Thread by @D_Thorne

Italian police arrested 6 this week over an allegedly surreptitious drone company acquisition by PRC state-owned enterprises (SOE) via a Hong Kong shell. They released a redacted ownership chart - I’ve filled it in using corporate records 👇

Let’s walk thru this case, but 1st...

CRRC may stand out to folks familiar with my past work. My Open Arms report w/ @C4ADS documented CRRC’s role in acquiring UK-based Dynex Semiconductor, moving production to China (*remember this part*), and likely aiding military technology breakthroughs
tinyurl.com/43atvbr8

To begin, Italian police allege that PRC SOEs and gov entities conspired to buy Alpi Aviation, which agreed, in violation of export controls and investment review regs. Alpi makes the Strix-DF unmanned aerial vehicle (UAV) for military use and participates in Italy’s defense R&D

The police charge that SOEs China Corporate United Investment (CCUI) and CRRC Capital Holdings, and the Wuxi government in Jiangsu used a web of shells to control Alpi and move Alpi’s production and know-how to China. This story goes back to 2017…

2017: The Shanghai gov and Italian Ministry of Economic Development host a China-Italy Economic Cooperation Forum in Jun. CCUI signs an equity acquisition framework with Alpi. CCUI’s chairperson creates the alleged shell co. Mars (Shanghai) in Oct.

2018: Mars (HK) is created in Feb. CCUI states publicly it acquired Alpi in Jul. In Dec., Demos (Shanghai) and the Wuxi CRRC CCUI Intelligent Equipment Fund are established, the latter “to push forward the transformation and upgrading of the national industry” (CCUI’s mission)

As far as I can tell, at the time of acquisition the ownership chain was CCUI (a gov-sponsored fund) + CRRC ➡️ Mars (Shanghai) ➡️ Mars (HK) ➡️ Alpi Aviation. Basically the right half of the ownership chart

The other entities were probably set up to manage and fund Alpi’s development + relocation to China. By Oct. 2018, news reports already indicated that Alpi was participating in a joint venture to move production to China

Alpi’s China facilities are intended, according to CCUI press, to be the 1st project within a new Wuxi CRRC S&T Innovation Park. I’m guessing this falls within the Wuxi Liyuan Economic Development Zone, but am not sure. By 2019, facility planning/development is underway…

2019: CCUI’s assistant president (助理总裁) says Alpi production will move to China, creating local engineering teams + new domestic supply chains. In the meantime, Alpi shows off the Strix UAV at the China Int’l Import Expo — Strix is Italian mil. equipment & export controlled

Police allege that Alpi failed to notify the Italian Ministry of Defense about their sale for 2 years and reportedly misrepresented the Strix-DF UAV when exporting it to China for the Expo. I believe this is the core of the legal case against Alpi

Other notable points in the case: CCUI and CRRC may have paid as much as 90 times Alpi’s actual value (reported numbers vary). Alpi is also reportedly under investigation for violating export controls related to Iran, which might be a longstanding issue per this 2009 US cable

3 things abt this case stand out: 1st, CRRC + relocation to China. It's just like Dynex. CRRC also owns British subsea equipment & submersibles manufacturers Specialist Machine Developments and Soil Machine Dynamics that at 1 time said they would move to China too

2nd is overpayment. This is the so-called “China Premium” that sellers want, and PRC companies are willing to offer, due to the regulatory risks and opacity of PRC corporate structures

3rd, the targeting of foreign military suppliers for acquisition or R&D partnership. People's Liberation Army Navy supplier Beijing Highlander Digital Technology has done this multiple times. And btw they partner with radar developer AIDOS Systems Srl in Italy

Now some ppl are pushing back on the legitimacy of this case, so let’s unpack a little:

1. Is this tech transfer? Yes — CCUI said it
2. Is it covert? Not really, but proper disclosure apparently didn’t happen
3. Is it illegal? This is for Italian courts to decide

Anyway, read my past report with @BenSpevack and Marcel Angliviel if you’re a company that actually cares about wanting to avoid this kind of situation

tinyurl.com/43atvbr8

Note: “Arrested” in Tweet 1 is incorrect. It was a bad translation from an early article I read that must have stuck in my head.

The og police statement says the 6 were reported to prosecutors & charged with crimes (Google translate): tinyurl.com/w54p427c

h/t @Kate_OKeeffe