Bridging Investors, Industry and Government: Germany’s Ministry of Defence in Investment Screening – A Conversation with the Head of FDI Screening at the German Federal MoD

Authors: Floor Doppen (post-doctoral researcher, University of Antwerp), Simon Sharghi-Erdmosa (Managing Programme Associate & Acting Head of Programmes, CELIS Institute)

Introduction

In Germany, public defence spending is reaching unprecedented levels, reflecting the current political momentum to expand manufacturing capacities and consolidate key capabilities within Germany and the European Union (EU). Yet public funding alone will not be sufficient. Private investment, including from foreign sources, is expected to play a decisive role in scaling production, driving innovation, and ultimately shaping Europe’s evolving security architecture. At the same time, foreign investment can introduce strategic vulnerabilities.

In the third instalment of the CELIS interview series with investment screening authorities, we approached the German Federal Ministry of Defence (FMoD) to provide some context to their recently published guidelines for foreign investors seeking to invest in the German defence industry. These guidelines shed light on the FMoD’s current investment screening practices, with a focus on security of supply and the effects of foreign acquisitions on the Bundeswehr’s defence capabilities. Moreover, the communication provides a checklist for German defence companies, as potential targets of foreign investment, to take into account when anticipating such transactions. Beyond investment screening, the guidelines highlight risks that screening alone cannot address, aiming to foster greater security awareness within the industry to prevent the outflow of know-how.

Germany is one of the most mature screening authorities in the EU, with a strong domestic defence-industrial base. Against this backdrop, we spoke with Torsten Lindner, Head of the Foreign Direct Investment Screening Branch in the Directorate-General for Armament at the FMoD since early 2024. A mechanical engineer by training, Mr. Lindner began his career as a technical civil servant at the former Federal Office of Defence Technology and Procurement in 1996. Since then, he has held numerous national and international assignments within the Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support, as well as at the FMoD.  Among other roles, Mr Lindner served as Director of the Bundeswehr Technical Centre for Protective and Special Technologies, liaison officer at the Direction Générale de l’Armement in the French Ministry of Defence, and Head of Office to the President of the Federal Office of Bundeswehr Equipment, Information Technology and In-Service Support in Koblenz.

Context to the guidelines

It is relatively unusual for the FMoD to directly address investors and target companies with specific screening guidance. It signals that firms need to prepare for heightened scrutiny and make sure they are in the best shape possible to ensure a smooth screening process.

• Could you provide some background to contextualise the guidance and why you decided to publish these now?

Torsten Lindner (TL): The exchange with the security and defence industry has traditionally been very important to the FMoD, so it is not unusual for us to also provide this industry with useful information on the subject of investment screening. This is even more true in the current period of major geopolitical changes, with renewed focus on greater security preparedness and a return to European and national resilience. We believe that, especially regarding the security policy instrument of FDI screening, it is a good idea to further improve knowledge of the procedure among security and defence industry companies and their suppliers. It is not uncommon for us to encounter investors and target companies of foreign purchasers that are surprised by the investment screening procedure, the research we carry out in this respect, and the government interventions that are sometimes necessary. We also felt in some instances that it would have been helpful and productive if investors and target companies would have considered some aspects of the investment screening earlier in the transaction. With that in mind, our handout is intended to provide concise information and helpful tips regarding the process. Overall, the aim is to create better transparency, especially with regard to our security and defence industry. This is intended to help investors and target companies to better account for investment screening.

VC and the Defence Start-up Ecosystem

The defence start-up ecosystem is fast-moving and often reliant on foreign capital to scale-up.

• How does the FMoD approach screening in this environment, particularly where technologies may have future strategic or dual-use relevance that is not yet fully apparent?

TL: We take the issue very seriously. Our area of responsibility includes knowledgeable experts for every specific technology, and our screenings involve research institutions that are either run by or associated with the Bundeswehr. At the same time, we examine whether there are intentions or commitments as part of any strategic guidelines of the German government or its allies. Defence industry relevance, of course, is also decided by the scope of application of a new product planned by the German company. In this respect, the focus on ensuring our defence capability is particularly relevant when screening these cases individually. We also examine whether there is relevant potential for the technology in question to arm third countries we view critically. Ultimately, the crucial question is whether our essential security interests are likely to be affected by the acquisition.

In this context, however, it is also important to understand that investment screening is a security policy instrument and not an economic development instrument. We take care of securing relevant expertise within German companies in the appropriate cases. Promoting innovation and start-ups is the responsibility of other government agencies, and we are in regular contact with them. The newly-established Bundeswehr Innovation Centre in Erding, or the longer-established Bundeswehr Cyber Innovation Hub for example, are important platforms for cooperation between start-ups and the Bundeswehr.

Greenfield Investments and Indirect Market Entry

Traditional screening mechanisms focus on and ‘catch’ traditional share acquisitions.

• How does the FMoD view alternative channels of technology access, such as greenfield investments, R&D partnerships, or specialised financing arrangements?
• Do you foresee a need for regulatory expansion in this area, and if so, what would it look like? There are, for example, countries that are able to screen R&D partnerships (Denmark i.e., screens ‘Special Financial Agreements’) and greenfield investments (i.e., Sweden).

TL: Investment screening is part of a larger set of instruments that is conceptually referred to as economic security. The German government has launched various initiatives in this context. However, I can only talk about investment screening here. And, in this respect, we are interested in the developments in other countries. As part of the revision of the EU Screening Regulation, the European Commission recommends that member states should consider certain new instruments. However, it was important for the German government that the new EU regulation does not set any premature commitments at the national level. We will need to discuss these questions with an open outcome as part of the revision of the German legal framework.

The role of the FMoD

Investors and their lawyers will most likely be fretting a little bit about the timelines that will prolong the deal process. The guidelines are there to make sure German companies enter the screening process as well prepared as possible to ensure a smooth operation.

• What actions are you taking within the ministry to ensure you can efficiently process the influx of notifications without sacrificing the necessary depth of the risk assessment?

TL: Investment screening is a top priority for the FMoD. After all, we are talking about an important contribution to maintaining the Bundeswehr’s security of supply and Germany’s defence capability. We examine all necessary suppliers and technologies for the armaments sector and beyond for this purpose. As part of the FMoD’s recent reorganisation, Defence Minister Pistorius has clearly shown just how important investment screening is by establishing a cross-functional branch in the Directorate-General for Armament that is specifically responsible for this task. We work on an interdisciplinary basis in this new branch, drawing on expertise from the fields of law, technology and political science. This efficient structure allows us to deal with a currently high and foreseeably increasing number of screening cases, despite tight statutory deadlines. Good legislative screening criteria help ensure that we only deal with relevant cases. In this context, the planned amendment to the national legal framework for investment screening, as stated in the German government’s coalition agreement, is likely to be highly relevant. We are well prepared for this.

• Relatedly, how does the Ministry approach its role in relation to the other ministries within the interministerial review framework and where do you see the best avenues for synergies between governmental actors to increase the efficiency of the process?

TL: We greatly appreciate the established, critical-constructive and very open interministerial exchange led by the Federal Ministry for Economic Affairs and Energy. The steady and close interministerial cooperation enables case-specific, differentiated assessments and appropriate, effective decisions when it comes to acquisitions. In addition to legal expertise, the FMoD’s technological assessments are of particular value for interministerial cooperation, because they allow for clarification as to whether public order or security, or essential national security interests, could be affected by the foreign acquisition of a German company. The FMoD, therefore, plays an important role in the interministerial investment screening process.

Conclusion

Economic security and today’s geopolitical context are permeating and shifting practices across states and within economies. From our conversation with Mr. Lindner the German FMoD has taken substantive steps to improve its own internal structures in line with today’s security needs and to increase coordination between other branches of government and the defence industry, guaranteeing efficient investment screening processes. These internal reorganisations are complemented with targeted information campaigns to ensure that all actors that populate the defence ecosystem (both upstream and downstream) are aware of German security priorities in the defence industry.

It will also remain to be seen how some of the considerations highlighted in the FMoD’s guidelines may impact the upcoming consolidation of the German screening laws and shifts related to the revision of the current EU Regulation on foreign direct investment screening.

Importantly, as also became clear in our previous conversations with other European screening authorities (see here and here), investment screening is not simply a legislative exercise, but requires bureaucracies -even those with mature screening authorities, like is the case in Germany- to adapt to a new security context.