Interdependence between money laundering and cigarette smuggling: empirical evidence from Ukraine

Abstract

Money laundering is one of the EU Policy Cycle priorities, Europol’s priority crime area, under 2018-2021 EU Policy Cycle. Money laundering is an offence in its own right - but it is also closely related to other forms of serious and organised crime as well as the financing of terrorism. Smuggling of money laundering cigarettes is a strategically important area for any country seeking to reduce the risk of these phenomena occurring. The main aim of the article is to determine how money laundering is related to cigarette smuggling in Ukraine. Ukraine is one of the biggest official exporters of cigarettes among former Soviet Union countries. Smuggling of cigarettes is the basis of the shadow economy flow because, according to studies, the proportion of counterfeit tobacco products in circulation is only 0.1%. That is, the illegal turnover increases almost exclusively due to the smuggling of cigarettes. Ukraine is included in the US INCSR list of major money laundering countries. Money is often laundered through real estate, insurance, financial and non-financial institutions, shell companies and bulk cash smuggling schemes. The focus group survey has revealed that cigarette smuggling is linked to money laundering, although the links are not apparent. The results are in line with findings of previous studies: the money earned from cigarette smuggling in Ukraine is often used for personal needs, tourism clusters, acquisition of real estate, development of legitimate business and/or funding of corruption schemes.