Smuggling in Ukraine: will tougher criminal liability affect the illegal transportation of goods

Smuggling is one of the biggest problems of the Ukrainian economy, which not only harms the state budget, but also supports the shadow economy, gives rise to corruption and criminal connections.

In the context of European integration and efforts to improve law enforcement, in 2024 Ukraine strengthened the criminalization of goods smuggling by passing a law establishing tougher penalties for this type of crime. According to Law of Ukraine No. 3513-IX, on July 1, 2024, a new article 201-3 of the Criminal Code of Ukraine came into force, providing for strict sanctions for those involved in the illegal movement of goods across the country’s customs border.

What is smuggling and its impact on the Ukrainian economy

Smuggling is the illegal movement of goods across state borders, which is carried out without complying with customs rules and paying due taxes and fees. In the case of Ukraine, this phenomenon is not new. Historically, due to its geographical proximity to many countries of the European Union and the presence of a long border with neighboring countries, Ukraine has been and remains an important transit corridor for illegal trade. The main types of goods most often subject to smuggling are tobacco products, alcohol, electronics, medicines, as well as other goods with a high level of excise duty.

Smuggling causes significant damage to the state. According to the State Customs Service of Ukraine, the state annually loses billions of hryvnia due to shortfalls in tax and customs duties, which could be used for infrastructure development, healthcare, education, etc. Smuggling also contributes to the development of organized crime and corruption, reducing trust in law enforcement agencies and government institutions.

New legislative changes: toughening criminal liability

On July 1, 2024, a new article 201-3 of the Criminal Code of Ukraine came into force, which significantly strengthens criminal liability for smuggling of goods. In particular, the changes involve:

— Fines from 10,000 to 75,000 tax-free minimum incomes of citizens (equivalent to 6.7 million to 50 million UAH) for smuggling goods in significant quantities.

— Imprisonment for a term of 5 to 11 years for persons who commit smuggling on a large scale or by prior conspiracy by a group of persons.

— Confiscation of property and deprivation of the right to hold certain positions for up to 3 years.

These changes are intended not only to increase the level of responsibility for those involved in smuggling, but also to solve a number of problems associated with avoiding criminal liability through loopholes in the law. It is important to note that liability occurs only if there is intent, which is intended to prevent abuse by law enforcement agencies and the judicial system.

However, MP Yaroslav Zheleznyak considers the adoption of stricter legislation on the smuggling of goods to be extremely contradictory and dangerous for business: “The new law strengthens the ability of customs to influence any business. That is, an error in the declaration can result in imprisonment for the entrepreneur. Secondly, it does not solve the problem of smuggling, because this is not only a customs issue.

The first cases of application of the new law

One of the first cases of application of the new article was the investigation of the smuggling of raw materials for the manufacture of tobacco products worth about 13 million hryvnia. This happened at the Porubnoye-Siret border checkpoint, where customs officers discovered the illegal movement of goods in the cargo compartment of a car. It is important to note that the suspect attempted to bypass customs controls by using the “green channel,” a typical method for smugglers hoping to avoid inspections.

International context: criminalization of smuggling in the EU

Ukraine is not the only country that faces the problem of smuggling. The European Union is also actively fighting this problem. According to Directive 2017/1371, EU countries have established criminal liability for customs offenses that damage the Union budget. For example, in case of damage exceeding 100,000 euros, the minimum penalty is imprisonment for a period of at least 4 years.

Maximum sentences for smuggling vary across EU member states, but in countries such as Germany and France the sentences can be up to 10 years in prison. In Ukraine, the maximum penalty is 12 years with confiscation of property, consistent with EU practices.

Demand creates supply

Smuggling is part of the large shadow economy of Ukraine, and attempts to combat it without destroying other chains and stages of this system will not lead to success. The main problem is not only the ability to avoid paying customs duties, but also the fact that such goods find their market in Ukraine.

The existence of demand for smuggled products is the main reason for their massive import. It is the possibility of selling goods within the country that have not undergone customs clearance or were imported with violations that supports corruption schemes at customs. Turkish sneakers, branded bags or electronics - most of this assortment ends up in Ukraine illegally.

Efforts to stop smuggling are faced with the fact that such goods are in high demand among consumers. Many Ukrainians see no problem in buying cheap smuggled goods, without thinking that their money supports corruption schemes.

Is effective struggle possible?

An effective fight against smuggling is possible only in the context of widespread shadowing of the country's economy. Smuggled goods serve as the basis for many other illegal activities, including tax evasion and the use of fictitious documents for financial fraud. Documents accompanying illegal goods can be used for tax fraud, which creates an entire ecosystem of corruption.

Thus, the fight against smuggling must be comprehensive and include not only customs, but also the domestic market and the tax system. Only the elimination of all parts of the shadow economy can create the prerequisites for effectively overcoming smuggling.

Have the new laws reduced smuggling?

The introduction of new legislation was an important step in the fight against smuggling. Already 2 months after the start of their operation, the flow of smuggling decreased somewhat, as noted by the State Customs. In particular, representatives of the Association of Retailers of Ukraine note significant achievements in the fight against the shadow market, in particular in the tobacco market, where the shadow share decreased from 24% to 14.5% in August 2024.

However, it should be noted that increased responsibility is not always the key to reducing the level of crime. For the effective application of the law, it is necessary to ensure the proper functioning of law enforcement agencies, in particular, the customs service and the Bureau of Economic Security of Ukraine.

The key aspect is to create conditions to reduce the motivation to commit smuggling. This includes improving conditions for legal business, reducing corruption and ensuring transparency in customs control procedures.

Additionally, international cooperation, in particular with EU countries, to exchange information on organized crime groups involved in smuggling will be important. Joint activities and coordination of actions between law enforcement agencies of different countries can significantly improve the effectiveness of the fight against the illegal movement of goods across borders.

Tightening criminal liability for smuggling is an important step towards overcoming this phenomenon in Ukraine. However, to achieve real results, it is important to ensure proper law enforcement practices based on transparency, efficiency of the customs and law enforcement systems. Time and the results of further investigations will tell whether the new legislation will be able to significantly reduce the level of smuggling.