Company should set up independent board if £30bn deal goes ahead, says Transparency International director

A merger of BAE Systems and EADS could produce an arms company so big it would operate beyond the reach of the law, the author of a report on corruption in the defence industry has warned.

“This will be a huge defence company in Europe and there will be a concern that it will be above prosecution, almost like the banks,” said Mark Pyman, director of the defence and security programme at Transparency International UK.

He said that if the planned £30bn merger went ahead, the company should set up an independent board to ensure it did not indulge in bribery and corruption.

The warning adds another potential obstacle to the deal, which has already run into political headwinds as governments from Berlin to Washington argue about how and where the new company would be run.

The British, German and French governments all have stakes in the companies’ merger and the US administration is the biggest customer of BAE.

Pyman was speaking prior to the launch of an unprecedented study looking at defence companies around the world and their attitudes towards corruption.

Transparency International’s first anti-corruption index shows that British and US firms have responded to past scandals by adopting a much more rigorous approach towards corruption than continental European firms, including EADS. There were significant differences between BAE and EADS in their approaches to transparency and disclosure, Pyman said.

BAE came up at the top of band B in the index, while EADS only made band C. Neither EADS nor any French defence company agreed to supply internal company information to the compilers of the study, even on a confidential basis.

“If the merger goes ahead it is really important that the combined companies have anti-corruption systems at least equal to BAE’s, and which really should be in band A,” Pyman said.

He spoke of BAE’s slush fund for secret payments to Saudi dignitaries in a contract initiated in the 1980s (which was exposed by the Guardian), the payments to foreign governments by the US company Lockheed Martin in the 1970s, and the 2003 bribery scandal involving Boeing employees over a contract for a new US air force tanker aircraft. “It is clear that scandals have had an immense effect on changing a company’s behaviour.”

The TI study concludes that two-thirds of the world’s biggest defence firms do not provide enough public evidence on how they fight corruption. It states: “Defence corruption threatens everyone – taxpayers, soldiers, governments, companies. With huge contracts and high secrecy in the defence sector there are numerous opportunities to hide corruption away from public scrutiny.

“A company website is the best place for a company to tell the world exactly how it fights corruption.”

Pyman said: “Corruption in defence is dangerous, divisive, wasteful. The cost is paid by everyone. Governments and taxpayers do not get value for their money and clean companies lose business to corrupt [ones]. Money wasted on defence corruption could be better spent.”

Lord Robertson, a former Nato secretary general, said: “Companies must have a reputation for zero tolerance to corruption