Italian defense, drone company investigated in alleged illicit buyout by China [Update]

military drone China

Italian justice officials are investigating an aviation and defense company for an allegedly illegal scheme to secretly transfer ownership and production to China. In addition to other aircraft, the Venice-area business makes military-grade drones that Italian forces have used in NATO operations.

Authorities investigate military drone maker’s suspected secret sale to China

An Italian police unit enforcing tax and other financial laws aired their accusations late last week after a prolonged investigation into the company’s ownership structure. Media reports identify their target as Alpi Aviation, which produces the military surveillance and intelligence-gathering Strix-DF drone for Italy’s Ministry of Defense, and now thought to be the property of China. The company is said to be subject to the country’s “golden power” law requiring companies in strategic sectors like defense, energy, and telecoms to obtain government approval of sales to foreign interests.

Officials quoted in coverage say an opaque structure was used to mask what they claim was Alpi Aviation’s illegal sale to “two important government-owned companies in the People’s Republic of China.” That initiated with a Hong Kong business allegedly paying 75% above Alpi Aviation’s value in 2018 to secure ownership for over $4 million total. Behind that façade, Italian authorities say, is a web of successive shell companies they traced to corporations in China’s state sector. 

According to a police statement, the transaction was “exclusively for the acquisition of (Alpi’s) technological and production know-how, including military.” They say plans were already allegedly afoot to transfer the company’s production from Italy to the eastern Chinese city of Wuxi.

Justice officials fault Alpi Aviation for not reporting the change in ownership, and cite the convoluted holding structure as evidence the company sought to keep details behind it secret. They also claim the group broke technology transfer laws by listing a Strix-DF drone displayed at a 2019  Shanghai trade fair as a “model craft” to skirt export restrictions.

Reports say lawyers for the firm deny all the charges made, and call the sale, ownership structure, and price paid as open and honest.


November 17 Update

Following two months of inquiries into the situation, Reuters reports the Italian government is preparing to issue a complaint that could scuttle Alpi’s deal with its China-based partners.

Referring its information to three unidentified sources, the agency says Rome is now planning to follow up its initial inquiry by issuing formal, direct demands for full clarification of Alpi ‘s acquisition to all businesses involved. Should officials determine the state’s “golden power” prerogative was ignored in cutting the deal, they could impose a series of penalties that include invalidating the transaction on legal grounds.

Italy has used the “golden power” priority four times since 2012 – three involving purchases by Chinese companies, and two since current premier Mario Draghi came to power early this year.


Drone used by NATO forces in Afghanistan

The announcement came as governments in several Western countries express concern about data vulnerability as the reach and influence of Chinese business and tech influence spreads around the world. The US has been particularly outspoken in its concerns, and at times aired pointed accusations, of possible threats China poses. Italy is clearly worried about all information on a military drone it uses being in China’s possession.

But the current episode is not the first time Alpi Aviation has drawn scrutiny. It is also being investigated by Italian authorities for drone sales to Iran that allegedly violated embargo restrictions. The company has denied any wrongdoing in that case.

The Stix-DF has been used by Italian forces in Afghanistan and elsewhere for surveillance and intelligence gathering. The 10 kg. craft has a maximum payload of 1.5 kg. and four hours of flight time. According to Alpi Aviation’s website, the day- and nighttime craft is equipped with a “30x EO optical zoom camera that generates HD standard video and imagery, at the same time it features a x4 digital zoom IR camera to capture high resolution thermal infrared imagery and video… (and) an infrared laser spotter and a laser range finder.”

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