Investing in the German Defence Sector – BMWE Releases Guidance on Drones and Loitering Munitions

This week, the German Federal Ministry for Economic Affairs and Energy (BMWE) released an official guidance paper (Merkblatt) on the classification of loitering munitions and drones under the German War Weapons Control Act (Kriegswaffenkontrollgesetz - KrWaffKontrG). The paper is critical for any company in the sector, as a misclassification – even if negligent – can lead to severe criminal and financial penalties already at the moment the product is manufactured. While explicitly non-binding, the paper provides much-needed clarity on the BMWE's current legal position and enforcement practice.

The paper's primary goal is to interpret product category No. 9 of the War Weapons List (KWL), "other missiles" ("sonstige Flugkörper"), which is the most relevant (albeit not the only) point of reference for classifying drones and loitering munitions as weapons of war. Notably, the paper emphasises that an abstract classification is not possible in many respects. Manufacturers and investors operating in the unmanned aerial systems sector should therefore continue to obtain a comprehensive legal assessment at an early stage.

Below, we summarise key takeaways from the BMWE's paper, before noting a number of points to consider.

1. Loitering Munitions (LM)

• Complete Systems: A complete loitering munition system – equipped with a warhead, fuse, engine, and target-seeking function – is unequivocally classified as a weapon of war under No. 9 KWL. The BMWE emphasises that the installation of a conventional warhead is not decisive but rather the effect on the target which can also be obtained by hand grenades, anti-tank projectiles, shaped charges, or simple explosives.
• Essential Components: Warheads (No. 56 KWL) and fuses (No. 57 KWL) intended for LM are considered weapons of war in their own right. Engines, however, are only classified as weapons of war (No. 12 KWL) if they were specifically designed for use in LM and are not also used in civilian, dual-use or military reconnaissance drones.
• Incomplete Systems: Even without a warhead or fuse, an LM can be classified as a weapon of war. A decisive factor is the presence of flight-capable hardware and purpose-built software designed to "track targets and dive onto them." The BMWE notes that if the hardware consists of commercially available "off-the-shelf" components, the classification as a weapon of war is typically only established in conjunction with software specifically programmed for the loitering mission.

2. Armed Drones

• General Rule: Drones designed for deploying weapons and subsequent return (i.e., for multiple missions) are classified as weapons of war under No. 9 KWL. The type of armament is not a decisive factor. The paper notes that even the installation of a shotgun could suffice.
• "Objectively Destined for Armament": A drone does not need to be actively armed to be classified as a weapon of war. The classification applies if the platform is "objectively destined for armament." The BMWE provides three examples for this:
  • An integrated weapons system with target detection, fire control and corresponding interface to avionics;
  • All essential technical provisions for installing and operating launchers for guided missiles;
  • Bomb bays / release mechanisms / mountings that are "specifically designed for weapons use" and cannot be reasonably used for other purposes like cargo transport.

3. Other Key Classifications

• Interceptor Drones: Drones designed to destroy other drones through purely kinetic impact (i.e., without a warhead) are also considered weapons of war under No. 9 KWL.
• Reconnaissance Drones: Standard reconnaissance drones are not weapons of war. However, if a drone can be used for both reconnaissance and combat, it can be treated as an armed drone or a drone “objectively destined for armament” and classified accordingly.
• "Kit Theory" (Bausatztheorie): The BMWE highlights the existing legal principle that a weapon of war, even if disassembled into individual parts that are not themselves weapons of war, is still treated as a complete weapon of war if the parts are (nearly) complete and can be assembled.
• Prototypes: An item becomes a weapon of war as soon as it is considered a "first operational prototype". This means the weapon is at a stage of development such “that its militarily meaningful use in armed conflicts between states is seriously possible."

Points to Consider

The paper provides valuable, albeit non-binding, direction for bringing the comparatively old War Weapons Control Act of 1961 into line with an increasingly innovative field of technology. The following points are particularly noteworthy for manufacturers and investors:

1. The Decisive Role of Software and "Specific Design": The BMWE places significant emphasis on intent and specific design. For companies using commercial off-the-shelf hardware, the software's programming can single-handedly trigger a classification as a weapon of war.
2. Incomplete LM and "Armament-Ready" Drones in Scope: The focus on incomplete LM and drones "objectively destined for armament" closes potential loopholes. Manufacturers cannot build LM or drones meeting the abovementioned criteria and avoid the KrWaffKontrG by delivering it "unarmed". If the platform is clearly designed for combat, it will likely be treated as a weapon of war from the outset.
3. Clarity for Reconnaissance Drones: The guidance provides welcome clarity by reaffirming that drones for reconnaissance purposes only are not considered weapons of war, even if they are considered military drones. This offers a degree of certainty for companies focused purely on surveillance and intelligence-gathering platforms.
4. A Questionable Stance on Kinetic Interceptors: A more contentious point is the blanket classification of interceptor drones that act through kinetic force alone. The paper states: "Interceptor drones without a warhead, which are intended to destroy other drones with purely kinetic effect, are weapons of war under No. 9 KWL". It is worth noting that such systems may be of interest to customers other than the armed forces, such as police forces seeking to secure critical infrastructure. Since weapons of war must generally be "destined for warfare" under section 1 para 1 KrWaffKontrG, applying this classification to systems that could also be designed for non-military purposes appears legally tenuous.

The BMWE's guidance is not the final word across the entire German government. Other key authorities – including the Ministries of Defence (BMVg) and Finance (BMF) – have their own jurisdiction over weapons of war. While they may refer to this paper, they are not legally bound by it, creating the potential for different interpretations and classifications depending on the agency involved.

Finally, it is crucial that this paper does not cover other critical regulatory regimes: Any export of LM or sensitive types of drones will still be subject to separate, and often very strict, review under German and EU foreign trade law (e.g. the EU Dual-Use Regulation) managed by the Federal Office for Economic Affairs and Export Control (BAFA). For example, even if a drone is not classified as a "weapon of war," its export may require a licence.

All in all, the BMWE's paper is a welcome step toward greater transparency, but it also underscores the complex legal environment that companies in the German defence sector must navigate. Notably, the paper announces a future revision of both the KWL and the associated customs explanations (Zollerläuterungen), framing the paper itself as an interim solution until those updates are finalized. A diligent, case-by-case technical and legal assessment will, however, remain indispensable here.

In this new blog series, we explore key regulatory opportunities and challenges shaping investments in the German and European defence sector, providing critical insights for our clients. You can find the initial post on public funding here.