New Delhi: A Hong Kong-registered company, allegedly controlled by the Chinese government, had in 2018 acquired Italian military drone manufacturer Alpi Aviation Srl. Now, the Wall Street Journal (WSJ) has reported that the acquisition, which was seemingly in violation of Italian arms laws, evaded the attention of the European Union and Italian government’s foreign investment watchdogs.
“In 2018, the European Union established a new framework for screening. But ultimate responsibility lies with national governments, which must balance their desire for investment against security concerns and are unable to monitor deals at every company,” WSJ said.
According to BBC and Reuters reports published in September 2021, Italy’s financial crimes police did start investigating the 2018 acquisition this year. Six people were named to prosecutors for violating Italy’s “golden power” rules that according to the BBC report, bar or restrict the sale of strategic assets to foreign investors and cover the sale of defence and national security, and also infrastructure.
“Rome has special vetting powers to block unwanted bids from non-EU suitors in industries deemed of strategic importance like defence, energy and telecoms,” stated the Reuters report.
Alpi is subject to special checks, the BBC report pointed out, because it supplies to the Italian military.
China and armed drones
China is the world’s leading exporter of armed drones in the world. However, it is believed that what it produces for itself and what it sells to others are totally different.
Over the years, China has heavily invested on military technology and drone warfare is a key focus area.
Sources in the Indian defence and security establishment point out that the sly acquisition of the Italian drone manufacturer is part of the “Chinese way” of getting its hands on more technology that will help it fine tune its own capabilities.
“China has been thriving on reverse engineering and espionage and theft to gain access to military technology besides its own research. Acquiring an Italian drone manufacturer gives it the technology legally,” a source said.
Story behind Alpi’s acquisition
Hong Kong-based company Mars (HK) Information Technology Co. Ltd was registered in May 2018, two months before it paid 4 million euros for a 75 per cent stake in Alpi Aviation, which supplies drones to the Italian armed forces. Mars then invested a further 1.5 million euros, the WSJ report claimed.
However, according to media reports, Italian authorities not only allege that this is a significant overpayment from the share value of 45,000 euros, but that the sole purpose of the acquisition was to “acquire technological and manufacturing know-how” of Alpi, in order to transfer the technology and shift the manufacturing base to Wuxi in China.
Furthermore, according to the reports, Italian authorities claimed that Mars was itself a front for two Chinese state-owned companies — China Railway Rolling Stock Corporation and Wuxi-based investment firm China Corporate United Investment Holding.
“This was clearly just a predatory investment in technology… And this type of investment in this sector is forbidden,” local financial crimes police chief Stefano Commentucci was quoted by Reuters as saying.
Allegations of technology transfer prior to acquisition
As part of the investigation, financial crimes police also claimed to have found evidence of Alpi Aviation negotiating with Mars (HK) about this purported technology transfer prior to the acquisition. Such a transfer requires prior permission from Italy’s government, which it has the right to veto, WSJ stated in its report.
Following the acquisition, Alpi had an operational team each based in China and Italy. In 2019, it exported a military drone, claimed as “a radio-controlled model plane”, to Shanghai for a trade fair, BBC added in its report.
But according to media reports, Alpi’s legal representatives, Bruno and Antonio Malattia, have stated that the entire acquisition process was transparent according to the company’s valuation and tax law, and denied any infringement on the “golden powers” sale rules.
The Malattias had also expressed bewilderment over the investigation being publicised, and hit out at Italian financial crimes police for allegedly “prematurely releasing details in an improper manner”, the BBC claimed.
(Edited by Poulomi Banerjee)