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Smoking Guns: European Cigarette Smuggling in the1990’sHugh GriffithsVersion of record first published: 17 Jun 2011.

To cite this article: Hugh Griffiths (2004): Smoking Guns: European Cigarette Smuggling in the 1990’s, Global Crime, 6:2,185-200

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Smoking Guns: European CigaretteSmuggling in the 1990’sHugh Griffiths

This article concerns European cigarette smuggling over the past decade and examines theactors, structures and relationships which facilitated the illicit trade. It discusses the

central role played by actors not traditionally associated with organised crime, such asmulti-national tobacco companies, Swiss banks and the state security agencies of various

Balkan states. It demonstrates how domestic legislation in Switzerland and instability inthe Balkans prevented national law enforcement agencies from effectively dealing with

this international network at an earlier stage. The article also focuses on the history oflocal and national law enforcement investigations as well as the integrated multi-nationalinvestigation project later initiated by the EU and member states. The article’s conclusions

suggest that while smuggling actors have successfully adapted to the process ofglobalisation – financial and state deregulation – law enforcement agencies remain at a

disadvantage as they are hampered by the domestic legislation in nation states such asSwitzerland and the United States. While cigarette smuggling was and is a major illicit

industry, it has not been the subject of much academic scrutiny. This article, based on fieldresearch in the Balkans and EU member states aims to contribute to a broader

understanding of a problem involving a multiplicity of criminal actors, states and lawenforcement agencies.

Keywords: Organised crime; Balkans; Italian Mafia; Serbia; Albania; Montenegro;Cigarettes; Smuggling; European Union

Cigarette smuggling, while lacking the attention devoted to narcotics, arms or people

trafficking, is a multi-billion Euro crime trade affecting most countries of the EU [1].

ISSN 1744-0572 (print)/ISSN 1744-0580 (online) q 2004 Taylor & Francis Group Ltd

DOI: 10.1080/17440570500096759

Hugh Griffiths is Investigations Coordinator at the Institute of War & Peace Reporting (IWPR), specialising in

Balkan organised crime and their transnational linkages within the EU. During the 1990s he worked in Albania,

Kosovo and Bosnia. He holds an MPhil from the Research Centre for International Political Economy, Faculty of

Social and Behavioural Sciences, University of Amsterdam.

Global Crime

Vol. 6, No. 2, May 2004, pp. 185–200

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OLAF, the European Union’s anti-fraud office, estimated the loss in tax revenue tomember states at 4.7 billion euros for 1998 alone. The head of OLAF described

cigarette smuggling as “one of the most important international crimes at themoment”, while another Commission spokesperson acknowledged that “cigarette

smuggling is the single-biggest fraud against the community budget”. [2] A singlecontainer or truckload of cigarettes is valued at one million Euros in tax revenues to

the EU and its member states. With thousands of containers shipped illegally on anannual basis, the profits for organised crime syndicates and corresponding losses for

governments are significant. The impact of this lost revenue has direct consequencesfor European taxpayers and member state governments who traditionally use tobaccotaxes to fund education, health and social services.

In common with narcotics and arms smuggling, the primary purpose of organisedcrime groups engaged in cigarette smuggling is the pursuit of profit [3]. The profit

margin derived from smuggled cigarettes is the cost of bulk purchases of duty-freecigarettes, transportation of the smuggled product and losses incurred due to law

enforcement interdiction set against the cost of taxed cigarettes sold legitimately in theEU member state’s national market.

During the 1990s, one of the principal EU gateways for contraband cigarettes wasItaly. In 1999 alone, Italian authorities confiscated 1673 tons of cigarettes, less than10% of the estimated smuggled total [4]. The illegal importation was handled by

traditional organised crime groupings such as the Sacra Corona Unita and theNeapolitan Camorra which had a history of smuggling cigarettes and other

contraband product. However, smuggling activities undertaken during the 1990s weremarkedly different in terms of the scale of illegal importation and its systematic

transhipment network. The scale of smuggling and corresponding logistics networkwas only made possible by the involvement of states and multi-national companies.

In the 1990s, Italian organised crime syndicates were able to significantly reducetransportation and seizure costs thanks to the proximity of neighbouring states whose

political and economic climate condoned and facilitated a massive smugglingoperation. In order to understand the nature of the cigarette scam, it is necessary tocomprehend how the process known as globalisation affected the physical space of the

former Yugoslavia over the past decade, and how the corrupted successor statesafforded foreign crime syndicates and multi-national companies with a logistical space

in which to smuggle.

Smuggling in the Balkans – A State Sanctioned Activity

In the 1990s, processes associated with globalisation – more fluid territorial

boundaries, state and financial deregulation, the privatisation of security – occurredin a more acute form than in other parts of Europe. Before and after multi-national

intervention, the successor republics of Bosnia, Croatia, Serbia and Montenegrocomprised of “Competing institutions with overlapping jurisdictions . . . increased

inequalities and isolation of permanent sub-castes . . .multiple and/or fragmented

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loyalties or identities . . . .contested property rights and legal boundaries, disregard forrules and dispute resolution procedures and attempts to extend extra-territorial

jurisdiction . . .” [5].While the conflicts in the territory of the former Yugoslavia have often been

portrayed simplistically as wars between people of differing ethnicities, detailedempirical studies have shown that conflict was initiated and sustained by various

ethnically delineated alliances of nationalist political parties, local crime syndicateswith transnational linkages (paramilitaries) and criminalised state security agencies

[6]. These operations were conducted to the detrimental of the majority, irrespectiveof nationality. The conflicts in former Yugoslavia saw the emergence of an elite forwhom commodities stolen or smuggled as a result of humanitarian crime and fraud

provided the basis for their politico-economic dominance.In addition to these dynamics operating at an intra-republican level, both societies

and state institutions in the newly constituted republics were further criminalisedthrough the introduction of United Nations sanctions imposed from 1991 onwards.

In the rump of former Yugoslavia, constituted in 1992 as the Federal Republic ofYugoslavia (FRY) and comprising the republics of Serbia and Montenegro, smuggling

became a national security activity, thanks to the sanctions on such vital commoditiesas oil. Thus smuggling was legitimised at a societal level because ordinary citizens werereduced to smuggling or buying smuggled products in order to survive. Smuggling

became an acceptable business within society, as well as a vital state activity.Prior to their assumption of complete control, nationalist leaders such as Croatia’s

Franjo Tudjman and Serbia’s Slobodan Milosevic understood that they first needed tosubvert the institutions of the old state – Tito’s Socialist Federal Republic of

Yugoslavia (SFRY) at a republican level. Although Tito’s SFRY was a “soft” regime incomparison to Honecker’s East Germany or Ceaucesu’s Rumania, the secret police

nevertheless played an important role in the maintenance of control at a republicanlevel. While Tudjman created seven new intelligence agencies in Croatia, Milosevic

focused on Serbian state security (RDB) as his agency for smuggling oil, armingparamilitaries and funding his wars through money-laundering. The marrying of theascendant nationalist leaderships together with their respective secret police forces was

completed by 1992, the year open conflict broke out in Bosnia.These bonds were strengthened by the illegal covert operations carried out by

criminals in conjunction with the secret police on the orders of aforesaid nationalistpoliticians in areas outside of their jurisdiction. The best examples of these are Zeljko

Raznatovic – Arkan, who led the Tiger paramilitaries in Croatia and Bosnia andMladen Natelic “Tuta” who commanded a “penal battalion” of Croatian irregulars,

committing atrocities in south–west Bosnia [7].Thus the close association between organised crime leaders and state security in the

implementation of the process known as “ethnic cleansing” further cemented their

relationship. Operating in defiance of international humanitarian law, and latersubject to the scrutiny of the International Criminal Tribunal for the former

Yugoslavia, politicians, paramilitaries and RDB merged to form an organised criminal

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network of a pyramidal nature involved in war crimes, tax evasion, sanctions bustingand the narcotics trade. Import and export licences for licit products became a form of

political patronage awarded to favoured businessmen who would constitute theoligarchy at a republican level.

These trading arrangements were often brokered by trusted RDB managers who, inthe case of certain commodities, actually supervised and controlled the market in

particularly lucrative products. Thus in some of the territories of the formerYugoslavia, the world was indeed turned upside down. To give but one example, the

Federal Custom Director, Mihalj Kertes, worked together with Milosevic’s RDBdirector, Jovica Stanisic, to regulate smuggling on a hierarchical pyramidal structureinvolving police generals toward the top with traffic cops and street vendors toward

the bottom. The discovery of 550 kg of heroin in a state security bank vault followingthe fall of Milosevic indicates that customs and state security controlled the flow of

narcotics in addition to smuggled cigarettes and fuel oil.Even following the end of Milosevic, conflict and sanctions, the economies of

former Yugoslav republics remained anchored in illicit trade. According to officialdata, unemployment ran at 37% in Montenegro in 2001. Only 100,000 people out of a

population of 600,000 held legitimate jobs. Experts estimate that between 40% and60% of all economic activity is connected to the black economy. Unofficial estimatesby independent economists indicate that between 70,000 and 100,000 Montenegrins

are involved in the black economy. This short overview illustrates the central rolesmuggling played in the political economy of ex-Yugoslav successor states and why it

remains generally accepted at societal level in some areas.

Italian Organised Crime Syndicates

The criminalisation of state and society in parts of the former Yugoslavia came at an

auspicious time for the key actor in the cigarette smuggling network – Italianorganised crime syndicates. 1992 saw the murder of two of Italy’s most prominent

anti-mafia prosecutors, Giovanni Falcone and Paulo Borsellino. Their killingsprompted a national outcry and a systematic anti-mafia campaign. The realignment of

Italy’s political landscape in the early 1990s also criminal syndicates lost some of theirpatrons within the Christian Democratic and Socialist parties who were removed fromstate positions and investigated for their links to the underworld. The concerted anti-

mafia campaign in Italy led some organised crime bosses to physically relocate to theneighbouring ex-Yugoslav republic of Montenegro. However, the crime syndicates also

saw Montenegro and neighbouring Albania as locations where they could conductcrime operations.

During the 1990s, the principal organised crime syndicates operating out ofMontenegro were the Sacra Corona Unita (SCU) from Puglia and the Camorra of

Campania. The Camorra were particularly important since they had played a majorrole in the formation of the Sacra Corona Unita in the early 1980s. The Camorra also

had institutional knowledge of cigarette smuggling dating from the post-war period in

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the Naples area. They were therefore well-positioned to exploit the southern Italianmarket with a capacity to organise both a distribution chain for the internal market,

and a network of street vendors and coerced shop-owners.Elements of the Sicilian mafia would also become involved in the smuggling process

thanks to their money-laundering contacts as well as their distribution networks inother parts of Italy. It is important to note that while smuggling cigarettes may appear

more innocuous than trafficking in heroin, a number of key cigarette smugglers had aprevious track record for narcotics trafficking. To give but two examples, Gerardo

Cuomo and Franco Della Torre had links to the heroin trade. Della Torre was adefendant in the “Pizza Connection” trials in the 1980s and was sentenced by a Swisscourt to 18 months imprisonment. Cuomo, a Neapolitan, also arrested in Switzerland

was linked by Italian police to elements within the Sicilian mafia engaged in the herointrade. They included Giuseppe “Pino” Savona and Toto Riina of the Corleone family

who had also been convicted of the murder of Falcone and Borsellino. The owner ofone of the Swiss-based shell companies, Basilio AG, responsible for buying duty-free

cigarettes from tobacco multinationals had been convicted during the 1980’s ofsupplying 82 kilograms of heroin.

This switch in commodity from heroin to cigarettes is thus an example of Shelley’semphasis on choice of smuggled commodity being based on market demand and thepossibilities of executing their illicit activity [8]. While the switch did not mean that

Italian crime syndicates operating out of Montenegro abandoned narcotics entirely,the risk analysis showed that cigarettes could be shipped on such a scale as to make

them almost as profitable as trading narcotics, while attracting far less interest fromlaw enforcement and shorter prison sentences.

As early as 1993, Italian organised crime syndicates had implemented a systematiclogistics and warehousing arrangement in cooperation with Montenegrin institutions

such as the state transhipment company, ZetaTrans. Ciro Mazzarella, a NeapolitanCamorra boss, had obtained a license from ZetaTrans to be the exclusive cigarette

trader through Montenegro. Like Cuomo and Della Torre in later years, Mazzarellawas arrested in Switzerland at the request of Italian investigators.

The Swiss connection is not coincidental. In addition to the obstacles

imposed on Italian law enforcement from operating in territory outside theirjurisdiction, Swiss banking laws meant that without the active cooperation of

Swiss institutions, the bank accounts and shell companies of Italian organisedcrime syndicates were difficult to identify. It is, after all, important to note that while

the process of globalisation – financial deregulation and increase in transnationalmoney flows – has facilitated criminal transactions, the national laws in states such as

Switzerland continues to hamper the efforts of national and supranational lawenforcement agencies.

Financial secrecy aside, Swiss law is peculiarly sympathetic to those who would

avoid paying duty and taxes on cigarettes. Cigarette smuggling is not a crime underSwiss law, providing the commodity is not sold in Switzerland. Thus Switzerland was a

convenient location for both major Balkan cigarette smugglers and Italian organised

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crime syndicates alike to operate. Swiss laws also provided multi-national cigarettecompanies with an ideal climate to operate in secret, and as a consequence most

located the headquarters of their European operations there.A number of organised crime bosses found Montenegro to be a conducive base for

operations. This was in part because, already on Italian arrest warrant lists they wereunable to safely apply for a Swiss residency permit. One key figure operating out of

Montenegro was Francesco Prudentino who was finally arrested during a shoppingtrip to Greece in 1999. Prudentino had been a senior figure with the Sacra Corona

Unita. Giuseppe Cellamare was another senior SCU figure who based himself inMontenegro until 1998. While Cellamare and Prudentino had contacts within theMontenegrin leadership, Della Torre and Cuomo also enjoyed a good relationship with

the then president of Montenegro, Milo Djukanovic. Cuomo later told Italianmagistrates that only Della Torre later held the exclusive trading license, granted by the

Montenegrin authorities to his Panama-registered company, Santa Monica, and that itwas Della Torre who created the franchising system for sub-contracting smuggling of

which Cuomo’s company was one. Nevertheless Cuomo’s involvement in the money-laundering operation for smuggling profits ensured that he enjoyed an intimate

relationship with the Montenegrin leadership as an intercepted conversation betweenhimself and another Italian fugitive hiding in Montenegro, Santo Vantaggio, revealed.

Another series of wiretaps illustrate direct connections between Cuomo and former

senior multi-national tobacco company managers, such as Franco Gabriele who laterturned state’s evidence in an immunity deal involving multi-national smuggling into

Canada. While a pyramidal network involving the security forces and organised crimeserved as the structure for smuggling activities in Serbia & Montenegro, a similar

structure was deployed by Italian organised crime syndicates smuggling cigarettesfrom Montenegro into the EU. Four businessmen with Swiss residency permits

fronting shell companies formed the first tier, while those directly linked to Italianorganised crime syndicates including Prudentino, Cuomo, Mazzarella and others

formed a second.Although state institutions did not play a role in any way comparable to that

operating in former Yugoslav territory, investigators did discover corrupted figures

within law enforcement and the judiciary. In Switzerland, Italian investigatorsforwarded evidence to the Swiss authorities which led to the arrest of the head of the

criminal court in Ticino, the Italian-speaking Swiss canton bordering Italy. Ticino hadbeen a node within the Swiss money laundering hub. Italian syndicates used the

common language and close proximity to Italy as a way of circumventing Italian lawenforcement oversight whilst enjoying the freedom of manoeuvre that Swiss tax and

banking laws allowed.The first part of the article has sought to shed some light on the complexity of the

network involved in the smuggling of cigarettes from the Balkans into the EU during

the 1990s. It has attempted to provide a framework through which the individualactors could be identified in terms of structured networks which interlinked to form a

wider alliance. This wider alliance included various Italian organised crime syndicates

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such as the Sacra Corona Unita, the Camorra and the Sicilian mafia which cooperatedat a regional and international level.

These organised crime groupings brought large quantities of duty-free cigarettes frommulti-national tobacco companies through shell companies based in Switzerland. The

cigarettes were then shipped from Belgium and later Cyprus to Montenegro, wherethey were warehoused in Montenegro prior to being shipped illegally by fast speed

boat to the Italian coast. One of the factors that transformed cigarette smugglingduring the 1990s from the cottage industry of the previous decade was the emergence of

a secure off-shore warehousing base in close proximity to western Europe.Thus the break-up of former Yugoslavia transformed this territorial space into a

“grey zone” where a combination of corrupt elites, criminalised state security agencies

and UN sanctions enabled smuggling to take place with both state and societalapproval to the extent that it dominated the economies of the region.

The third factor enabling a massive increase in cigarette smuggling during thisperiod was the acquiescence and at times, active participation of the multi-national

tobacco companies. The willingness of certain upperworld companies to sell hugequantities of cigarettes to shell companies linked to organised crime syndicates

coupled with a refusal to cooperate with national law enforcement agencies, meantthat smuggling flourished on an unprecedented scale.

The Response of Law Enforcement

The agency which was to become the nemesis of the organised crime syndicatesinvolved in smuggling can trace its formation to the same seismic movement in theItalian political landscape which caused a number of crime bosses to flee Italy for

Montenegro in the early 1990s. One of the results of the assassination of Falcone andBorsellino was the creation of the Direzione Investigativa Antimafia (DIA), a national

body with regional offices whose formation recognised the fact that organised crimegroupings cooperating on a regional and national level had to be fought by a body

organised along the same lines. DIA staff were drawn from the national police, theCaribineri and the Guardia di Finanzia.

The DIA regional offices were headed by teams of investigating magistrates whosecrusades against organised crime would win them both accolades from the public andcriticism from the first and second Berlusconi governments. Tasked with fighting

organised crime within regional jurisdictions and information sharing at a national-level, the DIA quickly made a name for themselves with a series of high-profile cases in

both northern and southern Italy.Crucially, the DIA were afforded a broad remit in wire-tapping and surveillance

under the 1992 laws and were able to access the financial resources to buy the state-of-the-art equipment necessary to monitor landline and mobile networks on a significant

scale, both in Italy and off-shore locations. As Shelley notes, wiretaps yield invaluableinformation on intra-group relations and the norms by which groups operate.

The wiretap operations undertaken by the DIA, the Guardia di Finanzia and other

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Italian agencies successfully illustrate her point that “only with such insight into groupdynamics can law enforcement infiltrate the organisation and run successful

undercover operations” [9]. The over-arching reason for the availability ofinformation on the smuggling activities of organised crime syndicates engaged in

smuggling has been the release of transcripts and sections of intelligence reports by theItalian authorities at press conferences and to selected journalists via senior, non-

attributable law enforcement sources. In addition to breaking the organised crimesyndicates involved in the wider network, Italian investigators have gone one step

further, penetrating the communications systems used by the second group of actors –Balkan state security agencies and their political masters.

Perhaps the most striking example to date of publicly-released wire-tapped

transcripts came in June 2003 when the Italian DIA in Naples at a press conferencetogether with the Guardia di Finanzia released a 365 page document which formed

part of a request for an arrest warrant against the president-turned-prime minister ofMontenegro, Milo Djukanovic. In addition to Djukanovic, arrest warrants were

requested for his Montenegrin associates together with Italian crime syndicate andSwiss-based suspects [10]. The document is a good example of Shelley’s comment that

“Understanding the relationships between politicians and crime groups often obtainedthrough intelligence operations are crucial to breaking the criminal’s links withpoliticians” [11].

While the request for an arrest warrant for Djukanovic was refused by the presidingjudge on diplomatic grounds, the transcripts nonetheless illustrated the extent to

which Djukanovic and his closest associates were implicated in the smugglingoperations. Since the release of the document, an Interpol arrest warrant request has

been served to the Montenegrin authorities for the arrest of Djukanovic’s twoassociates whose conversations with the prime minister were documented in the 364

page report: Veselin Barovic, a Djukanovic-supported businessman and director ofMontenegrin Tobak Transit (MTT) and Dushanka Jeknic, a former Montenegrin trade

representative once based in Italy. In the Interpol arrest warrant request, Jeknic andBarovic are cited as belonging to a mafia-like organisation and of money laundering.

The latest Interpol arrest warrant requests on two of Djukanovic’s closest

Montenegrin associates listed in the recorded transcripts together with off-the-recordbriefings from Italian prosecutors indicate that Italian prosecutors believe their

surveillance data, admissible in an Italian court together with the witness statements ofpenititi and bank account data, is enough to launch a successful prosecution.

Major surveillance operations and criminal financial investigations were alsoundertaken against such suspects as Gerardo Cuomo, Santo Vantaggio, Franco

Gabriele, Ciro Mazzarella and Francesco Prudentino [12]. As such, intelligenceintercepts from mobile phone and landline communications have provided the DIA,the Guardia and other Italian agencies with vital information and court-admissible

evidence against two of the actors engaged in the smuggling network – Balkan statesand Italian crime syndicates. Physical operations against organised crime networks

engaged in smuggling have largely focused on southern Italy.

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Puglia was the epicentre of tobacco smuggling from 1992 onwards, thanks to itsproximity to the Montenegrin and Albanian coastlines. At least one of the Italian

crime groups operating out of Montenegro, the SCU, had its roots in Bari, Brindisi andthe smaller towns that dot the coastline. In the regional capital, Bari, the DIA’s

investigating magistrate is Giuseppe Scelsi, a friend and colleague of the murderedFalcone. His name has become synonymous with investigations into the broad-based

network that comprises the smuggling operation.Termed “Operation Montenegro” in the Italian press, Scelsi’s team of investigators

have uncovered reception points in Puglia, regional transportation networks, takensworn affidavits on the Balkan dimensions of smuggling from Montenegrins living inexile and cooperated with Swiss law enforcement in order to arrest Swiss residents and

curtail the network’s laundering activities in Ticino canton.While the DIA in Bari and Lecce assumed a key role in tackling the reception and

transportation network in Puglia, other DIA offices have played a significant role,demonstrating the nation-wide nature of the smuggling operation. Chief amongst

these was the Naples DIA. Anti-smuggling operations run out of Naples illustrate thatthe fact that although the SCU falling under Bari’s jurisdiction were heavily involved in

smuggling, much work was done by individuals associated with the Camorra crimegroup, operating out of the Campania region. The Bari and Naples DIA offices alsoinitiated collaborative operations to counter the cooperation between those groups to

which they were diametrically opposed – the SCU and the Camorra.Another crucial national agency engaged in both intelligence operations, the seizure

of contraband and arrests in Italian maritime territory was the Guardia di Finanzia.With their fleet of interception vessels, the Guardia were on the front line in terms of

interdiction activities. Guardia intelligence officers realised early on that a randomisedfreelance operation engaged in small-scale tobacco smuggling in 1991 had been

transformed into a systematic operation involving the very organised crime syndicatesthe DIA was meant to be tackling on the Italian mainland. Cooperation and

information-sharing was initiated with the DIA in an effort to interdict more vesselsand monitor Puglia-based SCU members believed to be receiving the smuggledproduct.

In 1997 the Guardia di Finanzia compiled an intelligence report seen by otherEuropean tax and customs police. The report described how the hierarchical

pyramidal structure of Italian syndicates involved in smuggling functioned. Itdescribed how the elements of the SCU, the Camorra and the Sicilian mafia had

divided the European Union into a series of territories, allotting spaces within whichthese groupings cooperated with regional sub-contractors who acted as local

distribution networks within various member states. It also sketched the pyramidalstructure of the other two actors linked to smuggling – the multi-national tobaccocompanies and Balkan governments.

By 1997, EU member states customs agencies had recognised cigarette smugglingemanating from the Balkans as a major problem. It was clear that the multi-national

companies were exporting far more cigarettes to Serbia & Montenegro than could be

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consumed in those countries. While elements of Serbian state security together withtheir partners in organised crime were also exporting illegally to the EU via container

lorry [13], the majority of cigarettes being imported to the EU were coming by way ofItaly thanks to the operations of the Italian crime syndicates.

Both the Balkan and Italian dimensions of the scam were recognised and EU-widecooperation between member states customs agencies and the Guardia was initiated.

Liaison officers from other EU states were posted to Italy and an information-sharingnetwork was established.

Further Conflict and Increased Smuggling

Unfortunately political developments in the Balkans meant that the warehousingfacility remained undisturbed despite an increased awareness on the part of EU lawenforcement agencies. If anything, the situation in the mid-1990s worsened, despite

the partial implementation of the Dayton Peace Agreement (DPA) in Bosnia from theend of 1995 onwards.

While the DPA brought an end to open conflict, the way in which the agreement wasimplemented meant that the dominance of smuggling within the political economy

remained undisturbed. The position of the nationalist parties was cemented, whilstorganised crime and the parallel economy flourished under their patronage. The end

of open conflict meant that goods, although not internally displaced persons couldnow travel freely over former frontlines, allowing for an increase in the traffic of

untaxed commodities.In Serbia & Montenegro, the UN’s wall of outer sanctions remained in place and

whilst Slobodan Milosevic gained a degree of international recognition for his role as

peace-maker at Dayton, smuggling import and export patterns intensified during thisperiod as FRY remained a partial pariah state.

In 1997, any semblance of the rule of law in Albania collapsed with the violentfailure of the state. While an Italian intervention force “Alba” negated the most

obvious effects of the breakdown and limited the exodus of desperate, pauperisedrefugees, zones in both the north and south of the country were established in which

smugglers operated with complete impunity. Albanian army arsenals, lootedcomprehensively in 1997, provided Albanian insurgents belonging to the KosovoLiberation Army (KLA) with a steady supply of arms and ammunition during their

insurgency against Serb security forces in the period 1997–1999. The insurgency inKosovo saw both sides – the KLA leadership and the Milosevic regime utilising

smuggling as a source of revenue generation for their armed forces.Meanwhile, Montenegro, the site of most systematic smuggling into the EU received

greater international recognition and support when the then president MiloDjukanovic broke with the Milosevic regime in 1997, advocating Montenegrin

independence. Djukanovic, originally a Milosevic stooge, had the foresight torecognise that Milosevic was ultimately a spent force and won plaudits from the west

for his independent stance. Given the larger geo-political picture – the need for

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international supervision in Kosovo and the eventual removal of Milosevic –smuggling from Montenegro was tacitly condoned by EU governments as a temporary

form of revenue generation for a friendly republican government within a failing state.However, following the cease-fire in Kosovo and the entry of NATO troops to the

province, the relationship between the EU and Montenegro began to change.Diplomatic pressure was brought to bear and the arrest of Prudentino in Greece in late

1999 brought accusations from Italy’s foreign minister that Milo Djukanovic wascollaborating directly with Italian organised crime.

The removal of Milosevic in October 2000 wrought seismic personnel changeswithin pyramidal smuggling hierarchies in both Serbia and Montenegro. Less than aweek after the coup in Belgrade, Vanja Bokan, a leading figure in Balkan tobacco

smuggling circles since the early 1990s was assassinated in Athens. The immediategrouping around Milosevic, who had muscled Stanisic and important smugglers from

key positions in 1998 were removed from the scene. Stanisic and the Serbian smugglersassociated with him returned. The new government cancelled outstanding arrest

warrants.The pyramidal smuggling structure comprising of state security and organised

crime had periodically shifted in Belgrade in the past following the high profile butunsolved assassinations of various police chiefs and leading gangsters. With theremoval of Milosevic in Serbia and the re-awakening of international concern

regarding smuggling, a similar movment in the pyramid took place in Montenegro.The first assassination was that of Goran Zugic, Milo Djukanovic’s national security

advisor in 2000. The next unsolved assassination of a leading state official was that ofDarko Raspopovic, the chief of the anti-terrorist unit in state security. In May 2001,

Baja Sekulic, a close associate of Balkan businessman, Stanko Subotic, was murdered.All three figures had been linked to smuggling activities and Montenegrin state

security. In 2003, an associate of those three men, Ratko Djokic, was murdered inStockholm, Sweden, where he had fled in 2000. Djokic, who had been employed to

monitor Italian crime syndicates and guard cigarettes prior to their shipment to Italyspoke to Swedish journalists before his murder. He claimed that he had guardedcigarettes together with members of the Montenegrin DB, and that, on one occasion,

while monitoring a shipment together with Goran Zugic, they had witnessed themovement of large amounts of narcotics.

The removal of these witnesses coincided with an increase in public interest on thepart of the Naples and Bari DIA into the role played by the Montenegrin authorities in

the broader smuggling network. The EU, aware that instability and corruption in theBalkans resulted in major revenue loss to member states, had embarked on massive

customs and law enforcement infrastructure projects in Bosnia, Kosovo and Serbia.At the time of writing, cigarette smuggling out of the UN protectorate of Kosovo

continues [14] and from peripheral Balkan states such as Bulgaria and Rumania, but

duty-free cigarette smuggling on the scale witnessed during the 1990s has largelyceased. The reasons for this are due to the actions of the third actor involved in the

cigarette smuggling network of the 1990s – the multi-national tobacco companies.

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One of the main problems confronting Italian law enforcement attempting tocombat smuggling was the involvement of influential, “upperworld” actors, not

traditionally associated with organised crime. These powerful corporations hid theirinvolvement by conducting their operations from a non-EU state – Switzerland – and

channelling cigarette disbursements and financial transactions via shell companies andbanks operating in a country which afforded organised crime a degree of protection

not available within the EU.It became clear to the DIA and Guardia early on that the Italian organised crime

syndicates were obtaining their cigarettes from the upperworld multinationals.However, while they were able to obtain evidence against both Italian organised crimesyndicates and Balkan governments regarding the criminal conspiracy, it was far

harder to find evidence linking the multinationals to criminal acts and theirunderworld partners within the network.

Nevertheless, it was clear to the Guardia that the tobacco companies were not allhonouring the agreements they had entered into with member states of the EU. In an

effort to identify the shell companies buying duty-free cigarettes for Italian organisedcrime syndicates, the Guardia invited tobacco multi-national representatives to

inspect seized hauls of cigarettes, and, to tell them, in line with their agreements withthe Italian state, to whom they had sold the duty-free batch which had been seizedupon illegal entry to Italy. Tobacco company representatives on nearly all occasions

claimed that they could not identify the batch of cigarettes seized, and therefore thebuyer to whom they had originally sold the product. This was despite the fact that the

Guardia knew the multi-nationals marked their product and retained an identificationsystem as well as records in Switzerland of which companies had received which

batches of cigarettes.As customs intelligence services of various member states informed their

governments of the certain collusion of multinationals in smuggling activities, it wasdecided in Brussels that a civil court action should be brought against certain

multinationals in jurisdictions where they retained accountable headquarter offices.As these were in the United States, the Commission decided to utilise US RacketeerInfluenced and Corrupt Organisations (RICO) legislation to seek compensation for the

revenue losses suffered due to the activities of the multi-national tobacco companies. Itwas hoped that such steps would cause a change in policy on the part of the management

of tobacco multi-nationals which operated according to a vertical pyramidal structurenot dissimilar to their partners in organised crime and the Balkan security services.

An Integrated Multi-National Investigation Project

The law suit claim brought by the Commission was the result of a coordinated effortby the various member state customs services working together with the EUs anti-

fraud office OLAF, and the legal team who would lodge the complaint in the USdistrict court of New York [15]. There was also close cooperation with the DIA with

information and intelligence-sharing a two way process. OLAF representatives would

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testify in Scelsi’s Bari courthouse on the criminal financial investigations they had beeninvolved in.

As a result of the cooperation between OLAF, the Guardia, the various regionalDIA’s, EU member state customs and intelligence services, Brussels was able to prepare

a comprehensive indictment of the activities of the multi-nationals which had beenbeyond the capabilities of national law enforcement agencies. The criminal financial

investigations undertaken by a number of state agencies in conjunction with aninformation clearing house in Brussels uncovered previously undiscovered links

between certain tobacco multi-nationals and a series of shell companies created by theaforementioned Gerardo Cuomo in Switzerland. Some of these were linked to theAlfred Bossert money laundering operation and from these bank accounts, money

would be sent to the shell companies responsible for buying the tobacco product directfrom the multi-nationals.

Brussels alleged that Italian crime syndicates used the Alfred Bossert organisation asthe “cut out” when making payments to the tobacco multinationals. Shell companies

and accounts were discovered in Cyprus and other bank accounts unearthed inHolland, the Channel Islands and Switzerland. The investigations led them to identify

in greater detail the pyramidal structure through which tobacco multi-nationalsfunnelled sales of their product to organised crime syndicates via Montenegro.

These individuals, known as the “fabulous four” had each been granted a license by

Veselin Barovic’s Montenegrin Tabak Transit (MTT). MTT is perhaps the bestinstitutional example in Montenegro of the nexus between state security (RDB) and

Italian organised crime. While the European Commission asserts that MTT “was createdby certain members of Italian organised crime in conjunction with Montenegrin

officials”[16], Montenegrin company documentation show that the company wasofficially established by the RDB [17]. MTTwas the recipient of Italian organised crime

funds and it in turn made payments to individuals within the government of SlobodanMilosevic’s Federal Republic of Yugoslavia (FRY) in addition to individuals within the

republican government of Montenegro.Below the first tier of the “fabulous four”, EU investigators relied on Italian evidence

to reveal the second tier in this pyramidal structure which included Cuomo,

Mazzarella, Prudentino, Augusto Arcolli, Guglielmo Chiavi and Gregory Tsortzakisamongst others. They claim to have conclusive proof that demonstrated the multi-

nationals were aware of the true nature and activities of the shell companies which the“fabulous four” fronted for the individuals within the second tier. In documentation

obtained for a tobacco shipping agent in Belgium, they noted a letter sent by theshipping agent to a multi-national, informing the company that a substantial number

of their customers to whom they had earlier delivered cigarettes on behalf of wereengaged in “major EC fraud”. [18] The Commission noted that the response of themulti-nationals was not to cut off supply to these customers, but to re-direct supply

networks to Cyprus which lay outside EU jurisdiction.Convinced that the investigation had amassed enough evidence to mount a

successful civil action, the EC filed suit in the southern district court of New York City

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against two multi-nationals on 6 November 2000. The suit was dismissed on atechnicality – that the Commission could not file on behalf of member states.

On 6 August 2001, the EU re-filed with the direct involvement of 10 member statestogether with the Commission. The EU case was dismissed in February 2002 on the

grounds of precedent in the dismissal of a similar case brought by the Canadiangovernment. The US judge invoked the “revenue rule”, an old US law that prevents

the collection of foreign taxes in US courts.Whilst the EU has launched appeals in US courts, the failure to exact a financial

penalty due to an insular and outdated piece of US legislation unsuited to the age ofglobal capital flow does not mean that the EU’s investigation should be judged afailure. It represents the best example to date of an Integrated Multi-National

Investigation Project [19] by cooperating member states, tackling, appropriatelyenough, global crime involving multi-national upperworld conglomerates. The project

is worthy of further study as an example of how member state agencies and Union-wide bodies can cooperate in investigation into organised crime on a global scale.

The age of industrial-scale smuggling of duty-free multi-national product via theBalkans is now largely over. The tobacco multi-nationals apparently involved seem to

have changed their behaviour, something which may be attributed in part to a numberof measures undertaken by the EU. The first is the combative stance the EU tooktowards the tobacco multi-nationals. EU – Balkan law enforcement and customs

infrastructure projects may be assigned credit. Cyprus’s accession to the EU togetherwith the partial democratisation of the Balkans may also be contributory factors. But

while credit should go to the Guardia and DIA for dogged investigations andinnovative cooperation with member state and EU agencies, the fact remains that

cigarette smuggling – albeit in a new form – continues.It is the trade in the new form of smuggled product – counterfeit cigarettes – which

has pushed the multi-nationals into closer cooperation with European lawenforcement agencies. EU customs officers in northern Europe have identified

counterfeit as accounting from between 10% and 15% of all cigarettes consumed incertain member states. Tobacco from the European periphery and Asia is refined in theBaltic states and White Russia using organised crime start-up capital to refine the

production techniques of communist era cigarette factories. These factories operate ona just-in-time principal and can manufacture counterfeit cigarettes almost identical to

the market leaders they seek to imitate [20].This article has sought to illustrate the complex nature of cigarette smuggling into

the EU during the 1990s. It has identified the three principal actors involved, therelationships between them and the structures through which they functioned. It has

outlined the response of law enforcement agencies and the cooperation mechanismsthat were spawned as a result of the need to combat this supra-national networkinvolving multi-national companies, organised crime syndicates and Balkan

states. It should be emphasised that this criminal network has only succeededwhen national legislation - Swiss banking secrecy laws and the US revenue rule have

been upheld. A world in which crime is global cannot afford such national anomalies.

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However, it should be noted that despite the overall success of Italian andPan-European efforts to identify and interdict the smuggling network of the past

decade, cigarette smuggling continues to evolve and cheat states of revenue. All theevidence suggests that cigarette smuggling will continue to be a significant illicit

business whilst the excise duty of EU member states combine with sites on theperiphery of the EU to offer organised crime syndicates the profit motive and

opportunity to deprive the EU member states of revenue earmarked for health,education and social welfare services.

Notes

[1] Petrus C. van Duyne and Michael Levi, “Criminal Financial Investigation: A strategic and

Tactical Approach at a European Level” Transnational Organised Crime, Vol.5, No.1,(Spring 1999) pp. 60–61.

[2] Alessandro Buttice, Brussels press conference, May 2002.[3] Louise Shelley, “Identifying, Counting and Categorizing Transnational Criminal Organisa-

tions”, Transnational Organised Crime, Vol.5, No.1, (Spring 1999) pp. 12.

[4] Guardia di Finanzia report, 1999.[5] Philip G.Cerny “Neo-medievalism, Civil War and the New Security Dilemma: Globalisation as

Durable Disorder”, Civil Wars, Vol.1, No.1 (Spring 1999) pp. 45–46.[6] Hugh Griffiths “ A Political Economy of Ethnic Conflict – Ethno-nationalism and Organised

Crime”, Civil Wars, Vol.2, No.2 (Summer 1999) pp. 56–73.

[7] The transcripts from past and present cases before the International Criminal Tribunal forformer Yugoslavia (ICTY) list the activities of these groups in detail. www.un.org/icty

[8] Louise Shelley, “Identifying, Counting and Categorizing Transnational Criminal Organisa-tions”, Transnational Organised Crime, Vol.5, No.1, (Spring 1999) p. 7.

[9] ibid, pp. 5–6.

[10] Hugh Griffiths and Gordana Igric, “Djukanovic smuggling claims persist”, Investigative Report,July 2003, Institute of War & Peace Reporting, www.iwpr.net/index.pl?archive/bcr3/bcr3_200307_446_1_eng.txt

[11] Louise Shelley, “Identifying, Counting and Categorizing Transnational Criminal Organis-

ations”, Transnational Organised Crime, Vol.5, No.1, (Spring 1999), pp. 5–6.[12] Hugh Griffiths and Dragana Solomon-Nikolic, “Montenegro: Italy seeks three high profile

arrests”, Balkan Crisis Report, Institute of War & Peace Reporting (IWPR) November 2003www.iwpr.net/index.pl?archive/bcr3/bcr3_200311_470_2_eng.txt

[13] Hugh Griffiths, “Ex-Yugoslavs control Euro Smuggling Rackets”, Balkan Crisis Report, Institute

of War & Peace Reporting (IWPR) September 2003 www.iwpr.net/index.pl?archive/bcr3/bcr3_200309_459_2_eng.txt

[14] Hugh Griffiths & Tanja Matic, “Kosovo Hikes Tobacco Excise” Balkan Crisis Report, Institute

of War & Peace Reporting (IWPR), October 2003 www.iwpr.net/index.pl?archive/bcr3/bcr3_200310_462_2_eng.txt

[15] The 146 page civil case resulting from the investigation and first filed by the European

Commission on behalf of member states is available at www.nyed.uscourts.gov/coi/02cv5771cmp.pdf

[16] ibid, p. 73.[17] Montenegrin parliamentary commission documents seen by the author.

[18] Documents filed with the US Eastern District Court of New York by the EuropeanCommunity acting on its own behalf and on the behalf of the Kingdom of Belgium, Republic of

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Finland, French Republic, Hellenic Republic, Federal Republic of Germany, Italian Republic,Grand Duchy of Luxembourg, Kingdom of the Netherlands, Portuguese Republic, andKingdom of Spain.

[19] Petrus C. van Duyne and Michael Levi, “Criminal Financial Investigation: A strategicand Tactical Approach at a European Level” Transnational Organised Crime, Vol.5, No.1,(Spring 1999) pp. 60–61.

[20] Hugh Griffiths, “Ex-Yugoslavs control Euro Smuggling Rackets”, Balkan Crisis Report, Instituteof War & Peace Reporting (IWPR) September 2003, www.iwpr.net/index.pl?archive/bcr3/bcr3_200309_459_2_eng.txt

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