On 14th April, the EU’s national diplomacy chiefs convened in Luxembourg for a Foreign Affairs Council meeting, with discussions on the ‘coalition of the willing’s’ long-term security guarantees for Ukraine complemented by preparatory talks for the bloc’s 17th Russian sanctions package.
Moscow’s heinous civilian attack against Sumy the day before has heightened Europe’s sense of urgency to tighten the economic screws and strong-arm Putin into a peace deal, yet initial signs from Brussels are underwhelming.
Indeed, EU officials have indicated that restrictions on Russian liquefied natural gas (LNG) – an idea floated earlier this year – are unlikely to feature in the upcoming sanctions expected by June amid pushback from certain member-states and lingering uncertainty over alternative suppliers. With Hungary looking set to continue its spoiler role from previous negotiations, the rest of the bloc has even started exploring ways to ‘Orban-proof’ its sanctions regime.
Yet, as Europe looks to bolster sanctions and curb imports of the Russian hydrocarbons fueling Moscow’s war machine, it should equally turn toward the foreign multinationals still deeply tied to the Russian market. Among the worst culprits are tobacco industry giants like Philip Morris International (PMI) and Japan Tobacco International (JTI), whose ongoing operations are undermining EU sanctions and helping fill the Kremlin’s coffers – a moral blight adding to the industry’s long-running complicity in Russia’s illicit tobacco trade.
Multinationals fueling Moscow’s war machine
Published on January 13th, a new report from the civil society coalition B4Ukraine and the Kyiv School of Economics lays bare the extent to which multinational corporations remain financially intertwined with Russia. In 2023 alone, 1,600 foreign firms generated approximately $197 billion in revenue through their Russian subsidiaries, yielding over $16 billion in profits. Since Putin’s invasion, these firms have funneled more than $41 billion in taxes to the Kremlin – nearly a third of Russia’s projected 2025 military budget – making them major enablers of the war in Ukraine.
American companies top the list, having paid $1.2 billion in corporate taxes to Moscow in 2023. This figure is poised to climb sharply as Russia increases its corporate profit tax from 20% to 25% in 2025, an opportunistic move designed to exploit the staying power of Western businesses. Far from being neutral players, these firms are becoming reliable fiscal assets for Moscow, all while insulating themselves from accountability under the guise of commercial necessity.
Among the worst offenders is the tobacco sector, which, alongside alcohol and food, has raked in $587.5 billion in revenue and paid $1.5 billion in profit taxes to the Kremlin. Philip Morris International and Japan Tobacco International lead this pack, respectively posting $6.9 billion and $6.7 billion in revenue in 2023. What’s more, their soaring profit tax payments – $220 million for PMI and $180 million for JTI – have earned them top-five status among foreign contributors to Russia’s war budget.
Big Tobacco-Russia’s deeply-interwined interests
Unlike their ‘Big Four’ peers British American Tobacco and Imperial Brands, which exited Russia after the invasion of Ukraine, PMI and JTI have chosen to double down. Employing over 4,000 staff and operating four factories, JTI remains one of Russia’s largest foreign employers. Meanwhile, PMI, with $2.7 billion in assets in-country, locally produces all of its cigarettes for the Russian market – including at its Izhora plant in St. Petersburg, the company’s biggest factory worldwide.
Unsurprisingly, both firms have placed profits above principle. PMI CEO Jacek Olczak has openly defended this ethically-reprehensible, yet lucrative decision: Russia has become one of PMI’s most critical markets, accounting for 10% of its global sales and 6% of its $31 billion net revenue in 2021. Similarly, JTI generates a staggering 20% of its global profits from Russia, with the company notably abandoning its 2022 exit pledge in May 2024 to satisfy shareholders – a decision that has paid off handsomely, with net profits jumping nearly 10% last year.
PMI and JTI’s stronghold in Russia owes much to their longstanding partnership with their exclusive domestic distributor, Megapolis Group. Since acquiring 20% stakes in the company in 2013, both firms have benefited from Megapolis’s control over roughly 70% of cigarette sales in Russia. Concerningly, Megalopis co-owner Igor Kesaev remains under EU and US sanctions, highlighting PMI and JTI’s role in undercutting Western sanctions.
Moreover, the Big Tobacco-Megalopis partnership reflects a deeper history of profiteering from the illicit tobacco trade that has thrived in post-Soviet Russia, where regulation is weak and enforcement selective.
PMI-backed technology undermining Russia’s tobacco traceability
In 2019, the Russian government launched its anti-smuggling scheme, appointing the vaguely-named Center for the Development of Advanced Technologies (CDAT) as sole operator of tobacco traceability. Dubbed ‘Honest Mark’ and ostensibly intended to boost fiscal control over the tobacco trade, it appears to be anything but, with the system facing corruption allegations, including the ‘diversion’ of excise tax revenue. Owned by Russian government officials and business elites, CDAT is notably fed track-and-trace information through technology provided by Swiss firm Inexto, a well-documented ally in Big Tobacco’s global manipulation of track and trace systems around the world.
In 2016, Inexto acquired the Codentify system – originally developed by PMI and implemented in Russia – from a Big Tobacco front group, since falsely marketing this widely-discredited technology as independent of the tobacco industry, particularly within the EU. Built on this technology, the EU’s track and trace system – established the same year as Russia’s – has been heavily criticised by MEPs and tobacco control NGOs for violating the WHO Illicit Trade Protocol’s tobacco industry-independence rules. Fellow Codentify heir and co-operator in the EU system, Dentsu Tracking, is also facing growing scrutiny from MEPs and civil society leaders in Europe over its Big Tobacco ties.
Mirroring Moscow’s shadowy selection of CDAT, Dentsu’s initial appointment and contract renewal by the European Commission without a tender process has sparked corruption concerns, with MEPs demanding meaningful answers from the EU executive – so far to little avail.
Brussels must stop looking away from smoking guns
The Commission’s ongoing faith in Inexto and Dentsu, coupled with its silence on the mounting allegations, is cause for alarm. The Big Tobacco lobby’s grip on the EU’s illicit trade response is already troubling, but more concerning still is Brussels’s reliance on a traceability system that mirrors the very opacity and corruption it claims to oppose in Russia. This failure to uphold regulatory independence feeds into a broader pattern of negligence with real geopolitical consequences.
Looking ahead, if the EU is serious about depriving Russia of the resources it uses to wage war, it must address not only state-level energy flows but also the private-sector revenues still streaming into Moscow. Indeed, tobacco multinationals like PMI and JTI cannot be allowed to continue business as usual and quietly undermine the bloc’s sanctions regime. The time has come for Brussels to act decisively, notably by naming, shaming and sanctioning firms that sustain Russia’s war economy in the decisive months to come.
