MILAN and WASHINGTON — The European Commission is investigating the February takeover of Estonia’s Milrem, a company deeply rooted in the European Union’s defense robotics efforts, by an Emirati state-owned conglomerate.

The move follows concerns that defense cooperation projects meant to advance European security interests could be tapped by businesses and governments outside the EU to extract knowledge and exert influence.

“As standard procedure applied to projects benefiting from grants under EU defense funding programs, ownership changes trigger an assessment by the commission,” a European Commission spokesperson told Defense News. “In particular, the impact on the eligibility of acquired entities for EU funding is assessed considering that an acquisition by a third-country-controlled entity could be contravening the security and defense interests of the EU and its member states.”

Milrem leads the European iMUGS project, which came with a $40 million grant in 2020. The project aims to create something of a plug-and-play architecture for future military robotic vehicles of the member states.

Edge Group acquired a majority stake in Milrem last month, a transaction meant to accelerate the Estonian company’s growth and provide the new owners a foothold in Europe, particularly northern Europe, the companies announced Feb. 15. They did not disclose the value of the deal.

EU officials only learned about the takeover that month, according to the commission spokesperson. And an official at the Estonian Defence Ministry said the government was informed mere days before the public announcement.

The case stresses loopholes written into EU regulations on collaborative projects when companies under foreign ownership are involved. Participation in bloc-funded projects is permitted, but only as an exception. Foreign-owned companies, along with their host governments, must make the case in Brussels that they won’t jeopardize European security interests or drain intellectual property gained in the process of bloc-wide collaboration to their new bosses.

Milrem has pledged to put safeguards in place to that effect.

The company’s takeover barely beats a new law approved by the Estonian parliament on foreign direct investment screening. The legislation is meant to close a loophole — one long decried by Brussels — for foreign influence through commercial backdoors.

But the law will take effect in September, meaning the Estonian Defence Ministry had no role in reviewing the deal, a spokesperson there confirmed.

It remains unclear how much power the European Commission holds in situations like this. There appears to be no precedent for the mid-project takeover of a prominent consortium leader by a country outside the EU and even outside the trans-Atlantic NATO alliance.

What complicates the matter is that some European defense companies may see Edge Group as a springboard for their business interests in the Arab world, according to industry insiders, who spoke on the condition of anonymity due to the sensitivity of the topic.

What Brussels can do, however, is withhold future funding for EU defense projects or exclude companies outright if requisite safety guarantees are deemed insufficient, according to a guide for applicants to the multibillion-euro European Defence Fund.

That fund is in line to finance future EU robotics work, including iMUGS, with decisions coming this summer.

Elisabeth Gosselin-Malo is a Europe correspondent for Defense News. She covers a wide range of topics related to military procurement and international security, and specializes in reporting on the aviation sector. She is based in Milan, Italy.

Sebastian Sprenger is associate editor for Europe at Defense News, reporting on the state of the defense market in the region, and on U.S.-Europe cooperation and multi-national investments in defense and global security. Previously he served as managing editor for Defense News. He is based in Cologne, Germany.

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