Indian-Owned Firm Swindled Estonia Out of €70M in Ukraine Arms Deal

File image.

Estonia’s defense minister, Hanno Pevkur, resigned on September 2 after revelations that a state agency paid nearly €70 million in advance to an Italian company controlled by Indian owners for artillery shells intended for Ukraine — ammunition that never arrived.

Pevkur, a senior member of the governing Reform Party, announced his resignation on state broadcaster ETV’s current-affairs program “Aktuaalne Kaamera,” saying he was accepting political responsibility even though he did not consider the failures personal.

“A leader must have both the courage and the stature to accept responsibility,” Pevkur said. “I am ready to accept responsibility, I do accept it and the prime minister must find a new defense minister.”

He later told the outlet Delfi that he no longer commanded the support of a parliamentary majority. He will stay in office until a successor is named, which is expected after the parliament returns from summer recess on September 14.

The resignation followed an investigation by the weekly Eesti Ekspress into the shell contracts and a National Audit Office report criticizing the defense ministry’s management of money and assets.

At the center of the affair is the Estonian Centre for Defense Investments, known as ECDI, which signed four contracts with Datasel S.R.L., a small Italian company, and paid about €70 million in advance for shells for Ukraine.

Datasel was founded in 2005 by Italian businessman Sandro Pazzini, who had experience in defense electronics but not ammunition. In 2023 the company had only a few employees and turnover of just over €120,000, operating from an office in La Spezia between a Nissan dealership and an electrical-goods shop.

On January 10, 2024, Datasel changed its registered activity to the wholesale trade of weapons and ammunition, and the ECDI signed a confidentiality agreement with it the following month.

Later on March 6 of the same year, Datasel was acquired by Neco Defense Munitions, an Indian company controlled by cousins Anand and Avneesh Jayaswal, whose family runs Jayaswal Neco Industries, a metallurgical group with annual turnover exceeding €600 million.

According to Eesti Ekspress, Neco’s website confirmed it was authorized to manufacture only small-caliber ammunition, with shells and bombs presented merely as an ambition. Neither Datasel nor its new owners had previously sold an artillery shell.

By August 2024, the ECDI had signed its first supply contract with Datasel and transferred €15 million. A second agreement followed in October with another advance payment of more than €10 million, and two further contracts were concluded by year’s end, bringing total advance payments to about €70 million.

Ammunition due to reach Ukraine in November was already delayed, though officials said they had received documentary evidence that goods or components were moving through the supply chain.

The contracts were negotiated as Ukraine faced a severe shortage of artillery ammunition and European governments scoured the world for available shells.

Estonia had become an active procurement agent, brokering more than €500 million in military equipment for Ukraine, much of it funded through the European Peace Facility using proceeds from frozen Russian assets, along with contributions from European Union member states.

Pevkur said suppliers were often routed through intermediaries because manufacturers in Africa, Asia and the Balkans did not want their involvement in arming Ukraine made public, and that other high-risk contracts had been completed successfully.

“The larger objective must be kept in view: to support Ukraine as quickly and as extensively as possible,” he said.

Elmar Vaher, the ECDI’s current head, said the agreements with Datasel should not have been signed in the first place due to the background of the company.

“When I read the material, even a fairly cursory background check made it clear to me that there were many unanswered questions,” Vaher said, adding that the decision had been made within a narrow circle and that even the center’s head of procurement had known nothing about it.

Magnus-Valdemar Saar, who led the ECDI when the contracts were signed, disputed the suggestion that the agency acted alone, saying every major decision was approved by senior defence ministry officials and that risks were outlined at ministerial meetings attended by Pevkur and the ministry’s secretary general.

“If somebody cannot find those documents, I can go and show them where they are,” Saar said.

Pevkur acknowledged the procurements had been discussed but said ministers had focused on the principle of buying ammunition for Ukraine rather than payment schedules or contractual details.

“The defence minister does not negotiate contracts; the defence minister does not count socks and cartridges,” he said. “The preparatory work for negotiating contracts and finding contractual partners is the ECDI’s task.”

Some goods were eventually delivered to an undisclosed warehouse in Europe, but Estonian officials said the ammunition was of inadequate quality and incomplete.

Kaimo Kuusk, the defence ministry’s secretary general, described the consignment as “wholly incomplete,” noting that a complete artillery round requires a fuze, a propellant charge and a primer.

For his part, Pevkur attempted to distinguish between ammunition that was useless and a delivery that was deemed incomplete.

“Tens of millions of euros’ worth of the ammunition has been delivered and is sitting in a warehouse in a European country,” he told Estonian Television. “The product supplied by the manufacturer is not of sufficient quality.”

After warnings and contractual penalties failed to resolve the dispute, the ECDI terminated the contracts in November of last year and demanded repayment.

Datasel representatives returned to Tallinn in April of this year and promised delivery the following month, but Estonia refused to reopen negotiations.

Parts of the dispute are now before Estonian courts, while the principal case is expected to go before the European Court of Arbitration in Strasbourg. A guarantee issued in India is said to protect Estonia if Datasel becomes insolvent, though officials have not disclosed its scope.

The sums involved remain contested. The ECDI says about €70 million is tied to the failed procurement, while Pevkur put the advance payments directly connected to Datasel at about €60 million.

Datasel says it received €59 million and supplied goods for which it invoiced €58 million, and no public explanation has reconciled the difference.

In a statement issued through its lawyer, Datasel said it was the party that had suffered loss, rejecting Estonia’s account of quality problems and claiming the goods had been inspected with no defects identified under the contracts’ terms. The company acknowledged delays but blamed a complicated international supply chain and, in part, the ECDI’s own conduct, saying goods were already in production or ready for delivery when Estonia terminated the agreements.

“Datasel remains committed to performing the remaining contract and is prepared to complete it, provided the ECDI meets its financial obligations,” the company said.

Although most of the money originated outside the Estonian state budget, the National Audit Office has warned that Estonian taxpayers may ultimately have to cover losses of about €70 million if the funds cannot be recovered.

The affair broke as the National Audit Office published a broader report identifying serious and persistent weaknesses in the defence sector’s accounting, contract management and inventories, and said it could not confirm the accuracy of a reported €1.2 billion in Defence Forces stocks and assets.

A separate criminal investigation is also underway, though no one has been formally identified as a suspect. Prosecutor General Astrid Asi said investigators were examining whether repeated failures to correct the accounts could amount to a knowing breach of accounting obligations, and whether documents requested by the National Audit Office were deliberately destroyed, concealed or withheld.

Pevkur said he learned of the criminal investigation only a few weeks before his resignation. He defended his four years as defence minister, including raising defence spending to 5% of gross domestic product, establishing an army division, and procuring medium-range air-defence and coastal-defence systems.

The affair wasn’t a simple scam, however. A scam is quick and opportunistic. What happened with Datasel took shape over a year, through four contracts, two ownership changes, and a confidentiality deal — steps that gave the arrangement an appearance of legitimacy it likely didn’t deserve. That points to something closer to organized corruption than a one-off con.

This also isn’t the first time European arms deals for Ukraine have run into this problem. Bulgaria’s ammunition exports, largely handled through private brokers rather than direct government deals, have faced scrutiny over unclear contracts and a lack of transparency. Czechia’s multinational ammunition initiative, which pooled European funding to buy shells for Ukraine from outside the EU, drew similar criticism over how little was disclosed about supplier selection and pricing once deals passed through intermediary brokers. Poland has seen a comparable case, with prosecutors investigating arms deals brokered through firms with murky ownership and no track record.

Taken together, these cases point to something bigger than any single country’s mistake: the conflict in Ukraine has triggered a rapid expansion of Europe’s arms trade, and corruption is expanding right alongside it.

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