On 29 January 2026, the German Federal Ministry of Defence (Bundesministerium der Verteidigung, “BMVg”) published a noteworthy statement on its official website addressing investment screening for foreign investments in the German security and defence industry (Sicherheits- und Verteidigungsindustrie). The guidance outlines the BMVg’s role in the interministerial review process regarding foreign investments, sets out a checklist for affected companies, and highlights know-how protection concerns that extend beyond the scope of formal investment screening. While much of this guidance reflects established practice among FDI practitioners, such direct public communication is rare and signals heightened governmental scrutiny of foreign investments in the security and defence industry at a time when Germany is fundamentally reshaping its approach to strategic industrial policy.
Germany operates a comprehensive foreign (direct) investment control (“FDI”) regime that enables the Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie, “BMWE”) to assess and potentially block or impose remedies on foreign investments in Germany. Foreign investments in the German security and defence industry are subject to particular scrutiny, including prior approval requirements backed by a strict prohibition on gun jumping.
The BMWE leads the screening process, but all affected ministries are involved in the review. Where the security and defence industry is involved, the BMVg plays a particularly important advisory role.
The BMVg’s key concerns
According to its recent online publication, the BMVg evaluates foreign investments in the security and defence industry from two principal perspectives: First, it assesses whether the foreign investment could affect supply security for the German Armed Forces (Bundeswehr). This concern can be triggered whenever the target company – whether as a direct supplier or as a sub-contractor further down the supply chain – delivers goods or services to the German Armed Forces. Second, the BMVg examines whether the foreign investment could negatively impact Germany’s overall defence capability, particularly where know-how could flow to a non-allied state, enabling it to accelerate its military development and thereby erode Germany’s technological edge.
The guidance underscores that outflows of know-how not only harm supply chains but may also allow foreign investors to strengthen their own defence industries at Germany’s expense. In the BMVg’s view, German production and R&D facilities often lose their long-term viability once such knowledge has left the country.
Checklist for affected investments
The BMVg sets out a number of criteria that it applies when screening a planned sale of a German security and defence company (or at least 10% of its voting rights) to a foreign investor. These include whether the foreign investor poses any security-related risks, the location and structure of the foreign investor’s decision-making bodies, whether there is any direct or indirect supply to the German Armed Forces, and whether the target company’s products have unique selling points that distinguish them from competitors on the global market. The BMVg also considers the product’s current military relevance and whether it could acquire relevance in the future.
Importantly, the checklist also addresses know-how protection mechanisms, such as evidence of safeguards preventing uncontrolled outflows of proprietary technology, intellectual property, and patents. Examples include adherence to the “need-to-know” principle, retention of data servers exclusively within the EU, and robust data security measures. If the target company participates in German or European R&D programmes, the BMVg will scrutinise whether such programmes are adequately protected from knowledge transfer to the foreign investor.
Know-how protection beyond FDI screening
The BMVg explicitly acknowledges that formal investment screening cannot address all potential avenues of know-how outflow (but without answering the question of how to tackle these from a German security policy perspective). It highlights several scenarios that fall outside – or at the margins of – FDI. Foreign investors, according to the BMVg, increasingly use “greenfield” investments, including establishing new subsidiaries or acquiring lesser-known regional companies, to access the EU Single Market and recruit German specialists with knowledge gained from previous employers. R&D partnerships and financial sponsorship arrangements with German companies similarly create risks of unintended technology transfer if appropriate contractual safeguards are not in place. The guidance also flags competition dynamics: once a foreign-controlled entity is established within the EU, it may appear more trustworthy to German partners, facilitating information sharing that would otherwise be approached more cautiously. If such an entity subsequently achieves market dominance – potentially through aggressive pricing – it may be able to raise prices significantly once domestic competitors have been displaced.
Strategic context: National security and defence industry strategy
The BMVg’s publication must be read against the backdrop of Germany’s National Security and Defence Industry Strategy, adopted in late 2024. This strategy identifies certain key technologies that must be retained nationally – or at least within a European or allied framework – to preserve Germany’s strategic sovereignty. These include military IT and communications, artificial intelligence, naval shipbuilding, armoured vehicles, sensors, electromagnetic warfare, quantum technologies, missiles and missile defence, space technologies, ammunition, and unmanned systems. The strategy explicitly commits the government to preventing know-how outflows through investment screening where necessary.
Commentary
The BMVg’s public guidance, while largely reflecting established screening practice, carries significant signalling value. Direct ministerial communication of this nature remains uncommon and its publication at this juncture suggests that the German government intends to scrutinise foreign investments in the security and defence industry with renewed intensity. The confluence of the National Security and Defence Industry Strategy, anticipated domestic legislative reforms, such as the introduction of a dedicated Investment Screening Act (Investitionsprüfungsgesetz) – a draft bill is expected to be presented in the first half of 2026 – and the revised EU FDI Screening Regulation recently agreed in trilogue on 11 December 2025 (see our Newsletter dated 12 December 2025), which establishes a minimum screening scope across all Member States, points toward a period of sustained regulatory tightening.
While the government’s focus on supply security and technological sovereignty is understandable in the current geopolitical environment, investors should be aware that the criteria applied remain broad and, in certain respects, discretionary. This creates inherent uncertainty, particularly for foreign investments involving investors from jurisdictions that may not be viewed as fully aligned with German security interests. This may even result in a blocking of foreign investments based solely on the sensitivity of the target sector – as can be seen in the French government’s very recent decision to block the sale of a ground‑antenna business to an EU-based investor, citing its strategic importance for civil and military communications and stressing that the veto was due to sovereignty and security considerations rather than the EU investor itself.
From a practical standpoint, the BMVg’s guidance underscores the importance of early engagement with screening requirements where the security and defence industry is involved. Parties contemplating selling or investing in a company in the security and defence industry – or any form of foreign investment likely to attract regulatory scrutiny – should factor FDI timelines and potential remedies into their transaction planning. This includes anticipating detailed requests for information, extended review periods, and conditions or commitments that may influence the overall economics of the transaction. The BMVg itself recommends obtaining specialised legal advice.
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