Russia may have annexed Crimea from Ukraine in 2014, largely cutting the peninsula off from the Ukrainian mainland, but the Crimean alcohol business appears to be in no hurry to burn bridges with Ukraine.
Large Crimea-based alcohol brands are still selling their drinks in Ukrainian stores, bypassing Ukrainian and European Union sanctions, according to an investigation published by U.S.-funded Russian-language media Current Time along with the anti-corruption group Scanner Project on Dec. 2 as a part of an investigative series.
The EU and Ukraine imposed sanctions on Crimea in 2015 after Russia illegally occupied the peninsula in 2014. By getting around the sanctions, companies are not only ignoring the political implications of the annexation but also breaking the law, fooling consumers by lying about where their goods are coming from and operating at a greater scale than they claim.
The economic sanctions prohibit the sale, supply, transfer or export of goods in several sectors, including alcohol, tourism and infrastructure.
Crimea is widely known for its vibrant tourism and wine industries. The annexation and ensuing sanctions meant that many owners of businesses operating on the peninsula had to choose between selling their business or finding ways around the restrictions.
Four alcohol makers — Eastern Beverage Trading (EBT), Beverage Trading Company (BTC), Villa Krim and Inkerman — have chosen to bypass the laws. The first two companies, which are interconnected, produce and sell alcohol under the brands Arctica, Medoff, Mernaya and Koktebel. The latter two sell products under their own name.
Swapping colors and audiences
The producers of Medoff vodka and Koktebel cognac began working in Crimea before the annexation. Now the alcoholic beverages are produced in Crimea as well as Russia and mainland Ukraine.
Wines produced by the Koktebel brand and Medoff vodka are sold in both Ukraine and Russia. The companies have simply adapted to their audience – some bottles sport the yellow and blue Ukrainian flag and others feature the Russian tricolor.
The Ukrainian producer, Beverage Trading Company, published congratulatory posts on Facebook on the Independence Day of Ukraine.On the Russia Day holiday, the Medoff vodka Facebook page posted the hashtag #power with the Russian flag.
In April 2014, Vitaly Mylnychuk, the director of public relations of the Crimean Vodka Company, owned by EBT and BTC, gave two interviews.
The first interview was to the pro-Russian agency Kryminform. “The prospects are bright, although the Russian market will have its own nuances,” he said, adding that the company wants to receive a Russian excise stamp.
In August 2017, the Russian National Commercial Bank gave bank guarantees for the payment of Russian excise stamps to the Crimean Vodka Company for 500 million rubles ($8.4 million).
A week after the 2014 interview, Mylnychuk spoke with the Ukrainian edition of Capital. He claimed his company was leaving Crimea due to “vague rules of the game” and that the company remained Ukrainian. He said it would even create a new legal entity in Ukraine – Eastern Beverage Trading. But, by this time, Crimea-based EBT had existed for a year.
Ironically, despite all the sanctions and Mylnychuk’s interview to the Ukrainian media, the company that owns his Crimean Vodka Company, Cyprus-based EBC Eastern Beverage Company Limited, was increasing investment in its Crimean venture from 3.7 million to 95 million rubles (from $57,700 to almost to $1.5 million) in 2015-2016.
Label makers and label changers
After the annexation of Crimea, one of the largest Ukrainian alcohol producers legally divided its business into Ukrainian and Russian parts. Wine producer Alef-Vinal claims it sells its wine with production location indicated as Crimea in Russia and sells products to Europe and the U.S. from mainland Ukraine.
As EU and U.S. sanctions prohibit the import and export of products from Crimea, manufacturers are able to bypass the sanctions with this scheme, according to Current Time and Scanner. However,their investigation reveals that the grapes in both plants – Crimean and Ukrainian – are the same.
The Ukrainian and Russian Alef-Vinal companies have separate web pages. They are similar in design, but differ in the list of alcohol brands sold.
The Russian page shows Crimean vineyards with a map and detailed descriptions, while it is impossible to find the origin of the grapes in the wine on the Ukrainian website.
The Russian site also indicates that its products are popular around the world, including in the U.S., South America, Europe and Asia.Due to sanctions, the company is not supposed to export products from Crimea.
One of Alef-Vinal’s popular wine brands in Ukraine, Villa Krim, can be bought in the international METRO supermarket chain.
However, photos of the label on the METRO site indicate that the manufacturer is a company called Atlantis, which is based in a Ukrainian city.But, below that, the label says that the manufacturer of processed wine materials is Alef-Vinal-Crimeain the village of Bagerovo, Crimea.
Current Time contacted METRO in Ukraine for a comment and,soon after,the photos of the labels indicating the composition and manufacturer disappeared from the site.
The press secretary of METRO stated that “Alef-Vinal has no managed assets in the temporarily occupied territories of Ukraine and does not carry out its economic activities in these territories.”
The Inkerman wine factory was also divided into Ukrainian and Russian subsidiaries after the annexation of Crimea.
Wine that is bottled at a factory in Sevastopol is exported to Russia, and wine produced in mainland Ukraine with the same Inkerman brand name is bottled at a factory in Nova Kakhovka.
The investigation found that both wineries are owned by the Swedish company Inkerman International, which has been working in Crimea for almost five years in violation of EU sanctions.
The Inkerman category on the METRO Ukraine website clearly shows that the wine’s label states that it was produced in Sevastopol.
According to the director of Inkerman Ukraine, Anna Gorkun, the Crimean Inkerman selling products in Russia does not violate the sanctions since it acts according to Russian law, which does not consider the delivery of goods from Crimea as exported goods.
“From the point of view of Russian and Ukrainian legislation, the capacities that produce wine in Crimea, they do not enter into foreign economic relations with Russian counter parties. For them, this is a domestic market, this is not a foreign market,” she said.
The various alcohol production companies have found ways to manufacture and run businesses, despite sanctions, through offshore accounts, selling through other companies and changing languages on labels. While the companies deny any wrongdoing, the first part of the investigation by Current Time andScanner continues to debunk their statements.
Some wineries have been pressured by the Russian-backed occupation authorities to nationalize their plants or return their leases to the city they are in, despite some factories being partially owned by the State Property Fund of Ukraine. Company South Project, whose shareholders are reputed to be friends of Russian President Vladimir Putin, has acquired the Crimean winery New World and is interested in expanding by purchasing Inkerman’s wine plant in Sevastopol.
The Russian Federation continues to slowly expand its grip on annexed Crimea. Since the annexation, companies have completed at least four Russian government contracts totaling nearly 140 million rubles ($2 million).
The more businesses bypass sanctions, the more opportunity Russia has to profit from the Crimean annexation.