The defense industry has seen dynamic growth in recent years, primarily due to geopolitical tensions and increasing defense budgets. What are the key drivers of this trend? How does it affect the business environment and legislation? In an interview with Michaela Mokrá from the law firm Hronček & Partners, you will learn what conditions companies trading in defense industry products must meet, what security requirements they must comply with, and what challenges await them in administrative proceedings.
In recent years, we have seen a significant boom in the defense industry. What do you think has caused this trend?
The main factor is certainly increased geopolitical tension and ongoing military conflicts, primarily the conflict in Ukraine, which are leading to increased defense budgets in individual countries and boosting demand for defense products for defense or security operations. Countries are striving to strengthen their defense capabilities, which naturally increases demand for military equipment, weapons, ammunition, and other defense industry products or components for their production. This trend is visible not only in Europe but also on a global scale. Entities in the defense industry are currently investing heavily in research and development, which naturally attracts capital, talent, and the attention of public institutions. Conversely, some traditional engineering sectors are experiencing a decline, which naturally leads companies to shift their research and production capacities toward the defense industry. The defense industry is not just about weapons in the traditional sense—the importance of various support systems, such as electronic or communication technologies for defense, is growing, which opens up opportunities for engineering firms originally focused on other sectors, in our country, particularly the automotive sector, to redirect their development and production toward this field as well.
With this growth, the demand for licenses to manufacture and trade in defense industry products is also increasing. Do you perceive that the authorities are overwhelmed by these applications?
We can certainly speak of an increased administrative burden on the relevant state authorities, whether it be the licensing departments of ministries or, in particular, the National Security Authority (NBÚ). Collaboration with experts can significantly streamline and accelerate this process. From our experience, we know that the thoroughness of documentation preparation is crucial. If clients contact us only when they encounter a problem during administrative proceedings—such as documents being repeatedly returned for revisions and additions— and each such amendment simultaneously extends the procedural deadlines, it becomes more challenging for us to maximize the efficiency of the administrative process; in certain cases, it may even be simpler and less time-consuming to draft and submit the application anew.
We have been addressing industrial safety issues for a long time, and as a result, we possess sufficient know-how as well as thoroughly prepared sample documentation, in which we anticipate in advance the content of the documentation and application attachments, which, based on our experience, we know the relevant authorities typically require as part of their substantive review of the application, thereby striving to minimize the need for potential supplements and delays in the proceedings in advance. Of course, the authority will also approach documentation differently if it is in a familiar and clear format and is structured to facilitate the simplest possible assessment. Our experience from previous proceedings at the NBÚ, but especially the experience of colleagues and partners who have worked in these institutions for a long time in the past, enable them to help clients streamline and expedite the process of obtaining the relevant certifications and permits; in this regard, we also serve as a reliable partner for the agency itself in communicating during proceedings.
What requirements must a company meet to be able to operate in the defense sector?
Act No. 392/2011 Coll. regulates the conditions for trading in defense industry products and brokerage activities in the trade of defense industry products, governs the transfer of defense industry products, and establishes controls over foreign trade activities involving defense industry products. First and foremost, to determine the legal obligations of clients, we distinguish whether they are merely in the position of a trader or also a manufacturer of defense industry products.
The legal definition of activities involving the trade in defense industry products is indeed broad and formal, encompassing all contractual relationships involving the sale or purchase of defense industry products, foreign trade in defense industry products and their transfer, and brokerage activities involving defense industry products. This also includes any other pre-contractual and contractual relationships related to the trade in defense industry products.
Only a person who meets the conditions set forth by law and obtains the relevant license for this activity may trade in defense industry products and engage in brokerage activities. Licenses for trading and licenses for brokering activities are issued for a period not exceeding five years; therefore, it is necessary to monitor this period and renew the license in a timely manner to ensure business continuity.
In addition to the Ministry of Economy of the Slovak Republic, the Ministry of Foreign Affairs of the Slovak Republic, the Ministry of Defense of the Slovak Republic, the Ministry of the Interior of the Slovak Republic, the National Security Authority, and the Slovak Information Service are also involved in the licensing regime for defense industry products and brokerage activities from the perspective of protecting the security interests of the Slovak Republic.
The application itself must be accompanied, among other things, by an officially certified copy of the applicant’s industrial security clearance.
One of the conditions for an applicant seeking a license to trade in defense industry products is therefore the submission of an industrial security certificate. What are the basic requirements for an entrepreneur’s industrial security?
Industrial security represents a set of measures and conditions for the protection of classified information relating to the business. Every company in this sector must meet strict security standards concerning the protection of classified information, physical and facility security, as well as cybersecurity.
This means that the company must fulfill the relevant obligations under the Act on the Protection of Classified Information, which includes the requirement that members of the statutory body must obtain a security clearance for the appropriate classification level depending on the nature of the planned activities, and are therefore vetted for integrity, trustworthiness, and security risks. In addition, the company must have appropriate measures and mechanisms for the protection of buildings and premises containing classified information described in its internal documentation and properly implemented, so that such information is protected against access by unauthorized persons. Another component of the conditions for obtaining an industrial security clearance may be the development of a security plan for technical equipment and the certification of such equipment. The National Security Authority also reviews the company’s ownership structure, finances, and ties to foreign entities.
Industrial security is governed by various classification levels. What classification levels are there?
We distinguish four basic levels of classification:
Restricted: This is the lowest level of classification and applies to information where unauthorized handling could cause harm to the interests of citizens or state authorities, which could be detrimental to the interests of the Slovak Republic.
Confidential: This refers to information where unauthorized handling could cause harm to state interests, public interests, or other legally protected interests—such as the interests of a state authority.
Secret: Unauthorized disclosure could seriously jeopardize the country’s foreign policy position, defense, security, and interests in the international and economic spheres, thereby causing serious harm to the interests of the state, the union, or the alliance;
Top Secret: This is the highest level of protection, where a leak of information could result in a serious threat to the constitutionality, sovereignty, and territorial integrity of the state, or could result in irreparable and serious damage in the areas of defense, security, economic interests, foreign policy, or international relations, thereby causing exceptionally serious harm to the interests of the Slovak Republic.
Each of these levels requires specific security measures. It is important that all entities handling information at a given classification level possess the necessary security clearances, secure facilities, and adequate technical infrastructure.
However, not every business owner has a clear understanding of their needs regarding the required classification level, nor of the specific measures and mechanisms to ensure compliance with strict legislative requirements. It is true that a higher level of confidentiality comes with stricter conditions and greater time and financial demands for implementation. At Top Privacy, we focus on designing solutions that guide clients toward the optimal level of classification. Our security measures are designed to comply with legislative requirements while minimizing financial costs for clients, taking their individual needs into account.
When is it mandatory to secure a facility or technical equipment?
Michaela Mokrá: It is practically always mandatory whenever classified information is handled within a given facility or when using certain technical equipment. Thus, if classified information is processed electronically using technical equipment, it must be secured and properly certified; the same applies to the facilities and premises where they are located.
This includes a wide range of security measures and tools that must be carefully configured in accordance with the specific needs and conditions of each entity; in the case of facility security, these include, above all, access security codes, specific locks, camera systems, or alarms, as well as rules for maintaining and handling documentation; in the case of technical measures, this primarily involves cybersecurity and IT configurations.
The extent and nature of these measures often depend on the classification level and complexity of the projects the entity is engaged in. For example, if a company stores or develops products involving information with a higher classification level, or if the company bids on government contracts and works with classified information of a higher level, it must expect stricter requirements for securing both the facility and technical equipment, which naturally also affects the costs of these measures.
How does cooperation with the EU and NATO influence security requirements?
Michaela Mokrá: Slovakia’s integration into EU and NATO structures means that, in the context of protecting classified information, entities must not only meet national requirements regarding industrial security under the Act on the Protection of Classified Information, but many security standards are also coordinated at the international level, which must likewise be taken into account. It is also necessary to observe international obligations contained in international treaties, such as those regarding the recognition of security clearances for individuals from other countries, or regarding the ban on the export of defense industry products to countries that are not authorized and are subject to various sanctions.
If a company wishes to participate in the supply of defense industry products and alliance military projects, it must, of course, meet the stricter security clearance standards required by NATO.
How does the process of obtaining a license to trade in defense industry products work?
Michaela Mokrá: First and foremost, during consultations with clients, we review their business model to identify the scope and level of protection for classified information that will apply to them, and generally familiarize them with the legal requirements pertaining to the trade in defense industry products as well as industrial security, so that they know all the legal requirements they must meet and so that we can identify any shortcomings that will need to be addressed. We take a comprehensive view of the applicant’s business model, and since our team consists of both security experts and lawyers, we can also assist with setting up supply chains or defining the applicant’s position within a group of companies linked by ownership or personnel.
The first step is then to prepare the industrial security documentation—that is, the applicant’s security project. This involves a comprehensive set of documentation on physical and facility security, within which we also propose a method for securing the protected area and facility, as well as administrative security documentation, within which we prepare a records management plan, and then a personnel security policy. This also includes a security project for technical equipment and securing its certification, where we collaborate with our partner IT technician when configuring the technical equipment. We also assist the applicant in obtaining security clearances for members of the statutory body, which primarily involves assistance and consultation in completing the entrepreneur’s security questionnaire, followed by the submission of an application for an entrepreneur’s security clearance to the National Security Authority.
After submitting the application to the National Security Authority, we simultaneously work on preparing the application and documentation to obtain a license to trade in defense industry products, where we must demonstrate to the Ministry of Economy, in particular, the applicant’s compliance with capital requirements, their integrity, and the suitability of the members of its statutory body; it is also necessary to identify a responsible representative and specify the defense industry products as well as the individual methods of trading in them. We are striving to prepare this application on an ongoing basis throughout the proceedings at the National Security Authority so that we can finalize and submit it as soon as possible after obtaining confirmation of the applicant’s industrial security, thereby also streamlining the entire process.
Do you expect legislation in this area to become stricter?
Michaela Mokrá: The current wording of Act No. 392/2011 Coll. on the Trade in Defense Industry Products and on Amendments to Certain Acts is indeed outdated and does not sufficiently reflect the current situation in the sector. We have information from both practical experience and the Ministry that in some cases it causes complications regarding interpretation, and therefore there are currently initiatives within the ministry to amend it. However, we will monitor how the legislative process proceeds, whether the law can be amended in the foreseeable future, and whether there will be the political will to do so. It will certainly be primarily about modernizing the law; to a certain extent, we actually expect it to be tightened, particularly in connection with new security threats and technological developments. We expect, in particular, improved control powers for the relevant authorities over exports and increased oversight of supply chains.
As for the legal framework governing the protection of classified information, this law has not been amended since 2004, but we currently have no information regarding planned changes, and no such proposal is currently part of the legislative process.
The most significant and rapid changes affecting entities operating in the defense industry relate to cybersecurity, where, even at the European level, there is currently a strong emphasis on modern regulation that could better respond to rapid technological progress and security threats associated with information and communication technologies.
Do you have any final message or thought you’d like to share?
I hope that well-prepared companies will, despite the demanding administrative process, obtain all necessary permits and meet the legal requirements so that their business in the defense industry can move forward. Of course, we will be happy to assist them in this regard if they decide to utilize our services and expertise.
