Birch buds and “Koktebel”. How vodka and cognac producers split the Crimean brands

Yellow-blue flags for some and tricolor for others. Producers of Medoff vodka and Koktebel cognac began working in Crimea before annexation. Now alcoholic beverages are produced in Crimea, Russia and mainland Ukraine. Various companies do this, but their founders are connected with each other and with the bankrupt Ukrainian holding “Soyuz-Victan”. Current Time and “Municipal Scanner” found out that Crimean enterprises of the group operated on the peninsula in violation of European sanctions. Some continue to violate them until now.

Advertising of Medoff, Mernaya, “On birch buds” and Arctica vodkas, and “Koktebel” cognacs and wines can be found both in Ukraine and in Russia. Its authors adapt to the audience: Ukrainian manufacturer Beverage Trading Company congratulates everyone with Ukraine’s Independence Day on its Facebook page, and on the page of Medoff vodka produced by the “Russian vodka holding”, there’s a post made on Russia Day with a #superpower hashtag and a tricolor.

Previously, all these brands belonged to one owner – the “Soyuz-Victan” holding of a Crimean businessman, member of the Verkhovna Rada of the Peninsula Andrei Okhlopkov. The main asset was the Crimean Vodka Company (CVC). In 2009, “Soyuz-Victan” went bankrupt, and CVC was bought back two years later by Luxembourg’s Eastern Beverage Company S.A.

At that time, Eastern Beverage Company S.A. belonged to a British citizen Neil Smith and was registered in Cyprus. Little is known about Smith: he’s a Cambridge graduate who began his career at Deloitte, a large auditing company, owned the Florin Capital investment fund before the acquisition of CVC, and is married to a Ukrainian. In 2017, Smith proposed his candidacy for the post of head of the Ukrainian state conglomerate “Ukrspirt”.

Russian expert, director of the Center for Research on Federal and Regional Alcohol Markets “TsIFRRA” Viktor Drobiz considers Neil Smith a “front man”:

“Maybe he really is behind the “Crimean Vodka Company”. What can he possibly know about this? He is an investor; he is a consultant. What kind of a vodka-maker is he? I have been in the market for 25 years. The man who runs a dental powder factory today, and tomorrow an automobile concern, is complete bollocks. This man sits on the cash flows. It is impossible to know the market thoroughly, there is a certain specificity for each market. Therefore, there’s a completely different in Russia, that’s why we stopped inviting Western top managers a long time ago. Neil Smith could be an investor. But he did not and cannot possibly understand anything in the alcohol business”, – Drobiz said.

As Current Time found out, Andrey Okhlopkov, the former owner of “Soyuz-Victan”, is also closely connected to Luxembourg’s Eastern Beverage Company S.A. In 2012, he traveled with Neil Smith to negotiations in Tatarstan, where they met with the head of the republic, Rustam Minnikhanov. The company planned to bottle its products at the “Tatspirtprom” plant in Kazan. In 2014, there were another negotiations with Minnikhanov, where Okhlopkov was introduced as the chairman of the board of “Russian Vodka Holding”.

Bright and not-so-bright prospects

In April 2014, the director of public relations of the “Crimean Vodka Company” (CVC) Vitaly Milnichuk gave two interviews. The first was to the pro-Russian agency “Kryminform”. “The prospects are bright, although the Russian market will have its own nuances,” said Milnichuk, adding that the company wants to receive a Russian excise stamp.

He gave the second interview a week later to the Ukrainian business newspaper “Capital”. CVC leaves Crimea due to the “vague rules of the game”, Milnichuk claimed. The company remains Ukrainian and will create a new legal entity in Ukraine – Eastern Beverage Trading (EBT). But by that time, EBT had already existed for a year.

CVC owners registered it in the Russian register in July 2015 – a year after the sanctions were imposed. A month later, they received licenses from the Russian federal authorities for the production, storage and supply of alcoholic beverages. According to the register, until March 2018 the owner of CVC was the Cypriot EBC Eastern Beverage Company Limited. It, in turn, is owned by the Liechtenstein TMC Trade Mark Company AG.

“Crimean Vodka Company” is also in the Ukrainian register of legal entities, its owner is Luxembourg’s Eastern Beverage Company S.A.

In December 2014, the European Union banned its companies from expanding their participation in Crimean companies. But according to Rosstat, from September 2015 to July 2016, the Cypriot EBC Eastern Beverage Company Limited increased the authorized capital of CVC from 3.7 million to 95 million rubles (almost to $ 1.5 million at exchange rate of that time).

In October 2017 (“Crimean Vodka Company” still owned the EBC Eastern Beverage Company Limited at that time), CVC fulfilled a government contract worth 448 thousand rubles (almost $ 7.8 thousand) for the United Transport Company “Magistral”. The latter is engaged in cargo transportation and through other companies is 99.9% owned by the Russian state.

Cognac and vodka network

In December 2018, the Cypriot EBC Eastern Beverage Company Limited was removed from the owners of CVC. CVC was transferred to “Russian Vodka Holding”, and by February 2019 – to “Koktebel Cognac House”. As it turned out, all these companies are connected.

Until March 2018, “Russian Vodka Holding” belonged to the aforementioned Cypriot EBC Eastern Beverage Company Limited. On the official website, the management of calls itself a distributor of products of “Koktebel Cognac House” in Russia. The owner and CEO of “Russian Vodka Holding” is Viktor Zlotnitsky, and his brother Alexander Zlotnitsky owns 98.1% of the cognac house.

The official biography of Viktor Zlotnitsky indicates that in the past he worked as deputy general director and general director of Andrei Okhlopkov’s “Soyuz-Victan” group, the very holding company that went bankrupt in 2009.

In November 2015, Viktor Zlotnitsky established the “Crimean Cognac House” (CCH) in the annexed Crimea. Zlotnitsky is its CEO and sole owner. In February 2018, CCH bought a cognac factory and a land plot in the Crimean Shchebetovka for almost 50 million rubles ($874 thousand). In addition to Viktor Zlotnitsky’s CCH, only Alexander Zlotnitsky’s “Koktebel” participated in the auction.

Viktor Zlotnitsky runs another company in Crimea – “Crimean Venture Company”. Its main activity is the sale of alcoholic beverages. The company was registered in the Russian registry in September 2014. Zlotnitsky owns 1% of it, and 99% belongs to the Cypriot EBP Eastern Beverage Production LTD. The latter, like EBC Eastern Beverage Company Limited (former founder of CVC and RVH), is registered on TMC Trade Mark Company AG from Liechtenstein.

In violation of the EU sanctions, on January 14, 2015, the owners of OOO “Crimean Venture Company” increased its authorized capital from 235 thousand to 14.8 million rubles. At the end of 2017, the organization declared almost 5 million rubles of profit ($ 88.3 thousand).

Both “Crimean Vodka Company” and “Crimean Venture Company” are permanent partners of the “Russian National Commercial Bank” (RNCB), which has been under the sanctions of the EU and the USA since 2014. In January 2018, the bank increased its credit line for the “Crimean venture company” from 350 to 850 million rubles ($ 15 million). And in August 2017, RNCB gave its bank guarantees for the payment for Russian excise stamps by “Crimean Vodka Company” in the amount of 500 million rubles, or $ 8.4 million

“According to the EU, we can’t even fly anywhere”

Current Time sent a request for comment to several email addresses of “Russian Vodka Holding” and for several weeks tried to contact the CEO of RVH and CVC Viktor Zlotnitsky personally by telephone and Facebook, but without success.

The director of the “Koktebel Cognac House” (current owner of CVC) Alexander Zlotnitsky, having heard the subject of the inquiry, warned: “I won’t even answer some questions”.

He refused to tell from whom his company acquired the “Crimean Vodka Company”. When asked about Neil Smith, he said: “I do not know who it is”. Alexander Zlotnitsky says that his company does not export products outside of Russia, citing sanction bans. However, he confirms the export of goods from Crimea to Russia.

Since, from the point of view of international law, Crimea is the territory of Ukraine, the export of goods to Russia can be equated to export. Maya Lester, UK Brick Court Chambers Queen’s Counsel, says the EU sanctions law does not always prescribe what constitutes a violation of sanctions.

“There are very few clarifications on legal procedures. We often select legal interpretations to understand what these provisions mean. Lawyers can give their legal assessment of what these documents mean – this is mostly my job. But the European Court is a court that will determine the [exact] interpretation of the European sanctions. This will be the only legitimate and correct interpretation. The European Commission has already given some clarification on the sanctions against Russia, and so did the UK – in case it secedes from the EU”, – said Lester to Current Time.

Owner of “Koktebel Cognac House” Alexander Zlotnitsky admits that exporting products to Russia may be a violation of the sanctions:

“Legally, it’s probably so, I don’t know. The European Union has its own view on many things. According to the European Union, we can’t even fly or go anywhere”.

Who bottles alcohol in mainland Ukraine

In mainland Ukraine, two companies produce and sell alcohol under the brands Arctica, Medoff, Mernaya, and “Koktebel” – Eastern Beverage Trading (EBT) and Beverage Trading Company (BTC). They are interconnected. For example, when calling the BTC hotline, the answering machine says: “You called Eastern Beverage Trading.” In the register of legal entities, none of these companies declares that it produces alcohol, – they only list trade as their activities. The name Beverage Trading Company is found on vodka labels in Ukrainian stores, and Eastern Beverage Trading – on cognac labels.

A criminal case on tax evasion against Eastern Beverage Trading and “Crimean Vodka Company” (original, Ukrainian) in Ukraine, has been investigated since February 2015. It is conducted by the Ukrainian prosecutor’s office of the Autonomous Republic of Crimea

According to the investigators, after the annexation, CVC sold Eastern Beverage Trading property worth UAH 100 million ($4.6 million), from which the seller did not pay taxes to the budget, and the buyer received a tax credit for this transaction.

In March 2019, prosecutor of the Autonomous Republic of Crimea Maria Guseva replied to Current Time that the investigation was ongoing, there were no suspects. Guseva did not explain why they were not identified.

The owner of the second company, Beverage Trading Company, is listed as Oleg Stanislavovich Kravchunovsky. This person managed and currently manages several Ukrainian construction companies: “Montazhinvest” (operating), “Donevrobud” (liquidated), “Prometey-Center”. He does not have large assets comparable to the Beverage Trading Company. Current Time contacted Kravchunovsky, but he refused to comment.

Until October 2018, the founder of the Beverage Trading Company was another person, Kyiv resident Nikolai Dvorak, a former lawyer at “Soyuz-Victan”. He is currently the founder of Eastern Beverage Trading and Spirit Trademark Company. It was the latter company that registered the trademark “Soyuz-Victan” (SV), the predecessor of “Crimean Vodka Company”.

Dvorak says that his company is not affiliated with the former owner of “Soyuz Victan”, Okhlopkov. He also told Current Time that Eastern Beverage Trading is not cooperating with “Russian Vodka Holding” and “Crimean Vodka Company” that is registered in the Russian register.

“We can’t possibly be working with them, – he said. – Earlier, “Crimean vodka company” was Ukrainian and operated in Ukraine. This was before I cane there, but it shouldn’t matter”.

Litigation over the brands

In 2014, Medoff vodka (at that time, the brand belonged to the Ukrainian “Eastern Beverage Company”) took eighth place in the world in terms of production in the ranking of the international specialized magazine Drinks International. In 2015, Medoff took 11th place in the same ranking.

And in the fall of 2018, the Medoff brand became the subject of an economic dispute, which is being considered by a court in Kiev. On his Facebook page, Alexey Kovalevich, director of the Beverage Trading Company, described the essence of the conflict as follows: Neil Smith attempted a hostile takeover by transferring the rights to the trademarks to the Cypriot Zaforpo Ventures Limited through EBC Eastern Beverage Company Limited (also Cypriot). Zaforpo Ventures Limited is led by Jonathan Weil, former director of the Ukrainian CVC.

Kovalevich insists that in fact the rights to Medoff, “Nasha Marka” and Arctica belong to his company – Beverage Trading Company. Neil Smith was connected with the Ukrainian Eastern Beverage Company for a long time and represented the interests of the ultimate beneficiary of the company, but he himself was never its owner, Kovalevich insists.

Kovalevich did not name the real ultimate beneficiary of Eastern Beverage Company. For the past several weeks, they tried to contact the director in various ways, but all requests were ignored. In December 2018, the court forbade Eastern Beverage Trading and Beverage Trading Company to transfer the rights to manufacture and sell Medoff brand products in support of the lawsuit. There is no final decision on the case.

After checking the foreign trademark registries, Current Time discovered that the Cypriot Zaforpo Ventures Limited has registered the rights to the Medoff and Mernaya brands in the Czech Republic, France, Germany, and Benelux countries.

In October, another company, this time a Russian one, began to claim its right to the vodka brands registered in Ukraine. On October 7, 2019, the Commercial Court of Kiev accepted the lawsuit of OOO “Escada” against Eastern Beverage Trading with a request to transfer the rights to Medoff and Mernaya brands. The case contains 17 more brands that are similar to the previous two, for example, Medov or Medkoff, as well as Mirna and Mѣrnaya. The “Escada” company is registered in Moscow in the same building as “Russian Vodka Holding”, but in a different office. These two companies have the same founder – Viktor Zlotnitsky. And until August 2018, 99.9% of the company belonged to the aforementioned Cypriot EBC Eastern Beverage Company Limited. The Ukrainian courts have not yet put a point in the dispute over the brands.