Defense Industry Fraud

Variety of Frauds

Incidences of fraud in the defense industry fall into the following categories:

Illegal sale or supply of arms. Illegal sales include arms-producing equipment to states under sanctions or otherwise in contravention of international trade laws. Well-known examples of this include the export sale by the United Kingdom (UK) company Churchill Matrix of components designed to create a Super Gun for Saddam Hussein's regime in Iraq; similarly, the Iran-Contra affair involved the complex exchange of arms for hostages in Iran and Nicaragua, which remains an operation in which the culpability of various members of President George W. Bush's cabinet remained contested.

Bribery. This kind of activity involves bribing officials to make arms purchases which are uncompetitive or else unnecessary. Repeats of sales in the Persian Gulf by UK firms reveals that bribery is considered an essential aspect of doing business in this industry. The notorious Al Yamamah arms sale has been the subject of a number of lurid allegations, including bribery, the provision of prostitutes, and other immoral and illegal inducements. This is not the only example, as related deals, some with the alleged involvement of senior politicians of the UK government, also featured bribery and diversion of public moneys together with the unnecessary purchase of arms equipment.

False records. This kind of defense industry fraud involves government officials purchasing in ways that enrich themselves rather than in the public interest, or else falsifying public records to hide the extent of arms purchases. This occurs in countries, such as Myanmar, in which the military government is faced with numerous allegations of human rights abuses and wishes to conceal its need to keep the populace in a state of fear.

Collusion. Too-close relationships between buyers and suppliers lead to accusations of collusion and purchase of influence. In the defense industry, this danger is especially prevalent in that the need for joint development of new products, as well as specialized strategic and weapons knowledge, makes the transfer of personnel between industry and government a common phenomenon. This relationship has intensified in the United States in the second half of the 20th century, and has come to be known as the military-industrial complex.

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