By Timothy S. Donahue

Top Takeaways:

• Company acknowledgment: Tabacalera privately told distributors it is “now subject” to EU sanctions following shareholder Chen Zhi’s listing.
• No official ruling: Spanish and EU authorities declined to say whether Zhi’s sanctions apply to Tabacalera.
• Compliance burden: The EU Commission says individual operators are responsible for ensuring dealings do not benefit sanctioned persons.

The EU sanctions net is tightening around the cigar business.

Tabacalera S.L., the Spanish premium cigar company that owns 50% of Habanos S.A. through Allied Cigar Corporation, has informed distributors that it now considers itself subject to European Union sanctions following the EU’s decision to add its shareholder, Chen Zhi, to its sanctions list, industry sources confirmed to Nicotine Insider.

The e-mail, sent by Tabacalera CEO Fernando Domínguez in early August, states that “Tabacalera is now subject to these sanctions.” The statement marks the first known acknowledgment by Tabacalera that the EU measures adopted on July 30 may have implications beyond Chen Zhi himself.

The disclosure comes as the sanctions issue begins to disrupt the European Habanos distribution network.

Fifth Avenue Trading, Habanos S.A.’s exclusive distributor in Germany, has temporarily suspended operations due to banking restrictions and a compliance and sanctions review involving one of its shareholders, according to L’Amateur de Cigare.

In an email to German cigar retailers on Sept. 4, Fifth Avenue said it could no longer accept new orders or ship goods and called the move a “temporary restriction of our business activities.” The email, signed by Managing Director Christoph Puszkar, did not identify the shareholder.

According to German corporate records cited by L’Amateur, Altabana, Habanos’ investment vehicle, owns 80% of Fifth Avenue, with Villiger Group holding the remaining 20%.

Neither Tabacalera nor its restructuring advisers, Interpath, have publicly explained the legal basis for the position. Tabacalera Managing Director Juan Girón was asked to confirm the information but did not respond. Interpath Advisory, which has controlled Tabacalera since February, following the enforcement of security over Chen Zhi’s shares, also declined to comment.

Several European Habanos distributors were asked whether the Tabacalera email had been widely circulated. None would comment.

The European Commission also declined to comment on Tabacalera’s specific situation. Instead, Commission spokesperson Saul Goulding reiterated the general principles that govern EU restrictive measures. “It is prohibited under EU law to make funds or economic resources available to listed persons or entities – directly or indirectly,” Goulding said.

Goulding added that operators must ensure that transactions involving non-listed entities do not benefit designated persons and stressed that EU sanctions impose an “obligation of result” on economic operators. “It is for each operator to conduct its own due diligence and risk management approach in order to make sure they comply with the relevant prohibitions,” he said.

Spain’s Treasury Ministry, the national authority responsible for implementing EU financial sanctions, also declined to comment on Tabacalera’s status.

The ministry further stated that any assessment depends on the applicable sanctions regime, particularly the rules governing the freezing of funds and the prohibition on making funds or economic resources available to designated persons.

The Commission’s response leaves a key question for the premium cigar industry unresolved: whether business with Tabacalera could constitute making funds or economic resources available, directly or indirectly, to a sanctioned individual.

That uncertainty is significant because Chen Zhi remains the beneficial owner of the shares currently controlled by Interpath, even as multiple legal proceedings concerning those shares continue in several jurisdictions. Although Chen Zhi has been detained in China since January and faces criminal prosecution, the ownership restructuring remains incomplete.

For distributors, banks, and commercial partners, the practical consequences could extend well beyond Cuban cigars. Although Habanos products are invoiced directly by Habanos S.A., Tabacalera is responsible for the international distribution of several non-Cuban premium cigar brands, including VegaFina, Flor de Copan, and Capitol. Any disruption to payments or banking relationships could primarily affect those brands.

Whether Tabacalera’s assessment ultimately results in operational restrictions remains unclear.