• business is largely conducted behind a veil of secrecy. This is justified ostensibly on grounds of national security, but a SIPRI study investigating the barriers to greater transparency found that secrecy worked more in the interest of the officials and the companies than the public purse or security. As a result, the barriers to greater transparency “more often sprang from lack of political commitment than genuine national security reasons.” [1]
• the Statement of Requirements and the technical Specification in defence procurement are more specific than in other areas and are more vulnerable to manipulation. Secrecy makes it easier to hide this. TI (UK)’s defence procurement processes and its vulnerabilities document charts the stages of a typical defence procurement process from tender to execution and highlights the ways in which each stage is vulnerable to corruption.
• black budgets (military expenditures not approved by parliament) are widespread. A recent case involved Randy Cunningham, a US Congressman who used his position to push black budget defence funds to certain contractors in exchange for personal favours (see corruption cases and convictions)
• use of agents is deeply embedded in the defence sector. For instance, when the UK Export Credit Agency (the ECGD) issued guidelines with strengthened anti-corruption requirements for companies seeking export guarantees, a small group of large defence companies were instrumental in opposing the guidelines. They briefly succeeded in diluting the requirements, before the NGO Corner House obtained a judicial review of the changes and the requirements were strengthened again. TI (UK) has released a critique of the new ECGD anti-bribery requirements, which still presents loopholes which corrupt agents can take advantage of. Similar loopholes exist in other Export Credit regimes.
• contracts are often for technically complex and extremely high value products
• offsets are widely used (offsets are investments in the local economy by the winning firm). Offsets complicate the deals and make it difficult to judge whether value for money is being obtained. TI(UK)’s research document on offsets analyses the corruption risk they present. In the currently unfolding Romanian frigates scandal, offsets have been identified as a key corruption weakness (see "Former ministers in limbo over frigate deal")
• the “revolving door syndrome” is rife and leads to conflicts of interests. In TI (UK)’s Policy Research Paper on Corruption in the Official Arms Trade, the author states “the technical and procedural knowledge of defence officials in both exporting and importing countries is prized highly in the private sector, to which officials often move after retiring from government. This can create interdependent relationships where accountability is not rigorously enforced. Whilst not corrupt in itself, this can easily engender conflicts of interests that lead to corrupt practices”
• extensive use of single source bidding means defence procurement is often conducted without full and open competition.
• lack of prosecutions under the OECD: the lack of prosecutions reveals a lack of commitment by OECD countries to enforce the OECD Convention. A number of high-profile prosecutions would help to send the message that a blind eye will not be turned to the bribery of foreign officials by OECD companies. See corruption cases and convictions for a list of scandals, many of which have not yet resulted in convictions.

[1]See Ravinder Pal Singh: Arms Procurement Decision Making Vols. 1-2 SIPRI: Oxford, (1998 and 2000)

Importing countries:
Developing countries account for roughly two thirds of the global arms trade (Congressional Research Service). Corruption is the antithesis to good government, which is widely recognised to be essential to economic development. The payment of large commissions to individual officials in defence procurement deals can provide an incentive for the recipient to increase the technical specification of the weapons and even to persuade governments that entire systems should be purchased unnecessarily. The diversion of resources away from pressing socio-economic needs for the sake of corrupt payments is nothing less than a betrayal of the population. Through driving the purchase of weapons in this way, corruption can also destabilise regions and exacerbate arms races. It is also likely that corrupt payments prolong civil conflicts such as those in Angola and Sri Lanka.

Exporting Countries:
Extensive subsidies are granted to defence industries by exporting governments through export credit guarantees, research and development grants and official and military promotion of defence exports. Public money therefore can be used to subsidise companies who obtain contracts through corrupt means. Government subsidised companies which bribe foreign officials to purchase their weapons undermine the good governance efforts of aid agencies and create damaging policy conflicts between departments. Furthermore, the democracy of the exporting countries is undermined by the diversion of commissions to political party funding. For example, the secret donations of an arms dealer, Karl Schreiber, to the Christian Democrat Party in the 1990s, following a change of policy, severely besmirched not only the Party but also German democracy.

Exporting Companies:
Corruption erodes the competitive principles of price, quality and service on which the free market depends. Moreover, with the increasing significance to long term profitability of company reputation, involvement in a corruption scandal can result in serious losses. This risk is increased where the ethical conduct of senior executives is seen to be questionable, as other employees are then less likely to uphold ethical standards.