A Fake Shipping Container Leads to Chinese Cigarettes — and Italy’s Camorra Crime Group
23 Jun 2021

By Andrei Ciurcanu and Alessia Cerantola, OCCRP, 22 June 2021

OCCRP — Two smugglers and a China Tobacco executive were speeding through the streets of Naples in a VW Golf when they got a call that broke them into a panic.

They were on their way back from Salerno, a centuries-old seaport on Italy’s west coast, where they’d dropped off a container they hoped to send across the Mediterranean to Libya.

But unlike most of the cargo leaving Salerno, their shipment was loaded with over 17 tons of useless dead weight: bricks, mattresses, and old cardboard. The trio were conspirators in what Italian prosecutors later called an “ingenious” plan to smuggle tons of Chinese-made cigarettes into Europe and sell them on the black market.

On paper, a shipping container full of cigarettes would be exported to Libya through Salerno. Since they were supposedly just transiting through Italy, no excise tax would be paid. But in reality, the cigarettes would never leave European soil — only the container of junk would be sent to Libya.

Or at least that was the plan. Then, the driver’s cell phone rang. His son was on the other end of the line and the news was bad: Italian tax police were raiding the garage where they’d stashed the real cigarettes.

“We have problems,” he said urgently, according to a 2016 wiretap obtained by OCCRP. “It’s Guardia di Finanza at my place, asking for the documents of the container. Gimme all the documents, c’mon!”

“But how do they know?” asked the tobacco company official, a note of fright in her voice.

She had good reason to be worried. While her companions were experienced smugglers who had worked with the Camorra, a crime group with deep roots in Naples, she was a high-ranking executive at China Tobacco International Europe Company (CTIEC), the Romania-based subsidiary of the world’s biggest cigarette producer, China National Tobacco Corporation, often simply known as China Tobacco.

Now, here she was providing inside information and logistical support to serious organized crime.

The case provides the first public evidence that China Tobacco officials have engaged in cigarette smuggling, and links their operation to criminal groups active in Europe.

Europe is a key region for China Tobacco. Although the sprawling conglomerate controls almost half the global cigarette market, most are sold to China’s approximately 300 million smokers. China Tobacco is now expanding into new markets, and smuggling is a key strategy tobacco companies have often used to do that.

CTIEC wrote in an email to OCCRP that it had always followed the law, conducted due diligence, cooperated with customs authorities, and taken other measures to combat the illegal tobacco trade.

“As a Romania-based company, CTIEC is committed to comply with the laws and regulations in Romania as well as other countries where our business occurs,” the company said.

Ionescu denied any involvement in the cigarette smuggling ring.

“I don’t speak Italian now and I did not speak Italian before. I did not know them,” she said.

But wiretaps, court documents, and a timeline of events pieced together by OCCRP tell a different story, with Italian prosecutors calling Ionescu a “central pawn” in a smuggling operation that stretched across Europe.

At the center of this network is a factory in rural Romania. Journalists discovered that the CTIEC-owned facility manufactures some of Europe’s most popular illicit brands, and has supplied companies tied to smugglers in a number of countries, including Italy.

A Romanian Hub

On the banks of a slow-moving river that rolls through forested hills north of Bucharest sits one of China’s biggest investments in Romania: a cigarette factory.

The unassuming building near the tiny agricultural town of Parscov has existed since early 2000 as a minor investment of a China Tobacco subsidiary. But starting in 2007, it was rebranded as China Tobacco International Europe Company (CTIEC) with the idea that the factory could serve as China’s main outpost for expanding cigarette sales into Europe. Since the early 2000s, China has invested over $40 million into the facility.

TobaccoChina Online, an industry publication that covers China Tobacco closely, described how CTIEC used this money, as well as “great promotion efforts” by China’s State Tobacco Monopoly Administration, to invest in new technologies and upgrade its production line.

“As a pioneer in the implementation of China Tobacco’s ‘Go Global’ strategy, China Tobacco International Europe has a world class ambition to strive to become a world leading brand,” CTIEC announced on its official company website.

By 2018 it was producing almost 2 billion cigarettes per year — ultra-cheap brands like Dubao, Dubliss, and D&B, as well as some of China Tobacco’s higher-end offerings, like Marble and Regina.

But despite CTIEC’s lofty ambitions, or perhaps because of them, a share of its output was finding its way to illegal markets.

Not long after the factory opened, local media in Romania’s northwest began featuring reports that its cigarettes were being moved by organized crime groups active along the country’s borders with Ukraine and Moldova.

Questions remain about exactly who’s behind the smuggling, and the involvement of CTIEC staff. But what’s clear is that Marble and Regina became some of Europe’s most smuggled brands in the years after China Tobacco decided to “go global.”

By 2016, Marble accounted for a third of Romania’s illicit cigarettes, a “spectacular evolution” that increased its share from 9.8 percent just three years earlier, according to a confidential report commissioned by four tobacco companies. Marble and Regina also became the leading brands in illegal markets across Europe between 2012 and 2016, the global accounting firm KPMG reported.

In Italy, Regina cigarettes quickly rose to become the single most smuggled brand in the country. By 2016, half of all seized black market cigarettes were Reginas.

Cosimo De Giorgi, head of customs for Italy’s Guardia di Finanza, said he believed the Regina brand was a “Trojan horse,” tailor-made to cultivate an Italian market for Chinese cigarettes.

“Just by calling the cigarette ‘Regina’ it makes the product more, let’s say, Italian sounding –– a name related to the Italian tradition, the Italian language,” he said.

The brand is widely smoked in Italy’s poorer regions, like the area around Naples, because it is cheaper than legal cigarettes, he added.

The Guardia di Finanza also suspects that smugglers are bringing China Tobacco packaging and raw materials for Regina cigarettes to Campania’s many illegal tobacco factories, where they can be produced and sold locally.

That way, “the state of China doesn’t lose one single yuan in excise taxes, as those are paid to the country where the cigarettes are sold,” De Giorgi said. “On the other hand, China is promoting its products and paving the way for its market of cigarettes.”

Despite the large and growing number of cigarettes it produces in Europe, China Tobacco is difficult to monitor. It’s not a publicly traded company and isn’t obliged to release financial information — and it doesn’t. CTIEC’s official website has been offline for nearly a year.

In a 2018 report on tobacco smuggling in Romania, the chapter on CTIEC was nearly empty. “The anti-smuggling activities of the Romanian branch of CTI [China Tobacco International] could not be analyzed,” the report said. “The company did not respond to researchers’ requests”.

However, OCCRP managed to obtain a decade’s worth of the company’s trade data.

Read more at OCCRP

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