The Baltic Course
ALCOHOL MARKET
CRIME
TECHNOLOGIES


It's not the vodka that kills

By Aivars Pastalnieks (Jauna Avize),
Vakaris Deksnis (Lietuvos rytas),
Alexander Vene

After restructuring the spirits market, conflicts and murders in Latvia seem to be tailing off. The fight against smuggling in Lithuania continues with varying success, while Estonia has sharply increased consumption of legal spirits after the Parnu moonshine tragedy

Latvia: leaving criminal conflicts behind?

Criminal stories connected to the alcohol business began in Latvia during the mid Nineties. But a significant shift in Latvia's spirits market has lately come about. Several experts forecast that criminal conflicts and murders connected with the spirit business are a thing of the past. Finally a link on the main scene seems to have crystallized, and so have the leading companies on the spirits market.

In early October 2001, Latvijas Balzams (LB) decided to purchase its rectified spirits from the manager of Riga Bestsprit, Vladimirs Cadovics, distilled at the Kalsnava distillery. That means that LB has discarded the spirits formerly supplied by Jaunpagasts Plus, lately having found itself in all sorts of trouble.

To make the context of events clear for readers outside of Latvia, it should be noted that until the very day of his death on October 14, 1999, Latvian businessman Arnis Skesteris was connected to the Kalsnava spirits distillery. It was he who seeked the help of law-enforcing authorities and warned that his unwillingness to cooperate with smugglers and shady businesses is putting his life in danger, pointing at his partner Vladimirs Cadovics as one of his main enemies. Cadovics was even arrested, but no connection between the supposed threats and the murder were ever proven.

It's also worth mentioning that it was the Kalsnava distillery named as the main competitor on the domestic market for ethanol and bio-fuel production in the business plan prepared by Jaunpagasts Plus, when the company's manager and former chief of Latvijas Balzams, Dainis Peimanis, was still alive (shot in his car on Oct 15, 2000). But if a promised state guarantee for 8.9 million lats was granted and the company's bio-ethanol project given life, spirits production would have increased significantly and prices in Latvia would have fallen. The very existence of the Kalsnava distillery would then be questioned. Along with this, competitiveness amongst spirits producers would thus weaken.

But then again, in this case we wouldn't have the answers to the possible relation between the two would-be monopolists - Jaunpagasts Plus and Russia's Soyuzplodimport, the strategic investor for Latvijas Balzams; both of which would then dictate the rules and prices; and what role would the Kalsnava distillery then play?

We probably won't ever find out the answers to these questions, seeing as assassin bullets ended the lives of both Skesteris and Peimanis. After the first was done with, the Kalsnava spirits distillery passed into the hands of Cadovics, but the death of the latter has probably paralyzed the Latvian bio-ethanol project in Jaunpagasts forever.

What's come out of these events? Police experts say one possible versions is that, theoretically, it is most profitable to produce and sell both legal and black-market booze, if the spirits distillery and alcoholic beverage production company lies in the same hands, or else if there is an agreement between businesses, for example, to hide the origin, amount and sales of spirits and alcohol produced.

Peimanis' role in all this and the issue of smuggled alcohol may turn out to be very essential. What kind of negotiations he conducted, what were his plans and with whom he made his decisions, who he agreed with and who he didn't are all still pressing matters in the case.

Latvijas Balzams has backed its decision to purchase spirits from Bestsprit with the fact that the company's Kalsnava distillery offers a better methanol content than Jaunpagasts Plus. Peimanis' partner and now head of Jaunpagasts Plus, Aivars Podnieks, does not hide the fact that the Latvijas Balzams decision is related to the chain of events around Jaunpagasts Plus, including the murder of its former head. A certain relationship is possible, admits Podnieks.

Both the above-mentioned murders are the biggest events of the past years on the Latvian alcohol market. In this context, one could also mention the attempted murder of another businessman in this sphere, Maris Millers, in October 1999. Although the motives of this attempt are still unclear, the police believe that the man was connected to the very top circles of contraband spirits. In his time he had also pondered over building a new distillery.

Another incident occurred during investigation into cases linked to smuggled spirits - only miracle could have saved Helmuts Skuja, a senior operative officer of the Financial police squad after taking four bullets on investigation rounds.

All these events took place on the same backdrop - the privatization of Latvijas Balzams, the bio-ethanol project in the village of Jaunpagasts, as well as anticipated changes in the alcohol market of Latvia and part of the Baltics.

It's difficult to judge whether today's match between Soyuzplod-import and the Kalsnava distillery was already planned out 2 or 3 years ago. If the script was written well beforehand, then we can safely say that the great re-division of the Latvian alcohol market is basically over. And probably no more shots will ring out for quite some time. Nevertheless, as this article is being written, some forces in state authorities have clamped down on Bestsprit for a rather significant tax debt.

Lithuania: taxes against smuggling

Not all too long ago the scale of smuggling in Lithuania was dreadful - around 400,000 liters of confiscated illegal spirits were destroyed in the country annually. But after cuts in excise taxes for strong alcoholic beverages in the fall of 1999, the flow of illegal trade ran low. This claim is backed by customs statistics: if in the first half of 2000 customs officers confiscated 10,972 liters of alcohol worth 82,500 litas, then in the first half of this year - they detained only 2,290 liters worth just over 34,000 litas.

Certainly this is just the tip of the iceberg, but it is still thought to reflect the general trend. In early 1999 an almost record-breaking underground vodka factory was discovered near Kaunas where 214 two-hundred liter barrels of spirits were found. Underground manufacturers discovered in later days were more on the humble side - like the one found in May 2000 holding around 7,500 liters of spirits near Vilnius.

Nevertheless, smugglers and illegal traders have become more ingenious. In May 2000 the Lithuanian anti-organized crime office found 22,500 liters of forged alcohol on the premises of a trading company named Denija in Vilnius. Alcohol counterfeits were found in bottles labeled as lotions, hygienic agents and toilet water. When importing these mixtures from Ukraine they were declared as mouth-wash, containing around 12% alcohol, however the alcohol content was even between 48% and 78% for some. Experts ascertained that it was all actually imported ethyl spirits that was obviously not bottled at the factory.

May 2001 saw another scam uncover involving car window cleanser. A few legal companies from Kaunas were buying up window cleanser from the Sema distillery and later sold it off to fictitious companies. Presumably false vodka was then made out of the cleanser, as most of it contained spirits. When buying a liter of spirits you pay 28 litas in taxes, while window cleanser is not taxed. The state has supposedly thus incurred losses of around 30 million litas due to this scam.

Estonia: playing safe

Official alcohol producers in Estonia strictly keep a distance from any kind of criminal activities. Managers and owners of distilleries like to talk about the amount of paid taxes and to talk about the positive influence of their produce upon the development of society. Officials quite support these endeavors, gladly attend openings of new bottling lines and their speeches on such occasions are not devoted to the nation's alcoholism, but to the new jobs created.

For a number of years now, the main task set by alcohol producers is to fight the illegal alcohol market. According to the Estonian Union of Alcohol Producers, bootleg vodka constitutes more than a half of the total alcohol market in Estonia and the share gets worse and worse with every hike in excise taxes implemented by the state. No one knows the exact proportion between contraband and locally produced black market alcohol, but according to unofficial information, the share of contraband has lately been decreasing while locally brewed moonshine is on the rise.

Until recently the authorities had not particularly paid much attention to the fight against illegal alcohol sales. The police, being more worried about the growth of crime, could not find the time to search for and close down back-street peddling posts. The word search isn't quite accurate, however, as just about anyone knows at least one backyard outlet selling cheap bootleg vodka. It's more likely that the police just didn't deal with the problem, because they chose to take on problems more serious in their point of view, like the street crime that is really growing at a disastrous pace.

The situation took a massive turn after the September tragedy in Parnu, when more than 60 people died and over 100 were hospitalized and probably left blind from deadly intoxication after drinking moonshine vodka bought under the table. It turned out that the victims had drunk a concoction made from a barrel of methanol stolen from a local plant and supposedly mistaken for spirits. This was followed by the police clamping down on bootleg producers and peddlers. Some were caught, while others got scared and temporarily closed down their underground alcohol booths.

Yet local producers ought to thank the fear engendered into the nation's consumers after this terrible case, for legal vodka sales have doubled since. No one can tell how long this fear will last. As for police activity on the case and the likes - this has already declined.


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