MILAN and WASHINGTON — The European Commission is investigating the February takeover of Estonia’s Milrem, deeply rooted in EU collaboration on defense robotics, by Edge Group, a state-owned conglomerate of the United Arab Emirates.

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 two firms announced on Feb. 15. They did not disclose the value of the deal.

Estonian firm’s takeover by Emirati group tests joint EU defense rules

EU officials only learned about the takeover that month, according to the commission spokesperson. And an official at the Estonian Ministry of Defense said they were 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 still 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 for foreign influence through commercial back doors, one long decried by Brussels.

But the law will take effect in September, meaning the Estonian Ministry of Defense 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 NATO alliance.

What complicates the matter is that some European defense companies may see Edge as a springboard for their business interests in the Arab world, according to industry insiders speaking on condition of anonymity while discussing sensitive business considerations.

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 up this summer.