South Africa expands its investigation into a defense scandal involving Denel, focusing on alleged IP theft linked to the UAE and Saudi Arabia. Image: Engineering News.
(The Post News)– The Special Investigating Unit (SIU) has informed Parliament that it is making “slow but steady” progress in its sweeping probe of the alleged loot of Denel’s defense intellectual property (IP) by United Arab Emirates (UAE) and Saudi Arabian firms—a nine-year saga, which could cost South Africa billions in lost royalties.
The SIU started looking into Denel in 2019 in relation to IP misappropriation on air-to-air missiles, guided weapons, drones, and armored vehicles, with the majority of the episodes tracing back to 2015-2019. The middle of the controversy is a paper trail of dubious joint ventures, governance lapses, and the mass exodus of hundreds of South African defense engineers to the Gulf states.
In its latest report to Parliament, the SIU revealed that civil action is being brought in the Special Tribunal against the illicit exploitation of South African IP by UAE defense entities, and the value of such IP was put at more than R320 million. Royalties that could have been earned on such technology were put at R1.5 billion.
The SIU has confirmed it is writing three criminal referrals to prosecution authorities, 16 administrative referrals to the Companies and Intellectual Property Commission (CIPC), and two to the Legal Practice Council. A report on a governance failure at Denel is also in progress.
The furor is primarily about a transaction that Denel made in 2012 with the UAE’s Tawazun Holdings, resulting in the creation of the Tawazun Dynamics (TD) joint venture. Denel owned 49% of the venture, while Tawazun owned the majority, 51%.
Denel contracted with TD in 2015 for the design of two missile systems—P2 and P3—at $40 million. Foreground IP was to be transferred in this contract, while the background IP was to remain in South Africa. However, in 2016, a signed resolution surrendered this IP completely to Tawazun without Denel board or the South African government’s approval.
Tawazun continued to rebrand the company as Barij Dynamics and eventually sold the IP to Halcon, a UAE-based EDGE defense conglomerate company. Halcon received a weapon contract from the UAE Air Force and then hired Denel for production support—in the course of which Denel’s background IP was accessed and sold on.
The SIU alleges that full data packages for the missiles were copied from Denel systems and that foreign entities were able to replicate South African-designed weapons without payment. Another South African defense firm, Paramount Group, also approached the SIU alleging that it had been duped by UAE-linked firms under similar conditions.
The controversy centers on a claimed 2016 joint venture between ADASI, a subsidiary of EDGE with a UAV segment, and Paramount. ADASI is said to have given Paramount a $150 million loan to set up the venture and buy IP for the Mwari aircraft. While both agree that IP was never formally transferred, ADASI is claiming ownership under a 2024 arbitration ruling—a finding rejected by Paramount.
Paramount is alleging that the UAE deal rested on massive procurement orders that never materialized and that in-house investigations have uncovered the theft of 57 laptops and 10 hard drives from 2016 to 2024. Several former Paramount employees are believed to have moved on to work at UAE defense firms afterward.
The SIU also found the troubling links between Denel and the United Arab Emirates’ Nimr Automotive concerning the RG35 armored vehicle platform. Denel in 2015 entered into unapproved agreements with Nimr regarding the transfer and development of IP related to the RG35 and N35 derivatives.
The contracts were inked by an unauthorized Denel employee, who later resigned from the company and was appointed to a top job at Nimr. The SIU now wants the deals to be invalidated and may prosecute criminal offenses. More than 300 Denel employees are reported to have switched to UAE defense firms, a dossier prepared for Parliament in February alleged.
Saudi Arabia’s government-owned defense organization, SAMI (Saudi Arabian Military Industries), is also involved. A planned 2018 sit-down with Denel fell through after SAMI declined to sign a non-disclosure agreement. Nevertheless, junior Denel staff were reportedly told to download and leak sensitive data. Three erstwhile Denel directors subsequently came over to SAMI and are now in the spotlight.
SIU has blamed Denel’s failure to include restraint-of-trade conditions in employment contracts, allowing experienced engineers and executives to download sensitive IP and shift to overseas competitors. Poor digital asset security also made it easy for unauthorized downloads of confidential information.
SIU Head Advocate Lekgoa Mothibi told Parliament that this has to be a test case for how South Africa can recover stolen assets and IP. “There was a concerted effort by a group of people with the purpose of taking out Denel’s IP, assisted by insiders who migrate to foreign companies,” he described.
The lawyer of SIU, Ntuthuzelo Vanara, quoted the problem of the complication in jurisdictions—the majority of the contracts link disputes to foreign courts—but described arbitration and surrender of rights legally as being under contemplation for routes to recover the losses.
The SIU has referred evidence of misconduct to the National Prosecuting Authority, and disciplinary action has been taken against at least one Denel official. Extradition of individuals implicated and litigation across borders remain a key stumbling block. The unit has suggested that Denel adopt more robust restraint-of-trade practices and better protect intangible assets in the future.
As the investigation continues, it uncovers a broader vulnerability in South Africa’s defense industries—one where poor regulation, international exploitation, and brain drain of technical expertise have seemingly stalled the country’s defense capabilities for decades.
journalist-boipelo@thepostnews.net
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