China helps Lancet drone manufacturer circumvent sanctions

25 November, 2024 Russian Lancet strike drones. Photo: Rossiya 1 TV channel Chinese companies have been providing Russian drone manufacturer Zala Aero with machine tools and Western electronics to circumvent sanctions.

The Kyiv Independent reports this in its investigation, having examined emails from Zala Aero Group employees and Russian customs records of imported goods. The most famous military products of the Russian company are Zala reconnaissance drones and Lancet attack drones, which form a single reconnaissance and strike system that is actively used on the front line against Ukraine. Since the full-scale invasion, the rate of their use has been increasing.

In addition to the information from the front, this is also evidenced by the increase in production volumes: the company invested in the construction of new production facilities and the purchase of equipment back in 2022. Internal documents show that after the outbreak of full-scale war, one of the key companies of Zala Aero Group, Aeroscan, ordered seven milling machines for a total of almost £800,000. These machines, manufactured by the Chinese company YangSen, are used in the production of drones.

Assembling Zala drones.

Photo credits: Zala Aero

Sanctions Circumvention

After the outbreak of a full-scale war with Russia, a number of countries imposed export controls, banning the sale of microelectronics, engines and machine tools to Russia. China has become a lifeline for Zala Aero Group: the country has filled the shortage both with its own production and by supplying foreign components through its own distribution companies. According to Zala Aero Group's data for 2022-2024, the main importers of foreign spare parts for drone production were OMP and SpetsTechnotrade.

One was founded by a Zala Aero employee, the other by the father of an employee. The ownership structure seems to be an attempt to protect the companies from direct links to military production, which could complicate their foreign trade. Import records show that they purchased goods from a number of Chinese and Hong Kong suppliers: Jiangxi Xintuo Enterprise, Bestop Globle MFG, Star Rapid Manufacturing, Microblock technology, Gpcomm technology and M-Function Investment Management.

Some of them are listed in the customs databases not only as sellers but also as manufacturers of the products sold, including engines. The partners supplied engines, microelectronics, carbon fiber products, aluminum alloy frames, and aluminum products worth millions of dollars. These components are used in the production of drones.

However, the two affiliated companies, OMZ and SpetsTechnotrade, do not cover all of Zala Aero's imported component needs. Zala Aero also uses other unaffiliated external Russian suppliers. These Russian intermediaries import and resell both Western and Asian components.

One of them is the Moscow-based supplier Online Trade. In 2024, this company repeatedly sold goods to several Zala Aero Group companies: CST, Aeroscan, and SpetsTechnotrade. The evidence of these transactions is contained in the published data of the Russian tax service.

They do not specify what goods Online Trade supplies to Zala Aero, but the import database shows that Online Trade delivers large volumes of video cameras and lenses, as well as microelectronics to Russia. According to the public register of foreign components in Russian weapons systems maintained by the Main Intelligence Directorate, Lancet attack drones had components from a number of American companies: Nvidia, National Semiconductor, Microchip Technology, Micron Technology, Xilinx, Texas Instruments, Atmel Corporation, Analog Devices, Qorvo, Maxim Integrated Products, Bel Fuse, and Semtech Corporation. There were components from other countries as well: Swiss companies STMicroelectronics, U-blox, TE Connectivity; German company Infineon Technologies; Dutch companies NXP Semiconductors and Skoopia; South Korean Ricci Microwave and SK Hynix, etc.

Among the imported components required by Zala Aero are chips, microprocessors, cameras, video encoders and decoders, microcontrollers, transceivers, resistors, transistors, and batteries.

The components discovered in the Russian Lancet drones. Photo credits: war-sanctions.gur.gov.ua

The publication notes that China has become a convenient partner for Russian companies in need of sanctioned goods. Before selling sensitive goods to China, companies from these countries should check that they will not be sent to Russia.

In fact, often only the buyer is checked, not the end consumer to whom the goods will be resold. In an effort to publicly distance itself from Russia, China has promised to tighten restrictions on the supply of drones and components to Russia. However, Ahiia Zahrebelska, a Ukrainian expert on sanctions, says that manufacturers only pay attention to the first buyer in the chain because no one punishes them for turning a blind eye to where the goods end up.

"We call it willful blindness.

We are confident that with all modern technical capabilities, the manufacturer is able to identify risky customers by their typical characteristics," she says.