ROME – Italy’s intelligence watchdog has called for tighter, U.S.-style monitoring of corporate acquisitions after allegations that China quietly purchased an Italian military drone maker that supplied Italy’s special forces.
In its latest annual report, the Italian parliamentary intelligence oversight committee (COPASIR, in Italian) pushed the government to beef up monitoring of acquisitions, urging it to follow the example of the U.S. Committee on Foreign Investments in the United States, better known as CFIUS.
“(CFIUS) goes beyond checking transactions which are announced and actively monitoring all activity in the market which could be deliberately omitted,” the committee said.
The alarm was prompted by a raid last year by Italian tax police on Alpi Aviation, a firm in Pordenone in northern Italy which produces the Strix UAV.
Weighing 10kg with a three meter wingspan, the Strix can relay video and infrared imagery in real time and was used by Italy’s special forces in Afghanistan.
Investigators said a 75% share in the firm was purchased in 2018 at an inflated price by a Hong Kong-based company in turn controlled by Chinese state firms, which planned to transfer production to China.
The sale allegedly violated Italy’s “Golden Power” law, under which defense firms, as well as strategic companies, can only be sold outside Italy with specific permission from the government.
The tax police said the firm failed to notify the Italian government of the change in ownership, then also broke Italian law on defense exports by failing to inform the government when it temporarily exported a drone for display at a 2019 Shanghai trade fair.
Lawyers for the firm have denied the allegations, which may lead to fines from the government for violation of the Golden Power rule, as well as criminal charges for illegal defense exports.
In its annual report, released this week, the parliamentary intelligence committee, known as Copasir, said the Alpi Aviation allegations proved the need for a “reinforcing” of the Golden Power rule, meaning better monitoring of acquisitions.
Progress had already been made by giving a senior tax police official at seat on the Golden Power committee, the report said, but claimed more was needed.
Just like the CFIUS, Golden Power officials needed to proactively seek out acquisitions where the true buyer was hidden, the report said.
An interagency U.S. government committee created in 1975 and chaired by the U.S. Treasury, CFIUS reviews and can block foreign acquisitions.
Furthermore, the report called on the Italian government to monitor activity before an acquisition, looking at the potential buyers given access to Italian company’s data rooms during due diligence phases, when “much sensitive information and industrial secrets are shared with foreign entities, notwithstanding a confidentiality agreement.”
An Italian government source told Defense News the government generally followed the advice of COPASIR.
The report said that Italy’s Golden Power legislation had been invoked to study 800 proposed financial transactions since 2012, with a veto on acquisitions used three times.
It warned that the purchases of small firms and start-ups were more likely to escape the attention of officials, and also claimed the legislation was not tough enough to halt Chinese influence over Italy’s 5G network.
The report also raised the alarm over the threat of Chinese investment in Italian ports, an apparent rebuttal of the decision by an Italian government in 2019 to sign up to China’s Belt and Road initiative, which envisaged such investment.
It also claimed Italian universities could be used as “Trojan Horses” by Chinese agents seeking to access research.
Hampered by poor funding, universities were vulnerable to Chinese offers of investment, leading to the “real risk of technology and know-how being stolen.”
Tom Kington is the Italy correspondent for Defense News.