Dual-use: key legal and transactional aspects

The dual-use sector is attracting increasing amounts of capital thanks to the rapid development of AI, cybersecurity and space technology. However, investors must take specific legal and security requirements into account.

The current geopolitical situation and the changes taking place at a strategic level mean that global investment in the defence and dual-use technology sectors is reaching record levels. The macroeconomic and geopolitical outlook suggests that this trend will continue into 2027. As one of Europe’s leaders in areas such as defence, Poland has the opportunity to become a centre for innovative dual-use solutions.

What areas do dual-use projects cover?

Dual-use projects cover a very wide range of commercial ventures. These include, amongst others: the space sector and space technologies, space and orbital infrastructure, cybersecurity, quantum technologies and telecommunications infrastructure (including encryption technologies, secure data transmission and secure communications), data centres, AI, robotics, projects relating to transport infrastructure (including airports and ports) and energy infrastructure (including transmission systems). In each of the above-mentioned sectors, individual projects, technologies or infrastructure may be used for both civilian and military purposes. Infrastructure projects are typically medium- or large-scale in nature. Dual-use projects represent a natural investment focus for entities operating as private equity or venture capital funds, as well as for sector-specific investors and family offices.

Dual-use products – selected legal issues

The key pieces of legislation governing the trade in dual-use items are:

• Regulation (EU) 2021/821 of the European Parliament and of the Council (‘the Regulation’), together with the Delegated Regulation of 14 September 2026 updating Annex 1 to the aforementioned Regulation (the Delegated Regulation is scheduled to enter into force in November 2026) – establishing a Union system for the control of exports, brokering, technical assistance, transit and transfer of dual-use items;
• the Act of 29 November 2000 on foreign trade in goods, technologies and services of strategic importance to national security and to the maintenance of international peace and security.

In accordance with the provisions of the aforementioned Regulation, ‘dual-use items’ means items, including software and technology, which can be used for both civilian and military purposes. They also include items which can be used for the design, development, production or use of nuclear, chemical or biological weapons or their means of delivery. This category also includes all products which may be used both in non-explosive applications and in any way to assist in the manufacture of nuclear weapons or other nuclear explosive devices.

The export of certain dual-use items (mainly those listed in Annex I to the aforementioned Regulation) outside the EU customs territory requires the appropriate authorisation. However, the transfer of dual-use items between EU countries generally takes place without authorisation, with the exception of the most advanced technologies listed in Annex IV to the aforementioned Regulation (e.g. ‘stealth’ technology products, advanced cryptography or nuclear technologies).

‘Catch-all’ clause

It should be emphasised that the regulations governing trade in dual-use items stipulate that, even if a particular item is not included on the official list of dual-use items, the exporter is under a legal obligation to declare the transaction if they are aware (or have been informed by the state authorities) that the items in question may be intended for use in activities related to the development, manufacture, handling, operation, maintenance, storage, detection, identification or proliferation of chemical, biological or nuclear weapons, or for a military end-use in countries subject to an arms embargo, or contrary to their civilian intended use.

Internal Compliance Programme (ICP)

Companies and institutions involved in dual-use projects should implement what is known as an ICP (Internal Compliance Programme), i.e. an ‘internal control system’ within the meaning of the Regulation. Whilst this is not mandatory for every type of trade, it constitutes the standard of due diligence to be demonstrated to the supervisory authorities. It comprises effective, appropriate and proportionate strategies and procedures adopted by exporters to comply with the Regulation and to fulfil the conditions of authorisations granted under the Regulation, including, amongst other things, due diligence measures to assess the risks associated with the export of products intended for end-users and end-uses (e.g. procedures for verifying counterparties, analysis of the end-use of the product and the archiving of documentation).

R&D sector

Legal aspects relating to dual-use also apply to the R&D sector. In accordance with Commission Recommendation (EU) 2021/1700, research institutes and universities should monitor whether the research projects they carry out (particularly in the fields of AI, biotechnology, cybersecurity and new materials) are subject to dual-use technology export control regulations. The Recommendation highlights to research organisations the importance of implementing precautionary control procedures (ICP) to help identify risks associated with the uncontrolled transfer of sensitive knowledge, technology or research results outside the European Union.

A change in the nature of transactions – scale deals versus scope deals

Recent years (particularly 2026) have seen a shift in the nature of transactions and in investors’ approaches, with investors increasingly focusing on ‘scope deals’ (competency-based transactions). Developments in the fields of deep tech, defence tech, AI and the space sector mean that investors are seeking unique expertise and advanced, breakthrough technologies.

Consolidation deals (scale deals) are, of course, still present in the market; however, some PE/VC investors and family offices are paying increasing attention to scope deals.

Changes in the nature of M&A transactions in this area are linked to a partial shift in the value creation paradigm. Traditional M&A transactions focused on ‘scale deals’ (consolidation deals), the main aim of which was to increase the scale of operations, reduce fixed costs, achieve synergies, and so on. A classic example of this approach is the ‘buy and build’ strategy, i.e. creating a platform for business development by acquiring successive companies, each of which is valued individually at significantly less than the value they attain upon becoming part of the parent company’s structure – whether legal or economic – thereby exploiting the arbitrage mechanism arising from the increase in value following acquisition. Another classic model for building value is the strategy of merging two companies of similar size but with significant synergies and a complementary range of services or products. This means being able to compete with industry-specific or strategic investors due to the scale and synergies achieved – which has an obvious impact on the growth in value of the merged business.

A change in the valuation outlook

Changes in the fields of deep tech, AI, defence tech and the space sector mean that companies operating in these industries are increasingly valued not on the basis of their current performance, but taking into account their hypothetical future terminal value. This approach means that investors are, in effect, buying into future growth – both in terms of revenue and technology – and the resulting future (potential) rise in valuations. This means that scope deals (competency-based transactions), through the valuation growth mechanism described above, often enable higher returns on investment to be achieved than in the case of a comparable scale deal. This is because scope deals involve the acquisition of new, unique capabilities and opportunities for rapid growth and expansion (which build a swift competitive advantage) – such transactions enable investment in projects that create breakthrough technologies, allowing value to be built in a very short time. The ‘quality over quantity’ approach has become dominant in the market – which means a significant shift in investors’ focus towards technologically advanced entities (targets) with proven (validated) dual-use products.

Sources of funding

Sources of funding for dual-use projects – particularly in the high-tech sectors, including space technology, robotics, AI, quantum technology and cybersecurity – may include, in addition to PE/VC funds, investment accelerators and programmes such as NATO DIANA, the NATO Innovation Fund and PFR Deep Tech. Other potential sources of funding may also include funds obtained under the European Funds for the Modern Economy (FENG) or the Security and Defence Fund (FBiO). It is worth noting that the entity responsible for the equity component under the FBiO is Chrobry S.A. (established by Bank Gospodarstwa Krajowego), whose objectives include, amongst other things, investments in dual-use technologies.

The dual-use sector – the need to ensure stable energy supplies

The development of AI technologies and tools, data centres and other dual-use infrastructure projects requires significant volumes of energy. Investment in the energy transition and in new, stable energy sources should become a key driver of growth from the perspective of dual-use projects. In this context, the following should be regarded as important factors in stabilising and ensuring energy security:

• nuclear energy projects (SMR technology and large-scale projects),
• the development of a transatlantic energy security framework and the private sector’s involvement in it,
• large-scale energy storage facilities (including, amongst other things, as a means of stabilising the grid),
• cyber security, including the ability to build resilience in energy systems against digital threats and acts of sabotage.

Dual-use technologies and the specific nature of due diligence

Groundbreaking technologies and dual-use projects are characterised by a high degree of complexity. They require the involvement of a specialised team that understands that dual-use is an inherent feature of the project, rather than a potential (secondary) possibility. A key transactional parameter is the speed (timing) of capital injection and the selection of suitable co-financing partners, so as to ensure the project achieves the appropriate scale.

The specific nature of transactions involving dual-use projects and breakthrough technologies also has a significant impact on the nature and scope of the work carried out by advisers (including legal advisers), in particular on the scope and structure of the transaction documentation and on the scope of the due diligence process, which should take into account, amongst other things, regulatory issues, IP/IT and corporate aspects, as well as issues relating to security and the trade in dual-use products.

Summary

Projects involving dual-use technologies – including those relating to AI, space technology, cryptography and infrastructure projects – are currently a highly attractive area of investment for private-sector entities. However, they require very detailed knowledge of regulatory matters, security, IT, technology, construction and energy (depending on the nature and scope of the project). They also require constant monitoring of legal changes and the implementation of appropriate compliance procedures. In this context, when implementing an investment scenario, it is worth considering a very thorough analysis of the project at a very early stage of the investment, in order to minimise legal, reputational and technological risks.

The article was published in the Rzeczpospolita daily newspaper.