How smuggled tobacco gets into Ukraine

Discussions on counterfeit cigarettes rarely address a key question: where does the illegal market source such large volumes of raw material?

Producing counterfeit goods, which account for up to 25% of the tobacco market, requires hundreds of thousands of cigarette cartons every month. This is impossible without stable supply channels for illegal tobacco. But where is it sourced?

The answer lies in fermentation plants

This refers to enterprises that import unprocessed tobacco under the pretext of further processing. In practice, this process serves as a cover for large-scale schemes to evade excise duties.

Fermentation is the final stage of tobacco preparation, during which it acquires a rich taste, aroma, and colour, readying it for cigarette production. It is precisely this process that is used to manipulate raw material volumes.

How the scheme works

1. Import of unprocessed tobacco.
   Enterprises bring in massive batches of raw material under the guise of further fermentation.

2. Fictitious volume reduction.
   During fermentation, companies claim tobacco shrinkage, reducing volumes by 50–60%. These "lost" volumes are effectively sold to illegal factories.

3. Sale of the remainder.
   The remaining volume is either partially processed for official production or fictitiously "exported".

A practical example: «Фермент Плюс» and «Потестас»

According to law enforcement data, the companies «Фермент Плюс» and «Потестас», located in Zakarpattia, actively use this scheme.

• From January 2021 to September 2022, «Фермент Плюс» imported approximately 2,000 tonnes of unfermented tobacco.
• During fermentation, the enterprise claimed a shrinkage of 57.1% of the volume, i.e. more than 1,100 tonnes.
• The remaining 823 tonnes were sold to «Потестас».

«Потестас» then distributed this volume as follows:

• 622 tonnes were processed as fictitious exports.
• Only 205 tonnes went to official production.

Thus, out of 1.9 million kg of tobacco, less than 10% reached the legal market.

Zakarpattia as a hub for the shadow industry

Both companies are located in Zakarpattia Oblast. This region has previously featured in high-profile cases related to tobacco smuggling. For instance, gas tankers transporting counterfeit cigarettes were seized.

Who is behind it?

Local residents link the activities of these factories and the Shyman family to a mysterious figure named Edgar, who coordinates the operations of smuggling networks.