Inside the booming smuggling business in the Donbas

The key players in the Donbas’ booming smuggling business are politicians, oligarchs, and the criminal underworld. Coal, gold, gasoline, and cigarettes are the main resources the separatists are fighting for in eastern Ukraine, an investigative report by Novaya Gazeta finds. What follows is an English-language overview of the report, summarized and translated for length and clarity by Vera Zimmerman.. Omitting geopolitics, propaganda, and the reality of war, Novaya Gazeta conducted a detailed investigation into how smuggling in the Russia-occupied territory of the Ukrainian Donbas region works and who benefits from it. Following the money across the Russo-Ukrainian frontline demarcation line and across the Russian-Ukrainian state border through a network of kingpins, oligarchs, and politicians is central to understanding how this business works. In her report, Yulia Poluhina, a journalist of Novaya Gazeta, discovers that the separatists’ motivation to continue the conflict is so they can easily smuggle energy resources and goods. Her investigation reveals the connections among the local elite, oligarchs, and politicians in Russia and Ukraine. It also shows the internal power struggle among them. Based on interviews with Donetsk businessmen, the Cossacks, people from the separatist elite circle, the investigation details the criminal schemes, smuggling networks, and finds that the Donetsk and Luhansk criminal enclaves earn their fair share by serving political and financial elite in Ukraine as well as in Russia.

The criminal enclaves find the de facto situation of no war and no peace to be ideal.

It is not news that the Donbas is run by criminal enclaves. Over the last twenty-five years, Donetsk and Luhansk had a shadow economy closely intertwined with administrative, financial and criminal interests. The Euromaidan and Russian Spring were equally agonizing events as they upset the balance, which led to the significant transformation we’re seeing now and massive killings.

“In December 2014, ‘thieves in law’ and criminal leaders gathered to figure out how to survive in the conditions of the new reality. They discussed the system of quotas, the work of the criminal community and how Donetsk would operate. It was decided that Donetsk thieves would spend most of their time in [Russia-occupied] Crimea or Donetsk.”

After Maidan, criminal leaders sought protection from Moscow to get the shadow economy back to normal. But, after the system had been stabilized, the conflict developed between criminal leaders for their share of the shady business. According to various sources, protection of the Donetsk and Luhansk mafia is provided by the Border Guard, the Cossacks, the corrupt police, Oplot (a pro-Russian organization promoting ideas of the Russian world), and Ukrainian oligarch Akhmetov’s personal security.

In spring 2016, the conditions for the mobile groups combating smuggling on the demarcation line became so unbearable that their work had to be terminated, which only bred further smuggling. Coal, petroleum, metal scrap, alcohol, tobacco, and precious metals are the main resources being smuggled. Vying for control of these resources fuels the conflict and leads to the power struggle.

The coal trade

The fighting in eastern Ukraine disrupted coal supplies. When the trade of coal between Ukraine and the republics was officially banned in early 2015, Ukrainian oligarch Rinat Akhmetov was the first to arrange export of his coal. Akhmetov’s territory of coal mines was protected by the Cossacks. The Cossacks also worked with the "Luhansk People’s Republic" ("LNR") but preferred to live by their own laws. Given that the coal mines did not yield greater profits than the illegal makeshift coal "kopankas," or dug-pits, the Cossacks ended up protecting about 30 "kopankas." Aleksandr Melnichuk, deputy minister of "LNR's" coal mining industry, offered Igor Plotnitsky, the head of the "LNR," to transport coal from the "kopankas" to Ukraine and Russia. After the battle for Debaltseve, the lawlessness of the Cossacks gradually declined, while Akhmetov’s people supplied coal to Ukrainian enterprises.

“The consensus is that Melnichuk, promoted to the "LNR" minister of fuel, energy and coal mining industry, works in Akhmetov’s interests.”

The coal was transported by rail agreed upon by the "LNR." The same system allowed for the transfer of goods, clothes, alcohol and tobacco. Also, supplies of gold and silver went through this crossing. The fuel supply and distribution in the Donbas depend on good personal contacts between Ukrainian and Russian politicians and oligarchs. When fuel shortages hit the "DNR" and "LNR," a leader of Oplot, Yevhen Zhylin, turned to an oligarch Serhiy Kurchenko, whose companies supplied fuel and gas to Russia-annexed Crimea and the occupied territory of the Donbas, while he was on the run.

Oplot  — a network of civic and commercial organizations founded in 2010 in Kharkiv by Yevheniy Zhilin after his retirement at 34 y.o. from Ukrainian federal police [assassinated allegedly by competitors to his smuggling business on 19 September 2016 at a restaurant in Moscow suburb - Ed.]. Starting from 2013, its civic and martial arts branches actively promoted the ideas of the "Russian world," an ideology driving Vladimir Putin's imperialist expansion, and had affiliates in the majority of large cities in southeastern Ukraine. The network actively opposed Euromaidan supporters. At present, it is a registered organization in Russia.

Kurchenko had a good rapport with a Ukrainian politician Ihor Yeremeyev, who owned gas stations in the "DNR." After Zhylin coordinated with the Kremlin’s curators, Kurchenko’s companies began supplying fuel to Yeremeyev’s gas stations and then went toward Mariupol to the Ukraine-controlled territory.

Alcohol and cigarettes

Among smuggled goods that cross the demarcation line are alcohol, counterfeit tobacco, and metal scrap. Sometimes the criminal enclaves used humanitarian aid as a disguise to transport counterfeit tobacco from Donetsk to the Russian market.

“The cigarette smuggling goes in two directions. We receive counterfeit cigarettes, while licensed good quality cigarettes are being exported. The same thing with the alcohol. Low quality vodka is imported to Donetsk, while good quality alcohol (beer, champagne, cognac) is exported.  The smuggling of food goods goes in one direction—it goes there [Russia].”

“After the fighting in Debaltseve in March 2015 the tobacco company Khamadei began working as a link. The two factories in Donetsk and Debaltseve fell under the control of the DNR. It may sound cynical to some, but this was the main victory laid down in the Minsk agreements.”

The precious metals

Another source of separatists’ income is the smuggling of precious metals, such as gold and silver. This summer an anti-smuggling group together with border guards discovered the cargo of silver and gold traveling under the guise of church utensils for a Ukrainian priest in a truck transporting coal. It was worth $500,000.

“…I hope you have realized that those cigarettes, gold, silver and petroleum you buy are one of the main causes that drive the bloody power struggle?”

“In illegal business, the balance between work, quotas and criminal community should not be upset, said Andrei, an entrepreneur. The war upset the balance in the world of thieves.”

  The report shows the power struggle among the separatists for control of the illegal business, sometimes resulting in detentions of their own officials. Plotnitsky recently reported the prevention of a coup. In recent months, there have been a number of criminal squabbles, from turf wars to competition over energy resources and multi-million ruble smuggling routes, resulting in arrests and assassinations.

Read more: Alleged “military coup” followed by purge of “LNR” chieftains

The report concludes that the recent purges of smugglers could mean that someone wants to control them, eliminate competition, and especially get rid of witnesses of what was happening over the last two years.

This article was originally published in Russian by Novaya Gazeta and summarized and translated for length and clarity by Vera Zimmerman. See full translation of the report by UNIAN.