Official photos showed that the cargo included Gold Mount and Raquel Slim brands. Six Ukrainian sailors were arrested, according to Greek media.
While the Range Enterprises shipment has not been formally confirmed as the same as that seized by Greek authorities, the two shipments share many similarities.
OLAF told BIRN in a statement that the Grot Yug had been carrying 2,300 cases of cigarettes and had declared its final destination as Libya when it was seized.
Documents released by Montenegrin customs regarding cigarette shipments from Bar to Libya from 2013 to 2016 included just one shipping document for the Grot Yug. The shipment was commissioned by Range Enterprises and was carrying 2,550 cases, including Gold Mounts, found on board the seized ship, to Libya. The exact date of the departure in 2015 is unclear from the shipping document.
Range Enterprises links to the cheap white trade do not appear to have hindered its operation at the Port of Bar.
The firm attempted to expand its business with a request to rebuild a warehouse in the Free Zone, according to a document lodged at the local municipality in 2017.
Despite repeated enquiries, Bar municipality was unable to say whether or not the application had been approved.
The documents reveals a link to Greek businessman Konstatinos Eleftherios Fyrogenis, a key figure in the controversial production of Egypt’s most popular brand of cigarettes – Cleopatra – in Montenegro. He has also held a small stake in the factory producing Raquel cigarettes in Cyprus. His name appears on a document filed to the local council in Bar as part of a planning application for a warehouse in the port.
He did not respond to repeated requests to clarify his role in Range Enterprises.
The firm’s controversial business also did not prevent it from carrying out charitable work, as per a press release issued in April 2016 by port authorities. That announced that the port, Range Enterprises and Optimum Company – a major shipping agent – would take part in charity work on behalf of the Red Cross.
In its 2018 progress report, the European Commission said there remains “persistent concerns” relating to the fight against the illicit tobacco trade through Montenegro, especially the port of Bar.
While it said Montenegro had stepped up its cooperation with European customs authorities, more needed to be done in terms of systematic cargo checks, proactive investigations and more frequent use of financial probes to go after “the organised criminal set-up” behind the smuggling.
According to Montenegrin authorities, an unnamed Europol officer visited Montenegro in October 2014 to evaluate the country’s fight against cigarette smuggling.
The officer raised serious concerns about poor security at the zone including fencing described as “symbolic”, a rusty lock on the tobacco warehouse and the presence of a large number of goats.
The officer also discovered customs officials were allowed to inspect warehouses only during their official working hours of 0700 to 1400.
In a statement to BIRN/ARIJ, Montenegrin customs said it now has full access to the port and that security had been improved. Comparisons, however, between historic images of the Free Zone and recently taken photos show that the some of the perimeter fence is unchanged.
In a further statement, Customs explained that “the container terminal” is surrounded by “a special fence, and it is entered through an entry/exit gate which is under video surveillance and equipped with a reader system for cards and license plates of transport vehicles, so the movement of people and goods is constantly monitored in this concession area by Port of Adria”.
Customs added that it was working with a range of international tobacco firms, organisations and governments to tackle cigarette smuggling and was carrying out “more frequent inspections of companies in the cigarette trade business”.
Concerns are now being raised about the opening of a new free economic zone centred on a cigarette factory in Podgorica owned by UAE-based BMJ Industries.
The firm bought Montenegro’s state-owned tobacco factory Duvanski Kombinat Podgorica, DKP, in 2016, and moved quickly to shutter it and open a new, modern production facility at the bespoke free economic zone approved by the Montenegrin government.
But in the few months while DKP remained open, BMJ-appointed director Isat Boljevic set up an illegal operation to produce and sell 3.9 million packs of cigarettes on the black market in Montenegro and abroad. He pleaded guilty to smuggling offences in February 2018 and was jailed for nine months.
Among the cigarettes produced under Boljevic’s illegal operation was the BMJ brand ‘Mac’, which is also one of the most common cigarettes on the black markets of North Africa, according to a report published in July 2017 by auditors KPMG on behalf of US-based tobacco giant Philip Morris.
One of the shipments of alleged contraband from Montenegro highlighted by OLAF was the Med Patron, seized in July 2017 by the Spanish navy having been loaded in the port of Bar. On board were found the brands Napoli Red and Blue, according to videos from Spanish news media, which are produced by BMJ.
BMJ told BIRN in a written statement that it did not tolerate smuggling, adding Boljevic was “relieved of his duties” when it learned of the allegations against him.
It added that it was unaware of claims that its products were among the most popular on the North African black market, adding that the study making the allegations was sponsored by competitor Philip Morris International.
It also queried the use of the term “cheap whites”, describing it as a term created by “big tobacco” in order to “defame our brands as they grow in popularity and threaten the market share of global leading brands”.
The firm also stressed that the Napoli cigarettes found aboard the Med Patron were likely counterfeit.
Ana Gomes, a Portuguese member of the European Parliament, has raised concerns about the opening of a new free zone for the new cigarette factory, given “the continuing issues surrounding illicit tobacco products entering the EU from the free trade zone at the port of Bar”.
She told the parliament that such developments “present a new threat which could result in an increase in the number of cigarettes being smuggled into the EU from Montenegro”.
The European Commission, in response, said it was closely monitoring the situation.
Regarding the concerns raised by Gomes, BMJ told BIRN: “There is absolutely no reason for Ana Gomes to be concerned, we support the local economy by employing local labor and purchasing local material.
“We fully understand that historically Montenegro has a bad reputation due to the tobacco smuggling organized by the Big Tobacco Industry in/via Montenegro.”
In an interview with BIRN, Gomes said that the issue of cigarette smuggling through Montenegro needed to be taken “very seriously” by Brussels.
“There has to be implications in terms of demanding that they clean up their act,” she said.
“It cannot be overlooked, because of the amount of money being lost from public coffers but because these criminal organisations involved in organising cigarette smuggling have clear links to terrorist organisations.
“This period of negotiations must be, as it has been in other cases, a period of transformation of the country and if the country is depending on this kind of illegal, criminal activity to survive economically, I think the role of the EU is to [..] demand this transformation.”
BIRN teamed up with ship-monitoring service MarineTraffic.com to track down whether the ships, and the cargo, had reached their declared destination.
Of the nine vessels, only one ship had been transmitting tracking data while carrying cigarettes – the Winterfell.
Even then, the Winterfell’s signal went dead not long after leaving the port of Bar with 170 million cigarettes on board. Weeks later it reappeared near the Greek coast, making it impossible to trace its supposed journey to Egypt.
The signal from the ship’s “Automatic identification system” (AIS) is just one of the safety features that help vessels avoid collisions. Although there are legitimate reasons for the ships to go dark, killing the AIS signal is considered a red flag for smuggling.
“Turning AIS on and off is an indicator that would trigger interest in what the vessel is actually doing,” Sarah Bladen of Global Fishing Watch, an international NGO committed to ocean sustainability, told BIRN/ARIJ.
Squalid and dangerous
Four of the nine vessels identified by BIRN are registered as fishing boats, another red flag according to the EU’s anti-corruption office, OLAF.
The RS-300 No. 97 is a fishing boat built in 1977, most likely at the same Russian shipyard as the Zahra.
Sailing from Bar, it was towed to a port in Crete in November 2016 after sustaining mechanical damage, a common theme among the nine ships, which have often required assistance or failed safety inspections.
The Winterfell, built in 1969, was detained by port inspectors for six days in 2013 because an inspection found it unsafe, with bad living and working conditions.
Months later, inspectors found ten further irregularities: a corroded hull, poorly maintained ventilation, pumps and other machine parts, inoperative signals, batteries and switches.
Expired chicken and no pay
Among the worst conditions, however, were those on the Yong Gi ship, sailing under the flag of Sierra Leone, which has made a number of cigarette shipments from Montenegro.
In January 2015 it was stopped by the Greek coastguard as the ship was travelling from Bar to an unnamed destination, according to the sailors.
The crew did not respond to several calls from the local port authority so the local coastguard was sent to intercept it. The ship had sustained “damage to the steering gear”, did not have proper paperwork and was not even properly registered at the time.
Pictures taken by inspectors revealed that sailors were living off expired chicken and out of date yoghurt and sausages, and had not been properly paid.
The ship was released from custody four months later, after extensive repairs and under a new name – Simone. Just a year later, in October 2016, it was seized again by the Greek Coastguard on a journey between Montenegro and North Cyprus on suspicion of cigarette smuggling.