Business news from Ukraine

BEB seized more than 330 thousand packs of counterfeit cigarettes in Lviv region

Detectives of the territorial department of the Bureau of Economic Security (BES) in Lviv region have exposed a large-scale scheme of selling illegally manufactured tobacco products and smuggling them abroad, the agency’s website reported on Wednesday.
According to its data, the detectives of the Bureau in Lviv region conducted an immediate inspection of a truck with excisable goods, and in Zakarpattya region they searched a warehouse. During the search revealed and seized more than 330 thousand packs of tobacco products without excise tax marks, about 1.5 tons of hookah tobacco, a vehicle, as well as rough records and documentation evidence of illegal activities. The preliminary total value of excisable products seized from the illegal turnover is almost 18 million UAH.
Currently, measures are taken to establish the full range of persons involved in the scheme, the primary investigative actions.
BEB clarified that the pretrial investigation into criminal proceedings on criminal offence under Part 1 of Article 204 of the Criminal Code of Ukraine (illegal storage and transport with intent to sell excisable goods) is carried out by detectives of the territorial administration of the Lviv region, under the procedural guidance of prosecutors of the Lviv Regional Prosecutor’s Office.
As reported with reference to the tobacco market research institute “Kantar Ukraine”, the share of illegal tobacco products on the Ukrainian market in August 2022 increased by 5 percentage points (p.p.) compared to the annual average of 2021 – up to 21.9% from 16.9%, the volume of shadow market was the highest since the independence of Ukraine.
The Institute specified that 56% of the tobacco products illegally sold in 2022 as export or Duty Free products have the mark of production of Vinnikivska Tobacco Factory (Vinniki, Lviv region) and marked as not intended for sale in Ukraine. The share of unidentified producers was 24% (in 2021 – 23%), United Tobacco LLC (Zheltye Vody, Dnepropetrovsk oblast) – 19% (in 2021 – 15%).

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Ukraine should reduce share of illegal cigarettes to 5% – Getmantsev

Ukraine is facing the task to reduce the average annual share of illegal products on the tobacco market not more than 5%, while last year the figure was 19.9% on average.
According to the head of the parliamentary committee on finance, tax and customs policy Daniel Getmantsev in Telegram-channel, the country recorded a decrease in the illegal cigarette market to 17.8% in November from a record 21.9% in August.
“The illegal tobacco market is shrinking! Kudos to law enforcement and the Excise Department of the State Tax Service. Our goal is to get the illegal tobacco market to a maximum of 5% by the end of the year!” he wrote.
According to research agency “Kantar Ukraine” in August 2022 the share of counterfeit cigarettes in Ukraine was 8% of the total market, while in 2021 in November – 6.6%, August – 5.6% and February – 4.2%. The share of cigarettes labeled as intended for export and sale in Duty Free, but sold illegally in Ukraine in August 2022 was 12.2% of the total Ukrainian cigarette market, while in 2021 it was 10.9% in November, 9.8% in August and 6.9% in February.
In turn, the share of smuggled cigarettes in August-2022 decreased to 1.8% compared to 2.9% last November and 2.7% in August-2021.
“Kantar” recalled, the average annual level of illegal tobacco sales in Ukraine in 2021 was 16.9%, while in 2020 – 6.9% (10 p.p. less), in 2019 – 6.6% (10.3 p.p. less), in 2018 – 4.4% (12.5 p.p. less). The lowest illegal cigarette market volume in a decade was recorded in 2016 at 1.1%.
The largest share of illegal cigarettes in August-2022 was recorded in Dnipropetrovsk region – 20% of the entire market, in Odessa (13%), Kharkiv (8%), Khmelnytsky and Lviv (7% each) regions, as well as in Kiev (6%). In the capital this indicator is 8%.
As reported, in October 2022, Hetmantsev said that law enforcement officers have been conducting searches in September at the United Tobacco (LLC “United Tobacco”, Zheltiye Vody, Dnipropetrovsk region), which is suspected of illegal production of tobacco products. The law enforcers have already identified the suspects in the crime and assessed the scale of illegal activity.
According to the European Business Association (EBA), representatives of Ukrainian business expects the law enforcement system of Ukraine to take active measures to combat the shadow markets, including the production of illegal cigarettes, and are ready to assist in establishing the damage from the illegal activities of such enterprises.

PHILIP MORRIS SENDS OVER 500,000 PACKS OF CIGARETTES TO UKRAINIAN ARMY

The U.S. tobacco company Philip Morris handed over 500,000 packs of cigarettes to the Ukrainian army, MP from the Servant of the People party Danylo Hetmantsev has said.
“Philip Morris donated 500,000 packs of cigarettes to help the army! Lviv Tobacco Factory and JT International Ukraine also handed over cigarettes to the military today in all regions where there are logistics warehouses,” Hetmantsev wrote in Telegram.

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JTI EXPORTS FROM UKRAINE CIGARETTES FOR $117.7 MLN IN 2020

JTI Ukraine tobacco company in 2020 produced 15.9 billion cigarettes at a factory in Kremenchuk (Poltava region), of which 6.04 billion were exported for $ 117.7 million, Director General of Japan Tobacco International (JTI) Ukraine Paul Holloway said in an exclusive interview with Interfax-Ukraine.
He noted that the export of cigarettes by the company remains stable, despite the contraction of the Ukrainian cigarette market. Last year, JTI Ukraine exported its products to 14 countries, including Japan and Mexico.
“We are planning to turn the factory in Kremenchuk into a large export hub. Our factory is very flexible and can produce various types of products – we export not only cigarettes, but, for example, filters, which are then used to produce cigarettes in our other factories. We hope that our factory in Ukraine will continue to increase exports,” the director said.
He clarified that he hopes for further revenue growth from the export of the factory’s products in Kremenchuk. According to him, an important factor that influenced the company’s export plans was its obtaining the status of an authorized economic operator, which will reduce customs formalities when importing raw materials and exporting finished products.
Holloway noted that JTI, which received this status as the first in Ukraine, will receive a number of advantages when passing through customs formalities in Ukraine, including the opportunity to use a special dedicated traffic lane for commercial vehicles.

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IMPERIAL TOBACCO LOSES APPEAL ON ANTIMONOPOLY COMMITTEE OF UKRAINE FINE

The Pivnichny (Northern) Economic Court of Appeals on February 2 rejected the complaint of Imperial Tobacco Ukraine and Imperial Tobacco Production Ukraine against the decision of the Antimonopoly Committee of Ukraine (AMCU) on a fine of UAH 460 million on suspicion of anti-competitive concerted actions of cigarette manufacturers and distributors.
“Imperial Tobacco Ukraine and Imperial Tobacco Production Ukraine will appeal the decision of the Court of Appeals in the Supreme Court. In addition, the companies are simultaneously preparing to transfer the case to the international investment arbitration, because it is becoming increasingly clear that in Ukraine foreign investors cannot count on a fair trial,” the group of companies said in a press release.
According to Imperial Tobacco, the decision of the court is the result of political pressure.
“Unfortunately, the appellate link of the judiciary has demonstrated the same bias and political bias as the court of first instance. This development of events gives another alarming signal to the community of foreign investors about the real state of legal proceedings in Ukraine,” the press service of the company said citing director general of Imperial Tobacco Rastislav Cernak.
The company clarified that the fine of UAH 460 million was paid in full the day after the loss in the court of first instance – July 21, 2020, in order to prevent the accrual of additional penalties and to avoid further pressure on the company’s operating activities from the AMCU.

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60% OF SMUGGLED CIGARETTES IN UKRAINE COME THROUGH PORTS

About 60% of attempts to smuggle cigarettes is recorded through ports, in general, tobacco products are most popular among other smuggled goods, First Deputy Head of the State Border Guard Service of Ukraine Volodymyr Nikiforenko has said.
“More than 60% of smuggling is detected in ports. There are significant consignments of seized cigarettes. For example, one of the recent large consignments detained is estimated at about UAH 80 million,” he said at a press conference at Interfax-Ukraine on Wednesday.
According to Nikiforenko, in general, this year the State Border Guard Service suppressed attempts of illegal movement of tobacco products across the border about 750 times, seized 12 million packages of cigarettes.
“During this year, our colleagues and partners, and we interact with law enforcement agencies of countries adjacent to Ukraine, note a 50-67% fall in the volume of smuggling from Ukraine to Europe,” he said.
The first deputy head of the State Border Guard Service added that drones and small aircraft are often used to supply cigarette contraband.
“There are indicative episodes when we detained a plane that launched from Cherkasy region and was moving to the Romanian border. In just one day, it violated the airspace four times. The plane was detained, criminal proceedings are underway,” Nikiforenko said.
With regard to the fight against smuggling of cigarettes, Nikiforenko supported the legislative initiative to return criminal responsibility for smuggling an excisable group of goods.
“We are losing in the influence on the development of the criminal situation in the border zone to our neighbors, where the law enforcement influence on these processes is tougher. This encourages wider population to this illegal activity. Where there is administrative responsibility, our Romanian neighbors can bring to criminal responsibility with serious consequences: for 10 boxes of cigarettes you can get five years in prison. Romanians are less involved in this [smuggling], while in Ukraine many settlements “specialize” in this for years,” Nikiforenko said, adding that only about 2% of cigarettes with a Ukrainian excise label are seized on the border, while the rest is counterfeit and smuggling from other countries.

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