How Ukraine's War Became Big Business For the Underworld

The deal was complete in a matter of minutes and the fuel barrels stood empty. The smugglers, however, would soon be embarking on their next run.

A week's work in rebel-held Luhansk had depleted the taxi's diesel tanks; every fuel station stood empty. Following a flurry of phone calls, the driver reserved the last spot on the client list of a local smuggling ring. "We need to get there quick," said the cabbie, who took VICE News to the fuel traffickers on condition of anonymity. "We can't miss this — the city will be dry for days."

In the biting cold, he sped down a central, concrete boulevard then veered onto backroads that crisscross this Soviet-era city of desolate proportions — the de facto capital of the self-proclaimed Luhansk People's Republic (LNR). He eventually pulled into a warehouse on a run-down industrial estate on the outskirts.

Two men in oil-stained overalls checked the driver's name and vehicle against the description given over the phone before starting up a little engine to pump in the diesel. Conversation was kept to a minimum, though the younger of the local pair disclosed the diesel's origin. "Russia," he grunted without looking up.

The customer handed over a mixture of roubles and hryvnias — a headache in a corner of Ukraine where Russian banknotes have become the predominant currency. "Are you fucking kidding me? I don't have time for this," said the older man, before charging a surcharge on top of the official exchange rate.

The cost of fuel fluctuates with availability. The previous day, the price had hit an inflated 55 roubles per litre. With supplies now close to zero, it had ballooned by almost 10 percent to 60 roubles.

Before the taxi driver had secured the reservation, he had contemplated heading southeast to nearby Krasnodon, which earned its notoriety as a smuggling hub in the chaotic aftermath of Ukraine's independence in 1991. But he received a tip-off: truckers had bought up the border town's last remaining 200 liters of black market diesel earlier that day.

Now, finally, his vehicle's tanks were full. He could return to work and to the semblance of a normal, civilian life. No need to get himself mixed up with such unsavory types again, at least until the fuel gauge inevitably dipped to zero once more.

* * *

The conflict in eastern Ukraine has done little to dent the coffers of the country's criminal underworld. Smugglers are profiting from the war as an economic blockade of separatist territories spawns a black market trade in food, fuel, and medicine. By intensifying bureaucracy and prohibiting certain goods, Kiev has made it progressively difficult to supply this breakaway enclave. The aims of this punitive strategy include limiting supply routes for rebel militia commanders and forcing Russia to aid a region that it spurred into war. In reality, it is simply aggravating the country's bitter divide.

Vast queues block checkpoints into the self-proclaimed Donetsk People's Republic (DNR), where traffic jams ensnare hundreds of cars for miles and tempers run high. Civilians are allowed up to 50kg (110 lb) of goods while fuel, weapons and other supplies with potential military uses are banned.

But the profitable combination of economic blockade and inflated prices has proved a boon to illegal trade. Ukraine's security service (SBU) spearheads counter-smuggling efforts with mobile units comprised of border guards, civilian volunteers, customs officials, and military personnel to monitor key checkpoints and patrol the front line.

In the space of six months, according to official figures, these units have halted more than 400 vehicles carrying smuggled goods — averaging over two a day. They claim to have seized 53 tons of meat and fish, 140 tons of scrap metal, 20 tons of fruit, 1.3 tons of medicine, and more than 26,000 bottles of counterfeit vodka.

"Every day these units stop trucks, which attempt to get into the temporarily-occupied territories from Ukraine's government-held regions," Olena Gitlianska, a spokeswoman for the SBU, told VICE News. "They bypass checkpoints or pass through them with the help of forged documents."

Most food is imported from Russia into rebel-held Ukraine, where prices can be double or triple those elsewhere in the country. The SBU says that rebel authorities impose a "sales tax" on such goods to help finance their separatist republics.

Shortages were at their worst around Luhansk amid the artillery blitzes from government forces and Russian-backed separatists in the summer of 2014. One local man in his 20s, who asked to remain anonymous due to security concerns, described how weapons became a temporary currency in the city as supplies of other potential bartering tools dried up. "I gave a friend a lift to the Russian border — he didn't have any cash so he gave me a grenade as payment," he told VICE News. "I found some rebels and swapped it for two cartons of AK47 rounds. Later that day, I got a haircut for two bullets."

Civilians here face sporadic fuel supplies and depend heavily on Russia and intermittent smuggler runs. Petrol stations can host long lines of cars and repeatedly stand closed and empty. But, despite the embargo, fuel still makes it over — whether from Russia or from government-held Ukraine once border guards are sufficiently bribed.

The Black Sea provides a possible route from the Middle East and Azerbaijan. Counter-smuggling units have even discovered underground DIY pipelines, running to several kilometers in length, used to pump fuel over the conflict's buffer zone. The shop front for most smuggled fuel here is the car services industry, including MOT centers and tire dealerships.

Shortages dog neighboring Donetsk too. "I cannot work without petrol," said another taxi driver, who gave his first name as Alexander. "If there's no petrol, the car is parked — how can I work?" The extensive problem recently prompted an intervention late last year from the DNR's leader, Alexander Zakharchenko, who promised an ambiguous solution by the start of 2016. "We will take measures," he said. "Before the new year, there will be lots of gasoline." Luhansk's rebels have even set up a public enterprise of sorts called 'Luhansk Oil Product' (Luhansknefteprodukt), run by the region's pre-war military prosecutor, to manage the floundering fuel stations.

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Experts say organized crime syndicates are likely to have a hand in supplying fuel to rebel-held Ukraine, although the trade does not in any way compare to illegal drugs in terms of maximizing profit for risk and bulk. As Moscow prioritizes fuel stocks for separatist militias over the region's civilians, low-level opportunists tend to run most operations.

"Typically, the trade involves petty entrepreneurs as well as your classic chancers and scoundrels who were involved in the black market before the war," Mark Galeotti, a professor of global affairs at New York University and expert on Eastern European crime networks, told VICE News. "It's all about leveraging what you've got to get hold of what you need."

That said, high-level officials have been implicated in the trade. LNR's fuel and energy minister, Dmitry Lyamin, was arrested in October and accused of corruption, of allowing criminal networks to control the rebels' strategic energy reserves, and of selling millions of tons of smuggled coal to Ukraine — purportedly around 90 percent of the total amount of coal mined in the self-declared republic. His arrest, however, was as much about his alleged corruption as it was about factional power struggles in the LNR.

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While some smugglers in rebel-held territory may be driven by pro-separatist ideology, profit is the likely motivation for most. A well-placed source described one opportunist involved in the region's burgeoning black market: a geologist who regularly works in the Middle East and lives in Ukraine, characterized as a Breaking Bad figure of sorts but "without the extreme moral degradation". Thanks to the extraordinary circumstances of war, this outwardly respectable figure with a clean history found himself in a position to smuggle fuel around the front line and continues to this day.

Two major factors provide the driving force for this illicit trade: corruption and tradition. With Ukraine rated more corrupt than Russia and Nigeria, the SBU focuses much of its anti-smuggling efforts on crooked officials who wave through traffickers. Anecdotal evidence suggests that the going rate for frontline bribes ranges from two cents to four cents per pound of meat.

Equally, a rich heritage of smuggling in the region forms a robust foundation for today's frontline commerce. For decades, Ukraine has been a key route for the westward movement of anything from Afghan heroin to black market arms, contraband cigarettes and trafficked people.

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The post-Soviet nation has produced no shortage of seasoned smugglers since the collapse of communism. Ukraine was home to the USSR's primary Black Sea ports (and thriving organized crime centers), Odessa and Sevastopol. The end of the Soviet era hit the country's huge workforce of merchant seamen hard and many found themselves out of work. In the decades that followed, Ukrainian crews were repeatedly arrested in big-time cocaine seizures at sea, with one gang of mariners busted with 13 tons.

Ukraine is also an important turntable for international weapons shipments, bolstered by entrenched, multi-national crime networks and a cycle of political crises. Much black market weaponry filters through Odessa, which has also served as a key transit point for arms heading from Russia to Transnistria, the unrecognized, breakaway enclave in eastern Moldova.

Perched on the edge of the Schengen Area, Ukraine boasts some of the world's cheapest cigarettes, earning it a dubious reputation as a bonanza for tobacco runners. The booming trade has fuelled a teeming black market that pushes huge supplies of cheap, untaxed and unregulated cigarettes across the European Union. For a price, customs guards at border checkpoints to the west of the country facilitate the trade as they wave through vehicles packed with Ukrainian-made Marlboros, Camels and Parliaments into Hungary, Poland, Slovakia, and beyond.

The war has opened up a new front in economic crime too. Last year, the SBU busted a ring of fraudulent businessmen in the eastern port city of Mariupol over a multimillion-pound scam involving forged tax documents and bogus deals with Donetsk airport, which had already been totally destroyed by heavy fighting months earlier.

"The underworlds in Russia and Ukraine are thoroughly penetrated and interconnected, something which the war has not done anything to stop," said Mr Galeotti. "Since Soviet times, smuggling has enjoyed a long tradition here, even a degree of legitimacy — the sense of a family business.

"There's a cultural pedigree and a pride in what they consider a tradecraft. In other words, you're not just a criminal: you're a smart guy doing smart things."

Follow Jack Losh on Twitter: @jacklosh

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