Authorities in Italy are investigating a deal between an offshore company and an Italian drone maker whose control was taken over by two Chinese state firms through this agreement without the government’s knowledge, according to the Wall Street Journal.

The offshore company, Mars (HK) Information Technology, started the process of transferring Alpi’s technical and intellectual property to a new production site in China, the WSJ report said.

Mars had in July 2018 bought a 75% stake in Italian drone maker Alpi Aviation for 4 million euros ($4.6 million), and also invested another 1.5 million euros in Alpi - an amount Italian police said was a significant overpayment.

Italian authorities are now investigating the 2018 deal, including whether Alpi should have notified the Italian government of the stake sale, as well as whether Alpi had transferred technology and started production in China, the WSJ said.

Police concluded that Mars was a shell company linked to two Chinese state-controlled firms, it added.

Mars was registered in Hong Kong just two months before the Alpi deal, according to the report. It added that police traced Mars’ ownership of Alpi to China Railway Rolling Stock Corp or CRRC — a large Chinese state-owned rail company — and an investment group controlled by the Wuxi municipal government.

Wuxi is a city near Shanghai. A Reuters report in September had identified the investment group as China Corporate United Investment Holding.

Alpi had supplied drones used by the Italian Air Force in Afghanistan, the WSJ report said.

The Journal, quoting a statement from Alpi, said the Italian drone maker denied it had broken laws on transferring strategic information and technology out of Italy. The company also said its stake sale was transparent and made at real value.

European companies are generally required to report relevant foreign takeovers to authorities, such as when the deals involve security, according to the WSJ.

The Italian government has the right to veto takeovers by non-EU buyers in industries deemed strategic such as defense and communications, it added.