The Consequences of EU Sanctions Against Chen Zhi for Sweden in Particular and the EU in General

The EU sanctions against Chen Zhi and the Prince Group entered into force upon their publication on July 30 of this year. This means that tobacco retailers trading with Elite Trading Scandinavia or The Premium Company Nordic—or even paying an invoice today for a delivery that occurred prior to July 30—may already be committing a sanctions violation. Not even the end consumer is spared: if you purchase a box of Cubans at retail for personal use, you risk having your bank account closed and being punished for breaching sanctions. Depending on how ownership structures in Habanos' distribution network look across the rest of the EU, similar challenges may arise there. Cigarrvärlden has consulted sanctions experts, government authorities, and Brussels to try to understand the scope of these sanctions.

Published: 2026-07-06, at 14.45 Written by: Hatem Sabbagh, publisher/editor-in-chief of Cigarrvärlden & Managing Director of Cigarrklubben CK Sverige AB. Photo: Organizational chart for Elite Trading Scandinavia AB (formerly Habanos Nordic AB) from the City of Gothenburg case file (Dnr: MKN-2025-5445).

We use AI and Google Translate for translations, with some review to enhance readability. Pardon the Spanglish.

Disclaimer: Cigarrvärlden is owned and operated by Cigarrklubben CK Sverige AB, which also operates a cigar club and has a foot in both camps. To put it mildly. Divison and separation of operations and the editorial is explained under the section "Conflicts of Interest (in Swedish)". Cigarrvärlden operates under a ‘certificate of no legal impediment to publication conferring constitutional protection’ (utgivningsbevis). With this certificate, Cigarrvärlden enjoys a special legal status in Swedish law under the freedom of expression act. Cigarrklubben CK Sverige AB does not sell and have ever sold cigars or tobacco in any way, shape or form. 

What the Sanctions Entail

Sanctions operate on the principle of bad faith, and their intent is to exert a deterrent effect on anyone who has, or intends to establish, a relationship with the sanctioned target. Public stigmatization is, in a sense, part of the legal criteria—which is helpful to bear in mind throughout this reading.

In Chen Zhi's case, beyond the obvious EU travel ban, the sanctions include the less obvious prohibition against providing any form of economic resource (regulated under Article 3.1) and the prohibition against making assets available (regulated under Article 3.2).

An economic resource is defined as anything of financial value—money, shares in a company, or essentially anything with transactional value that can be assigned a price.

The requirement not to make assets available means that if you possess something belonging to the sanctioned entity—for example, a pallet of cigars along with an unpaid invoice—you must not pay the funds to the sanctioned entity. Instead, you are legally obligated to freeze the funds and report the matter to the Swedish Financial Supervisory Authority (Finansinspektionen).

The Threshold for Sanctions

The sanctions target actual control. To determine this, authorities evaluate control over shareholdings, voting rights, and whether actual control can be exercised through close associates or potential proxies. If that assessment leads to the conclusion that the sanctioned entity reaches the threshold of control—meaning 50% of a company—that company becomes subject to "sanctions contagion." It effectively becomes an object of the sanctions itself.

Chen Zhi owns 57.1% of Allied Cigar Fund LP in the Cayman Islands. This gives him, as an individual, an indirect ownership stake of 28.55% in Altabana S.L. in Spain, and consequently a 28.55% stake in the Swedish Habanos distributor, Elite Trading Scandinavia AB. If the matter were that simple, the sanctions would not apply to Chen in either Spain or Sweden. Unfortunately, the law is nowhere near simple.

Because Chen Zhi owns 57.1% of Allied Cigar Fund LP, this presumably gives him a controlling majority, treating him as though he controls 100% of Allied Cigar Fund LP. This, in turn, yields 50% control over Altabana S.L. in Spain and, by extension, 50% control over Elite Trading Scandinavia AB.

Image 1: Organizational chart for Elite Trading Scandinavia AB (formerly Habanos Nordic AB) from the City of Gothenburg case file (Dnr: MKN-2025-5445).

To further complicate the process, Chen Zhi's former associate Alvin Chau—who is currently serving an 18-year prison sentence in China for the same offenses as Chen Zhi—is suspected of owning the remaining 42.9% of Allied Cigar Fund LP. If Chen Zhi exercises control over Chau's shareholding as well, Chen Zhi effectively holds 100% control over Allied Cigar Fund LP, resulting in 50% control over Altabana S.L. in Spain and 50% control over Elite Trading Scandinavia AB.

In Sweden, there is an additional factor making the question of control even more complex: the City of Gothenburg has revoked Elite Trading Scandinavia's tobacco license on the grounds that the municipality considers Chen Zhi to exercise significant influence and control over the company. The Administrative Court (Förvaltningsrätten) ruled in favor of the municipality's position, although the judgment has been appealed to the Administrative Court of Appeal (Kammarrätten) and has not yet taken full legal effect.

Who Holds Responsibility for What?

Anyone who provides money to the sanctioned target, directly or indirectly, bears full responsibility for conducting their own investigation to establish or verify whether a transaction can legally be executed with entities such as Elite Trading Scandinavia AB or The Premium Company Nordic AB. Because that specialized legal expertise is lacking in Sweden, Swedish tobacco retailers and end consumers would need to go to London to acquire due diligence services from British law firms with international offices.

The question you need to answer is as simple as it is impossible in a situation like this: Is the business you are dealing with 100% clear of sanctions? If the answer is that the transaction is 99% legal, that is insufficient. It must be treated as entirely illegal.

To frame it in EU terminology: It is not a matter of confirming whether a transaction is prohibited; it is a matter of confirming that it is explicitly permitted. If you cannot establish that it is permitted, you must treat it as prohibited.

In that case, you are required to freeze the assets and report them to the relevant authorities. This, in turn, creates a whole new set of problems for retailers: contract law disputes.

Under contract law, you could be sued for failing to fulfill your contract, and there is no guarantee you will win such a case. You are caught between committing a criminal offense and incurring a corporate fine on one hand, and attempting to exit a civil contract on the other—risking court proceedings where you may be forced to cover both your own and the opposing party's legal fees if you lose.

And before any of that, you will have just paid significant sums for a legal assessment from a global law firm.

The Premium Company Nordic AB – Between a Rock and a Hard Place

The Premium Company Nordic has been caught in the middle, primarily because it received generous credit terms from Elite Trading Scandinavia AB—a setup that has been questioned in multiple ways and which Cigarrvärlden has written about previously.

Under Swedish regulatory frameworks for both alcohol and tobacco, standard credit providers can be deemed by supervisory authorities to hold control and influence over an operation. Unreasonably favorable credit arrangements during an active sanctions scenario may be viewed as a mechanism used by Elite Trading Scandinavia AB to exercise control over The Premium Company Nordic.

Furthermore, since the turn of the year, The Premium Company Nordic has held exclusive distribution rights for Elite Trading Scandinavia's cigars across the entire Nordic and Baltic regions. Elite Trading Scandinavia imports the cigars and sells everything to The Premium Company Nordic, which then sells to retail tobacco shops.

Under current rules, The Premium Company Nordic's primary duty should be to freeze all payments to Elite Trading Scandinavia AB and report them to the Financial Supervisory Authority. Secondarily, any retailers holding unpaid invoices to The Premium Company Nordic may freeze those payments and report them to the Authority. Paying The Premium Company Nordic constitutes an indirect payment to Elite Trading Scandinavia AB and could represent a sanctions offense.

Additional Risks

The burden of proof falls largely on the party executing the transaction. While the prosecutor must make the initial allegation, they need only make it probable that a sanctions violation occurred.

If a business decides to continue a commercial relationship without performing proper investigations, it will be judged against a very strict standard.

Under the updated sanctions legislation enacted in June 2025, there is also a risk of being convicted for aiding and abetting a sanctions crime. A minor sanctions offense involves amounts under 10,000 SEK, whereas a severe sanctions offense involves amounts over 900,000 SEK and carries a potential sentence of up to four years in prison.

There are also entirely separate practical consequences: paying money to a sanctioned entity can lead to the loss of bank accounts for both individuals and corporations. The same applies to commercial and personal insurance policies. Private individuals buying a box of cigars over the counter are not immune to these sanctions.

What will happen to payment gateways for online retail? When OFAC sanctions were issued against Chen Zhi in December, shutdowns followed, and that issue is likely to resurface. Finally, it should be kept in mind that a sanctions offense constitutes a predicate crime to commercial money laundering (näringspenningtvätt).

This article aims to explain the mechanics and impact of the sanctions. It serves as background context for future investigations, which will follow as the situation develops.

Written by: Hatem Sabbagh

Footnote: Cigarrvärlden is seeking comment from representatives of Elite Trading Scandinavia AB, The Premium Company Nordic AB, and Habanos in Spain.

Read our coverage about the development of Cuban cigars in Sweden:

12 September 2025 - Cuban Cigars And Their Asian Partners – Slave Trade, Fraud And Money Laundering. Under The Nose Of The Regulatory Agency In Gothenburg, Sweden.

25 October 2025 - DOJ Tightens Noose On Owner Behind Cuban Cigar Giant

26 October 2025 - Prince Groups latest rebuttal published in full

4 November 2025 - Swedish Habanos Importer gets Reprieve to present Chen Zhi's Cambodian tax and criminal records

9 November 2025 - Klarna blacklists Cuba and freezes payments to Swedish cigar dealers?

12 December 2025 - Chen Zhi to be removed from Habanos

7 January 2026 - Breaking News: Habanos Swedens tobacco license revoked

12 January 2026 - Analysis: What are the future prospects for Chen Zhi, Habanos in Sweden & globally?

2 June 2026: The International Crackdown on Habanos: Swedish Distributor Faces Independent Turmoil

5 June 2026 - Cuban Cigars Facing Potential EU Ban Amid Forced Labor Reports

15 June 2026 - BREAKING NEWS: The Courts Verdict - no Swedish tobacco license for HABANOS

4 August 2026 - BREAKING NEWS: EU Sanctions Against Chen Zhi and Prince Group

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