UKR: Ukraine moves to seal mil-tech security gaps

BLUF: Ukrainian lawmakers are reviewing draft legislation that would introduce mandatory screening of foreign direct investment, a move welcomed by both Ukrainian business representatives and EU partners as a way to close counterintelligence gaps.

A Ukrainian-German joint venture is set to launch automated drone production in Germany, with plans to manufacture more than 10,000 drones annually for Ukraine’s Armed Forces.

A quick peek into Special Operations Center 'A' of the Security Service of Ukraine, particularly known for the effectiveness of its UAV units.

Russians are equipping tanks with barbed wire to counter UAVs more and more, but this solution is not entirely effective.

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Four years after similar legislation was derailed by Russia’s full-scale invasion, Ukraine is once again moving to establish its first mandatory screening mechanism for foreign direct investment (FDI), bringing national legislation in line with EU regulations and building safeguards against Russia-linked takeovers. 

Two related bills (No. 14062 and No. 14062-1) have been registered with the Verkhovna Rada to address this issue, with the goal of creating a formal review process for deals involving companies that are critical to national security. This includes defense firms that work on military or dual-use goods.

For decades, Russia infiltrated the Ukrainian economy with investments, acquiring strategic enterprises and gaining control over energy and critical infrastructure.

A law passed in 2021, "On the Bureau of Economic Security," made matters worse by creating a legal vacuum in Ukraine’s economic counterintelligence. As a result of this law, the Security Service of Ukraine (SBU) was sidelined from handling economic counterintelligence. Nor was the newly created Bureau of Economic Security (BES) tasked with taking over that role. The end result was that no state body was left in charge of economic counterespionage – which is still the case today.

That left gaping security holes that Ukrainian lawmakers and defense companies recognized needed to be filled in. 

Simultaneously, the European Commission explicitly stated in its latest recommendations for candidate countries that Ukraine must establish an effective mechanism for screening foreign investments.

Lawmakers and defense businesses consider this legal self-insurance to be long overdue.

“I consider this bill to be adequate and even a little late, because quite a few deals have already been made in the defense sector that will remain outside the scope of the new law," Dmytro Titov, CEO of Ailand Systems, a producer of mine-detection drones, told The Arsenal. The firm has received foreign direct investments from D3 Venture Capital.

Ukraine's Defense Ministry stated that 25 foreign defense companies were already at various stages of setting up production in Ukraine as of September 2025. This involves significant capital investment and joint ventures. However, Ukraine currently lacks a suitable legal framework to monitor capital flows and their origins.

“When we talk about war, we imagine trenches, drones, and missiles. But there is another front—an invisible one. It is a front where the Kremlin attacks not with weapons, but with money: quieter, but sometimes much more effective,” Liudmyla Buimister, independent Member of Parliament and author of the 14062-1 draft law, told The Arsenal. 

Both bills share the same goal of establishing a mechanism to screen foreign direct investments, but they propose different ways of doing it: 

Both bills propose mandatory screening based on specific investment thresholds and governance rights. Foreign investors would have to go through the screening process if they wish to obtain any of the following:

Companies will have to be prepared for FDI monitoring, extending deal timelines, imposing harsher penalties for non-compliance, and increasing the regulatory burden on investors.

However, these restrictions will ensure greater security for companies involved.
According to Titov, from Ailand Systems, private businesses already conduct better due diligence than the government. The new screening timelines will not affect his firm's deal planning, he added.

Catching up to EU standards would also benefit Ukraine by addressing the issue of intellectual property flowing abroad and providing the defense industry with additional institutional support.

"The Ukrainian defense sector is ceasing to be Ukrainian because of the tendency toward incorporation abroad. As a result, intellectual property and added value for decisions in the defense sector will belong to other states," said Titov. 

The new legislation would address that and offer a better assessment of the scale of the problem, he said. Implementation of new investment regulations could take an estimated 6 months.

“The speed of implementing the proposed changes depends solely on political will,“ said Buimister.

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An Export Support Office for defense manufacturers has been established under the Ukrainian Council of Defence Industry, which is an association of Ukraine’s defense manufacturers. Its task is to provide practical support to manufacturers on issues of export control and international arms transfers. Oleksandr Pavlichenko will be a senior advisor for Defense Trade and Export Controls. He previously served as head of the State Service of Export Control of Ukraine.

The Export Support Office is currently in the phased launch stage, Pavlichenko told The Arsenal. At this stage, it provides verbal consultations that help manufacturers gain a basic orientation on international transfers and export control issues. 

The Office is involved in regulatory drafting activities by consolidating practical requests from manufacturers and formulating proposals to improve the regulatory environment.

In the coming months, the Office will expand its consultation services and launch regular professional training programs on international transfers of strategic goods.

According to Pavlichenko, the following goal is to form, by the end of next year, a full-fledged ecosystem of services for participating enterprises.

Wrapping Russian tanks and infantry fighting vehicles in barbed wire serves as protection against FPV drones and has become almost a standard practice, according to a servicemember with the call sign ‘America’ from the Phoenix Border Guard unmanned aerial systems unit.

“Very rarely do we see a tank or an IFV without some kind of ‘add-ons’ — wire, chains, grilles, sometimes even bushes or camouflage nets mixed with metal,” he told The Arsenal.

According to him, the effectiveness of such protection is limited without EW cover. Wire and metal structures can’t fully protect a vehicle against FPV drones equipped with cumulative warheads. With a stable drone connection, experienced pilots can find a vulnerable spot.

The additional weight of these constructions also noticeably affects the vehicle’s performance and the crew. It becomes heavier, accelerates more slowly, the turret rotates more slowly, and the engine and suspension are subjected to additional strain, which is critical in combat.

In the event of a hit or fire, these frames and wires also make it harder for the crew to exit the vehicle quickly. On top of that, the added bulkiness increases the vehicle’s visibility, making it a priority target for drone pilots.

Ukraine’s military uses such modifications far less frequently. The primary focus is instead on camouflage, changing positions, coordinating with infantry, and EW cover, which improve the ability to counter FPV drones, a servicemember said.

Ukrainian drone manufacturer Frontline Robotics is teaming up with the German company Quantum Systems to produce Ukrainian-designed drones in Germany. The new joint venture, Quantum Frontline Industries, is being implemented under the Build with Ukraine initiative. It will establish Europe’s first fully automated industrial drone production line dedicated to supplying Ukraine’s Armed Forces.

The company plans to manufacture more than 10,000 drones annually, Frontline Robotics told The Arsenal. The initial focus will be on the reconnaissance Zoom drone and Linza bomber drone, developed by Frontline Robotics and already verified in combat. All drones produced in Germany will be supplied to Ukraine’s Armed Forces, with volumes and priorities determined by the Ukrainian MoD.

Around 200 specialists are expected to be employed at the facility. One of the project’s key priorities is hiring Ukrainians currently residing in Germany due to the war, including demobilized military drone operators. For security reasons, the exact location of the production site has not been disclosed.

The Special Operations Center 'A', also known as ‘Alpha’ of the Security Service of Ukraine, is an elite counterterrorism combat unit within the Armed Forces. Its UAV units are considered some of the most effective. Alpha fighters operated FPV drones during Operation Spiderweb, for instance, and hit 41 Russian strategic aviation aircraft.

This summer, a law was adopted stating that this center will have 10,000 personnel. The number of people currently serving in the center has not yet been disclosed. 

“Unmanned systems, electronic warfare platforms, AI, and big data analytics turn the Center into a laboratory of combat for the future. Each fighter is not only a soldier but also an operator of complex systems, capable of making decisions faster than the enemy can react,” a representative for the SBU told The Arsenal.

Technological innovation is significantly decentralized in the Center, the representative added, meaning military personnel can also independently develop solutions to later be scaled.

The Cabinet of Ministers of Ukraine has approved changes to the procedure for reserving military personnel that give defense industry enterprises the option of reserving employees for 45 days to resolve military registration issues. 

For companies designated as critically important, the 72 hour review period for employee reservation lists has been scrapped. The government adopted a resolution to implement a similar law.

This option will be available to enterprises that already have the right to a 100-percent reserve of their personnel, explained Member of Parliament Halyna Yanchenko. As of now, these include:

“The law stipulates that such a temporary reservation can be granted only once per year for each individual, for the renewal or correction of records. If this is not done in time, the reservation is cancelled,” Yanchenko told The Arsenal.

This measure is intended to help defense enterprises avoid losing key specialists during the document processing period and ensure uninterrupted operations.

The changes will not be extended to enterprises outside the defense industry. 

By: Oksana Zabolotna

Localization in Public and Defense Procurement

Draft Law No. 13392 dated June 20, 2025

Why it’s important: The draft law entails changes that would have a major impact on defense tech, though not an entirely good one: Mandatory localization thresholds and preferential evaluation could serve to stimulate Ukrainian-based production, yet they might also limit access to advanced foreign components and technologies that defense-tech companies rely on. This would create opportunities for domestic industry growth while simultaneously running the risk of slowing innovation or narrowing supplier options.

Proposals:

Stage: Adopted on Nov. 4. 

Initiator: A group of 23 Members of Parliament from the “Servant of the People” faction, led by Dmytro Nataluha 

What’s next: Amendments and the second reading vote. 

Life Without Mines has been developing a drone-based mine detection system for over three years. The mission of their current project is to survey a given area using various sensors, transmit a map of identified anomalies to sappers and indicate detected UXOs in augmented reality mode. 

“Our dream and goal is to create a sensor that can specifically detect explosive substances, primarily plastic mines, which no other device in the world can detect today,” explained Oleg Vinogradov, CEO and founder of Life Without Mines.

The company is currently seeking investments of $300,000 for the R&D of its ‘Dream Sensor.’ This sensor could become a real game-changer in the demining market and also be used in the agricultural sector.