Ukraine is in smoke. The grey area grows again, and it pays the budget for everything

The Ukrainian budget, weakened by war and crisis, suffers from a increasing grey region in the cigaret market. After a temporary decline, the level of illegal sales has increased again, reaching 16.25 percent in April 2025. This means that 1 in six cigarettes, which fell into the hands of a Ukrainian smoker, came from an illegal source.


This is the consequence of organised criminal groups, and the failure to the state is enormous. In 2024 alone, according to Kantar's estimates, the Ukrainian budget lost more than 25 billion hryvnia (more than PLN 2 billion). Ukraine exacerbates the fight against crime, strengthening the dedicated office set up for this purpose.

Where do illegal cigarettes come from?

Kantar's study sheds light on the main players in this dark market. Most illegal cigarettes (8% of the market) come from illegal production. The remaining 5.8% are products which, alternatively of being exported to customs or free zones, flood the home market. The full size of the grey region exceeded 5 billion 200 million cigarettes. Over 52% of illegal exports are accounted for by LLC "Nationalnyi Vyrobnik" (formerly known as the Lviv Tobacco Factory) owned by Hryhorija Kozłowski, who have been struggling with accusations in this field for years. The remainder of illegal exports (43%) are brands owned by Marshall Finest Tobacco.

How does this work in practice? The mechanics is simple. Criminals usage pseudo-export – they declare that the goods are to enter the markets of the mediate or Far East, or into free zones. In fact, however, cigarettes never leave Ukraine or are illegally introduced back there, but already without paid excise duty.

A 1000 tons of tobacco, zero excise duty.

Ukrainian services, including the Bureau of economical safety (BEB) and Border Guard, regularly capture specified transports in ports in Odessa and Montenegro. The containers retained, allegedly full of cigarettes from Egypt or Switzerland, are actually manufactured from the area of Lviv or Tarnopol.

One example is the Tarnopol case. A Ukrainian company formed in 2024, allegedly for the manufacture of shish tobacco, purchased nearly a 1000 tons of tobacco without buying up a single excise stamp. This is simply a immense amount of natural material that experts estimation is adequate to produce 2 billion cigarettes. This is 40% of the full illegal consumption of cigarettes in Ukraine in 2024. This example shows how easy criminals bypass the system, and the deficiency of effective surveillance of tobacco imports makes it easier for them to act.

Changes at the heights of power: hope for a breakthrough?

In consequence to the critical situation, the Ukrainian government took decisive steps. The fresh head, Oleksandr Tsywinski, a erstwhile NABU officer (Ukrainian CBA counterpart) headed the Bureau of economical Security. Reorganised BEB, reinforced by experienced staff, is to take up the fight against economical crime and organised groups that exploit the country's hard situation.

Is this adequate to halt the return of the grey zone? The past fewer months have shown that criminals are highly flexible and can rapidly adapt to changing conditions. Only a determined and continuous fight against illegal activity, supported by political support and effective cooperation between the services, can have a lasting effect. The destiny of billions of hryvnia, which should feed the state budget, is now in the hands of fresh authorities.

Source: Kantar report.