Raid on leading drone company fuels fears of crackdown on Ukraine's defense tech sector

The CEO of top Ukrainian drone firm Vyriy Industries denied allegations of price gouging after law enforcement carried out large scale searches of his home, offices, and family members on July 7.

Speaking at a press conference in Kyiv over 12 hours after the searches began, Oleksii Babenko, a young star in Ukraine's drone industry, said that Ukraine's State Bureau of Investigations had carried out up to 70 searches, including at Vyriy Industries facilities, contractors' premises, and the homes of his own family members.

"When your drones are the cheapest on the market, accusing you of price gouging sounds absurd," he told reporters at the briefing.

"At first glance, it looks like a deliberate attempt to target us in order to disrupt the business. It looks like someone was simply trying to advance some minor personal interests of theirs — interests we weren't even aware of because they were so minor," he added.

For now, it is not known if anyone has been formally charged in the case.

The company, known for producing cheap drones, is one of the largest defense tech firms in Ukraine with over 1,000 workers producing fixed-wing, fiber-optic, and kamikaze drones, as well as relay equipment.

Around a quarter of first-person-view (FPV) drones used by the Ukrainian army are manufactured by Vyriy Industries, according to Babenko.

Although Ukrainian media initially reported that Babenko was a suspect in the case, he told reporters that he is currently considered a witness, meaning he could be questioned in the future.

Hours after Ukrainian media began reporting the story, the State Bureau of Investigations published a statement that it was investigating an unnamed drone producer — believed to be Vyriy Industries.

The company, the bureau said, allegedly inflated production and administration costs for drone contracts with the government valued at Hr 7 billion ($157 million).

Additionally, the bureau said it was investigating whether the firm used shell companies to launder funds. According to Ukraine's State Financial Monitoring Service, there are more than Hr 197 million ($4.4 million) in suspicious financial transactions at Vyriy.

Ukraine's Prosecutor General's Office, which is supervising the investigation, said that there were also signs of tax dodging after "significant amounts of cash" not accounted for in financial statements were found on the company's premises.

According to Babenko, law enforcement uncovered Hr 40 million ($900,000) at the firm's offices but he insisted that the money was intended for the company's payroll.

"It's legitimate. We legally withdraw cash for salaries, and then pay those salaries to employees," he said.

"Most likely, people simply didn’t understand how we’re taxed," he added.

While the searches caused the company's daily drone deliveries to dip, Babenko said that he would ensure that Vyryi Industries would continue to deliver tens of thousand of drones a day.

Pressure point?

Vyriy Industries has risen through the ranks of Ukraine's burgeoning defense tech industry — a sector shaped by wartime urgency, where legal and regulatory frameworks have at times struggled to keep pace.

The firm generated Hr 11.2 billion ($252 million) in revenue last year, with the first six months of this year already outperforming the whole of 2025, Babenko said.

Babenko, who was just 24 when he co-founded Vyriy Industries in 2023, is one of Ukraine's most notable young entrepreneurs. He was featured in Forbes Ukraine's 30 Under 30 last year and recently purchased a 75% stake in Ukrainian media outlet Babel, asserting his influence in Ukraine's defense tech scene.

While Babenko says the company is being unjustly targeted, he claims it is "difficult to know" by whom.

Some in the industry worry that the searches mark the beginning of a broader campaign against defense firms.

"I very much hope this case is genuinely a misunderstanding and not the beginning of a broader campaign against Ukraine's miltech companies — whether through corporate raiding, politically motivated persecution, manipulation, or an attempt to carve up the market," Maria Berlinska, a Ukrainian veteran and co-founder of the Victory Drones initiative, told the Kyiv Independent.

Another industry insider, who requested to remain anonymous due to the sensitivity of the topic, said the the focus should be on who in the chain of command carried out the procurement of Vyriy's drones.

Ukraine's state procurement system, which they say prioritizes low prices over good quality, is opaque and basically a "secret" to the public, the person added. Civil society have repeatedly stressed that Ukraine's Defense Procurement Agency, which buys weapons for the army, poses a corruption risk.

"Vyriy Industries shouldn't be made a scapegoat because, overall, the company did everything possible to win contracts under the rules set by the government," the person said.

"The Vyriy case is dangerous for the market because it gives the government the ability to create criminals and punish them."