Russia’s full-scale invasion of Ukraine and the escalation of hybrid threats against Europe have forced Brussels and many European capitals to rethink their defence plans and doctrines. To build up and modernise the defence sector, the EU has launched a number of large-scale programmes: the Act in Support of Ammunition Production (ASAP), with €500 million allocated for ammunition production; the European Defence Industry Programme (EDIP), with a €1.5 billion budget for industrial development; and Supporting Armed Forces in Europe (SAFE), backed by credit lines of up to €150 billion.
The growth in defence budgets has naturally been accompanied by rising corruption risks and threats — a warning sounded by the Head of the European Anti-Fraud Office (OLAF), Petr Klement, who identified these funds as a priority target for organised crime. A key vulnerability of these programmes is the pressure for rapid implementation, which is forcing European institutions to relax standard legal compliance, audit, and production oversight procedures.
One risk inherent in project work is the use of multi-tiered subcontractor chains. According to OLAF, it is through complex networks of intermediaries that bad actors run cost-inflation schemes, minimising actual production costs by using cheap or substandard components while siphoning off surplus budget funds through fictitious invoices. In the “Drone Wall” project — designed to provide technological protection against aerial threats along NATO’s entire eastern flank — the agency uncovered instances of billing for “unique AI target-recognition algorithms” that had in fact been copied from open-source libraries or purchased as cheap commercial off-the-shelf solutions. Millions of euros were written off as “research and development” work that was never actually carried out.
A further weakness is the limited ability to verify the true beneficial owners of subsidy-recipient companies. In its 2025–2026 reports, OLAF highlighted the ability of organised criminal groups and foreign intelligence networks to integrate into the European defence sector through shell companies. The entities they control are able not only to misappropriate funds intended for weapons and ammunition production, but also to gain access to classified specifications for air defence systems and electronic warfare systems — creating the risk of sensitive technical information being leaked. The absence of an integrated and robust cross-member-state counterparty screening system allows suppliers who have been blacklisted in one EU country to participate freely in tenders in another.
Under the ASAP programme, a portion of funds is distributed through networks of intermediaries acting as nothing more than “paper” integrators with no production capacity of their own. The use of such multi-layered chains makes it possible to conceal the real cost of ammunition, artificially inflating budgets through a corrupt margin at each stage of subcontracting. Beyond the financial losses, this creates security risks: the opacity of supply schemes allows Russia-affiliated shell firms to carry out covert sabotage or gather intelligence on European technologies and logistics.
Russian intelligence services in particular employ well-practised schemes for setting up front companies to infiltrate Europe’s defence sector. Using multi-layered ownership structures routed through low-transparency jurisdictions — Cyprus, the UAE, the Marshall Islands — nominees holding EU passports act as beneficial owners of companies participating in tenders for air defence or electronic warfare components. Such structures not only siphon EU budget funds through fictitious contracts, but are also positioned to conduct espionage by gaining access to classified technical weapons specifications and delivery schedules, enabling the Kremlin to develop effective countermeasures against Western armaments.
Alongside financial abuse, such actors can serve as instruments for sanctions evasion, with European subsidies effectively financing the procurement of dual-use microelectronics for Russia’s benefit. Intermediary companies embedded in projects such as “Drone Wall” can legally acquire critical components within EU defence programmes and then, through a chain of re-exports, redirect them to Russian military factories. In this way, through corrupt loopholes and inadequate beneficial ownership controls, European taxpayers sometimes unwittingly end up sponsoring not only the theft of their own budgets, but also the technological sustenance of the Russian defence industry.
According to an OLAF report dated 20 April 2026, the agency recommended the recovery of more than €597 million to the budget over the past year alone, a significant portion of which related to tender manipulation and inflated defence procurement costs. While new regulations — notably EDIP — introduce, for the first time, strict restrictions on the use of foreign components (capped at 35%), an integrated real-time beneficial ownership monitoring system remains fragmented and non-functional. As a result, Europe is achieving significant growth in industrial capacity, but this process is accompanied by a high “corruption tax” and the risk of sensitive information leaking through insufficiently transparent subcontracting chains.