The below is an excerpt from our new report, “Tracing Corruption: Emerging Patterns in the Global Arms Trade” (World Peace Foundation and the Corruption Tracker, August 2025).
Today, many arms companies are global enterprises that operate out of multiple countries, have production facilities all over the world, and co-develop arms with other nations and commercial companies. This increasing internationalization of the industry leads to a number of problems for arms export regulation. It also creates opportunities for both states and companies to obscure their roles in the global flow of weapons, and who profits from them. Far too little research examines the impacts of internationalization on the global arms trade from a critical perspective. In this section, we highlight a particularly under-researched question: what are the primary linkages between internationalization and corruption in the arms trade? To answer this question, we first discuss the concept of internationalization before highlighting three linkages between corruption and arms industry internationalization. These are offsets, accountability, and dependencies. If internationalization can both worsen corruption and improve accountability, then the key question is: under what conditions do these outcomes diverge?
First, we argue that offsets are a central pathway through which internationalization and corruption are linked. Next, we outline how internationalization can both hinder and, in some cases, support accountability for corruption. Finally, we explain how internationalization can deepen dependencies between arms-importing and arms-exporting countries, thereby increasing corruption risks. Throughout, we refer to cases and significant allegations of corruption in the arms trade covered by the Corruption Tracker.
What is “Internationalization?”
Internationalization is a process by which arms development and production is transplanted from the national level to involve multiple nations.
As early as 1994, Richard Bitzinger recognized the decline in “wholly indigenous armaments production” in favor of “multinational arms production” since the mid-1980s. Bitzinger called this process the “globalization” of the arms industry. Of particular note to him was the movement away from ad hoc and towards more formal, and “more integrative transnational industrial linkages.”[i] The same year, Sköns and Wulf also published an article referring to the “Internationalization of the Arms Industry” as a consequence of the end of the Cold War. Sköns and Wulf referred to three basic forms of internationalization: arms exports themselves, foreign direct investment, and international cooperation agreements.[ii] They also noted cross-border mergers and acquisitions, which at the time were concentrated in Western Europe.
The internationalization of the industry is characterized by significant asymmetry. As Bitzinger has subsequently noted, the global weapons supply is increasingly dominated by a small number of multinational companies, while many states continue to produce or maintain equipment at lower technological levels or within niche markets.[iii] Most recently, in her discussion of potential new research agendas on the arms trade, Anna Stavrianakis has further observed that today, practices of internationalization like subcontracting, joint ventures, mergers and acquisitions, and technology transfer agreements are still used most extensively in Western Europe and the United States. Stavrianakis further notes that US companies tend to have a strong presence in Europe, with Lockheed Martin being an outlier with a third of its foreign entities located in the Middle East.[iv]
For the purposes of our present discussion, several pathways for internationalization should be highlighted. Some are government-driven, even if the companies involved are not entirely publicly owned. Some are driven by companies themselves.
There are also several forms of industrial development that can be described as internationalization. First are multinational arms development projects and partnerships. One of the earlier examples of this is the development of the Panavia Tornado fighter jet. Its development was driven by a multi-national company founded in 1969 by the United Kingdom, Germany, Italy and the Netherlands. However, some of these multinational partnerships are led by one country. For example, while the United States is the prime developer and main customer of the F-35 fighter jet, the project operates through a tiered partnership structure, with varying levels of financial contribution and production based on each partner’s tier.
Second, development and production by individual companies is becoming decentralized. Many leading arms manufacturers operate across borders, with some of the largest in Britain owned by American firms. In 2024, BAE Systems, a UK-owned company, employed 49,600 people in Britain and 36,200 in the United States. Some companies participate in and even promote “domestic” arms industries in rising powers through the establishment of local partnerships and technology transfers. Long-standing examples of this include Boeing’s and BAE Systems’ joint ventures in Saudi Arabia.
Third is the direct selling and transfer of production capacity. This has been a long-standing practice where countries license the production of certain weapons systems directly to foreign customers. Some companies provide so-called turnkey production capacities where entire factories are exported and then handed over to a local customer.
Finally, like any industry, the arms industry today is heavily reliant on anything from microchips to specialized components.
Links to Corruption
Offsets
A primary link between arms industry internationalization and corruption are so-called direct offsets. Offsets are side-deals or countertrade arrangements that are made as part of an arms purchase. Arms purchases are exempt from the World Trade Organization’s Agreement on Government Procurement that bans offsets from being used for contract or tender selections.[v] Offsets can be either direct or indirect. Direct offsets involve investment in the arms industry of the purchasing country, while indirect offsets require investment in other sectors. According to the U.S. Commerce Department, about one-third of offset agreements reported in 2021 were direct, and two-thirds were indirect. Direct offsets represent a form of internationalization in the arms industry, as they often involve the transfer of know-how, production capacity, and the establishment of international production arrangements. For example, the Airbus Indonesian Aircraft deal led to the build-up of production capacities for Airbus military transport planes in Indonesia. The infamous Al Yamamah arms deal, the largest ever UK arms export deal, contained an exceptionally complex series of offsets, overseen by an offsets committee chaired by the UK Ministry of Defense’s Head of Export Services.
A recent report from Transparency International identified the three primary risk factors for corruption in offset deals. These included: high-level and opaque negotiations over flexible inducements, the use of intermediaries, and complex, vague, and hidden rules for valuing and overseeing offsets. Indirect offsets are considered to be more prone to corruption, but both direct and indirect offsets contain high corruption risks. Offsets allow money to be distributed through patronage networks with minimal oversight. They can also be used to launder bribes. Transparency International cite the Indian VVIP Helicopter Deal as an example. In the deal, offset brokers were accused of bribing Indian military officials to rig the purchase of transport helicopters. The brokers allegedly received tens of millions from AugustaWestland and then created companies to provide fictitious offset projects in India to hide the bribe. In another Indian case, the Franco-Indian Rafale Affair, Hindustan Aeronautics Limited (HAL) was set to assemble Dassault Rafale fighter jets in India as part of a 50% offset clause. But at the last minute, HAL was replaced by another company, Reliance, whose majority shareholder and chairman, Indian billionaire Anil Ambani, has close ties to Prime Minister Narendra Modi. Dassault allegedly had no industrial interest in forming a partnership with Reliance and only signed the deal to gain political influence.
Accountability
Internationalization has a particular impact on accountability for corruption. On the one hand, international company set-ups can make the flow of money, arms, and resources opaque and lead to avoidance of accountability. This goes beyond hiding money in offshore accounts, shell-companies and the use of intermediaries, which are a consequence more generally of international trade. The components of internationalization extend to international company set-ups in production, financial flows, and administration that are used to avoid accountability, as well as provide new opportunities.
The Ordnance Factory Board Scam illustrates how governments can conspire with private arms companies to evade accountability for corruption, particularly in countries that actively lobby for their arms industries abroad. In 2014, the German arms company Rheinmetall, which had been excluded from government procurement in India due to alleged corruption, reportedly sought and received support from the German Ministry of Economics to reverse the blacklisting. When questioned about its actions, the ministry claimed that the allegations only concerned Rheinmetall’s Swiss subsidiary, not the German parent company. This response reveals how the international structure of arms companies can be used strategically to deflect responsibility. By attributing misconduct to foreign subsidiaries, both companies and governments can distance themselves from wrongdoing and avoid meaningful accountability.
At the same time, internationally established arms companies can be investigated in multiple jurisdictions. This has been done with some success recently. Most significant has been the recent investigation of Airbus, an international arms company with significant shares held by the French, German and Spanish states. Airbus agreed to pay fines of USD 4 billion in a Deferred Prosecution Agreement with investigating French, British, and US authorities involving a corruption scheme in nineteen markets. Those deals that involve arms are described on the Corruption Tracker. General advantages and issues with DPA’s are discussed in the accountability section of this report. This is an example of a relatively successful prosecution in terms of establishing culpability on the part of an arms company through a coordinated international investigation. International investigations can be helpful as foreign states are less invested in other countries’ arms industries, which can decrease political meddling with prosecutors.
A significant hurdle for these multi-jurisdictional investigations is the political situation in the United States. One of the oldest and most-consistently enforced pieces of anti-foreign bribery legislation is the US Foreign Corrupt Practices Act (FCPA). The Trump administration in February 2025 paused the enforcement of the FCPA. The impacts of the pause are yet to emerge in full.
Dependencies
Major arms deals are especially susceptible to corruption for a multitude of reasons. One underexamined issue is the problem of dependency, which we argue, can be exacerbated through internationalization.
A common argument for controversial arms exports is that supposedly they create leverage over the arms purchasing country. Research published in War on the Rocks suggests the opposite dynamic may apply to U.S. arms sales to the Middle East, with arms sales creating reverse leverage. The authors claimed that,
Weapons transfers do not tend to occur in a vacuum, and frequently come alongside military training, weapons maintenance, and interoperability drills. These security relationships lead to a converging of interests: For the U.S. military to be secure, the recipient’s military needs to be successful. The recipient country can use this convergence to request weapons systems and security cooperation more fruitfully, thereby creating a cycle where more weapons transfers lead to increased interdependence, which in turn leads to more arms sales.
Beyond training, maintenance, and interoperability drills, arms sales frequently come with industrial integration. In some cases, this interweaving can create extreme dependencies on specific foreign arms markets that these industrial ties have been established with. In any other industry, this could merely be a business risk. In the arms industry, even when companies operate as private entities, their enmeshment is backed by the state and shaped by political dynamics. This backing can make it nearly inconceivable for a company to fail in the market, creating dependencies that lead to conflicts of interest and heighten corruption risks, especially since arms companies are often supported by governments, even when privately owned.
The UK’s dependence on arms exports to Saudi Arabia is a strong example. As mentioned above, the largest non-American arms company in Britain is BAE Systems. BAE systems is highly dependent on arms exports to Saudi Arabia, which is consistently its third most important sales destination behind the US and the UK. BAE also has a strong presence on the ground in the country, with just under seven thousand employees based there, 6% of BAE’s global workforce as of 2024. BAE’s dependence on Saudi Arabia specifically as an export market has in the past contributed to major corruption risks, often with cover and support from the British government. The UK government on multiple occasions not only lobbied on BAE’s behalf, but officials were quite openly involved in questionable transactions before the UK introduced foreign anti-bribery legislation.
After 1994, guidelines were rewritten to put distance between officials and bribe payments. As the Guardian reported in the context of revelations about the infamous Al Yamamah arms deal, “Officials would no longer visibly ‘authorise’ commission payments. Or correspond about them. Instead, they were to merely ‘consider’ and ‘advise.’” Tony Blair infamously shut down the Serious Fraud Office’s investigation into the arms deal, in which journalists alleged billions of pounds were paid in bribes. Yet, in 2024 it was revealed that the British Ministry of Defense continued making obscure payments that may have been intended to fund a plane a Saudi prince had received from BAE systems until at least 2011.
BAE’s ties with Saudi Arabia are strengthened through joint ventures and maintenance contracts. Other European and American companies also maintain joint ventures in the Gulf monarchies. A simplified vision of the arms trade imagines weapons simply flowing from A to B with both origin and destination relatively interchangeable. This view contributes to the claims that “if we don’t sell, someone else will,” or that arms companies could just sell to less controversial customers in times of crisis. An example of such a relatively “simple” sale was Germany’s sale of patrol boats to Saudi Arabia, which, after Germany imposed an embargo on the country, were instead sold to Egypt. Yet, applying this view to the entire arms trade is misleading, as industrial relationships and local production, a form of internationalization, are often desired by the purchasing country and can entrench arms export relationships over decades. When companies are entrenched and dependent on sales, especially to a specific market, this can create incentives to win a contract no matter the cost, even when the means are illegitimate.
In conclusion, this section discussed three ways in which internationalization in the arms industry can be linked to corruption. Specifically, we addressed the practice of offsets, the challenges and opportunities for accountability, and the entrenchment of arms relationships in the form of dependencies creating conflicts of interests and increasing the need for arms transfers as well as corruption to specific customers. The focus of this section has been on European and US companies, as internationalization is most prevalent in these regions. Significantly more work needs to be done to unveil how asymmetrical internationalization creates corruption risks, risks of hiding and laundering money in increasingly global and opaque financial flows, and states giving their arms industries supportive backing to the point of enabling, covering up or failing to investigate their crimes. More work is also needed on internationalization as a practice more broadly and what it means for an unequal world order dominated by a few powerful states and capital interests. The arms industry is an essential backbone of a world built on the state monopoly of force and ideologies that create hierarchies in the legitimate and illegitimate use of force often in the image of imperial interests.
This essay is an excerpt from “Tracing Corruption: Emerging Patterns in the Global Arms Trade” (World Peace Foundation and the Corruption Tracker, August 2025). Read the full report here: https://worldpeacefoundation.org/publication/tracing-corruption-emerging-patterns-in-the-global-arms-trade/
[i] Richard A. Bitzinger, “The Globalization of the Arms Industry: The Next Proliferation Challenge,” ResearchGate, 1994, https://doi.org/10.2307/2539199.
[ii] Elisabeth Sköns and Herbert Wulf, “The Internationalization of the Arms Industry,” The ANNALS of the American Academy of Political and Social Science 535, no. 1 (September 1, 1994): 43–57, https://doi.org/10.1177/0002716294535001004.
[iii] Richard A. Bitzinger, “New Ways of Thinking about the Global Arms Industry,” Strategic Insights, 2015, https://www.files.ethz.ch/isn/194689/SI98_Global_arms_industry.pdf. For a compelling country-level study of Korea, see Chonghyun Choi and Soul Park, “Globalization of Arms Production and Hierarchical Market Economies: Explaining the Transformation of the South Korean Defence Industry,” 2023, https://ueaeprints.uea.ac.uk/id/eprint/91486/1/SK_Defence_Industry_Transformation_Pacific_Affairs_2023_FINAL_Choi_Park.pdf.
[iv] Anna Stavrianakis, “The Arms Trade and the Transformation of Global Order: A Revitalized Research Agenda,” Global Studies Quarterly 5, no. 2 (April 8, 2025): ksaf033, https://doi.org/10.1093/isagsq/ksaf033.
[v] World Trade Organization, WTO Agreement on Government Procurement (2012), https://www.wto.org/english/docs_e/legal_e/rev-gpr-94_01_e.pdf, see art. III, para. 1 (arms procurement exemption), and art. IV, para. 61 6 (rules on offsets).
