AvtoVAZ, Sollers and Moskvich fell under US sanctions

2023-09-15 00:26:06

On September 14, the Russian automakers AvtoVAZ, Sollers and Moskvich (formerly Renault Russia) were included in the sanctions list (SDN List) of the Office of Foreign Assets Control (OFAC) of the US Treasury. This is stated in a message on the department’s website. Thus, all the largest domestic automakers found themselves under US sanctions.

Along with them, one of the largest Russian companies in the field of transport engineering – Transmashholding, together with its founder Andrey Bokarev, construction contractor Transstroymekhanizatsiya, part of Natsproektstroy, and others – were included in the updated OFAC sanctions list.

AvtoVAZ, Moskvich and Transmashholding declined to comment. A Sollers representative said that the company does not expect any consequences from the sanctions, since over the past year the group’s business has been completely restructured to “sanction-resistant components supply channels, financial settlement mechanisms and is strategically focused on technological independence from external partners.”

Sollers, soon after the start of the SVO in Ukraine, lost its traditional partners – Ford, Mazda and Isuzu, who provided the group with the loading of sites in Elabuga, Vladivostok and partly in Ulyanovsk.

The company relied on cooperation with the Chinese automaker JAC and during 2022 began assembling the JAC Sunray light commercial vehicle at the former Ford site in Yelabuga under its own Sollers Atlant brand. Later, the Sollers Argo van (JAC N25/35) also entered the production line. In 2023, Sollers switched to full-cycle production of these models, and also launched the assembly of JAC T6 (Sollers ST6) pickups at the site in Vladivostok.

The Chinese JAC became the basis for the Moskvich project. The Moskvich 3 model is a JAC JS4 with re-glued nameplates and a JAC iEVS4 in the case of the electric Moskvich 3e. Launched into production on September 4 by Mayor Sergei Sobyanin, the Moskvich 6 liftback is sold in China under the name JAC Sehol A5 Plus.

AvtoVAZ, as part of SPIEF 2023, launched production of the Chinese FAW Bestune T77 crossover under the Lada X-Cross 5 brand at the former Nissan plant in St. Petersburg. The car has not yet appeared on sale. Vedomosti sources familiar with the progress of negotiations between the Russian company and the Chinese state concern FAW noted that the dialogue between the parties regarding the supply of machine kits is difficult.

In addition, in July it became known that AvtoVAZ was negotiating with the Chinese corporation Dongfeng regarding the localization of production of cars of this brand at the Lada Izhevsk plant.

Kamaz, which is also working with JAC on the Compass medium-duty truck project, was included in the SDN List at the end of July 2022. The GAZ Group fell under US sanctions in 2018 due to its ownership by Oleg Deripaska (also under sanctions). For several years, the US Treasury issued licenses to companies that delayed the entry into force of sanctions. The last license expired on May 25, 2022 and was not renewed, which forced Volkswagen to curtail car assembly in Nizhny Novgorod.

Vedomosti’s source in one of the largest domestic automakers says that it is impossible to immediately assess the potential impact of being included in the SDN List on the company’s activities. He notes that since the beginning of the SVO, all major automakers have taken a course towards actually replacing imported parts with Russian ones, which significantly eases the situation.

De jure, being included in the SDN List implies blocking sanctions for the company, explains Ilya Zharsky, managing partner of the Veta expert group. “This means that accounts and assets associated with the organizations included in the list are frozen, restrictions are imposed on the freedom to dispose of movable and immovable property, i.e., virtually everything that such companies own in US jurisdiction is subject to seizure,” says the expert .

Such companies mean not only those registered in the United States, but also any organizations and holding structures that have assets in the United States, conduct business there, and these are also companies whose securities are traded on American markets and which can have an impact on the US economy through their activities. that is, the restrictions apply to a fairly wide range of organizations, Zharsky explains.

AvtoVAZ, Sollers and Moskvich may have foreign suppliers, for whom the introduction of sanctions creates certain risks, the expert emphasizes. “It is difficult to judge how Moskvich’s Chinese partners will react to this news, since sanctions risks also arise for them, even though China does not join the sanctions. Perhaps some changes will follow in supply logistics and mutual settlements in order to reduce these risks,” Zharsky suggests.

Taking into account the fact that Sollers closed the deal to buy out shares in the joint venture with Mazda and Isuzu, there should be no risk of violating the sanctions regime for Japanese companies, he continues. But until sanctions are lifted or the ownership structure of enterprises is changed, the resumption of joint production with them looks unlikely, he concluded.

New sanctions will have little impact on these companies, says Sergei Glandin, head of the compliance and sanctions law practice at BGP Litigation. They have all reduced their presence in Western jurisdictions, transactions in the US dollar, and otherwise prepared, explains Glandin. Yes, this is an unpleasant step; today’s sanctions will completely cut them off from dollar payments and scare away their Western counterparties, but nothing more. As the work went on in the Russian perimeter, so it will continue, the lawyer believes. At the same time, NOVATEK was not subject to sanctions: only its daughter ARCTIC TRANSFER LLC, Glandin added.