The study analyzed 163 companies in the defence sector across 47 countries for having proper ethics and anti-corruption programmes in place.
The anti-corruption group explained that such work could help prevent shady deals that might lead to the sale of defective equipment and harm to soldiers.
Such programmes may include whistleblower policies and processes for disclosing potential conflicts of interest.
Four of the five German companies evaluated received lower than 'C' grades, based on their publicly available information. However, after two companies provided further internal information, Transparency International bumped up their grades to a 'B'.
"It is surprising that UK companies are now in the upper half of the index, and that we do still see companies from Spain, France and Germany appearing in the lower half," report author Katie Fish told The Local.
"There is still a need for improvement, even in western Europe."
Of the German companies, ThyssenKrupp was the highest ranked and showed the most improvement, going from a C grade in 2012 to a B in 2015 based on public information.
Additionally, ThyssenKrupp - one of the world’s largest steel producers - received an A grade when Transparency International considered internal information provided by the company on its ethics and anti-corruption programmes.
ThyssenKrupp was one of the top-rated companies worldwide for leadership promoting anti-corruption as a priority, as well as for anti-corruption training, based on public and internal information.
Diehl Stiftung arms manufacturer received a D grade while Krauss-Maffei Wegmann received an F grade based on public information, though Krauss-Maffei Wegmann got a slight boost to a D grade when internal details were analyzed.
Faulty weapons and corrupt deals
Overall, while 33 percent of the companies reviewed in the last report in 2012 showed improvement, two-thirds, or 107 companies, were still rated with below passing grades this year.
Thirty-seven companies showed no evidence at all of having anti-corruption or ethics programmes.
"Corruption in the defence industry is an issue that we all should be concerned about," Fish said.
"It can be wasteful to taxpayers when money could be better spent on healthcare or education, and it can also impact the lives of soldiers when they are handling faulty equipment due to a corrupt deal, soldiers who are defending us all."
Just eight companies showed evidence of having mechanisms that encouraged whistleblower reporting and 13 companies conducted regular due diligence on agents.
In Europe and central Asia, 42 out of 62 received less than a 'C' grade, 27 of which got the lowest grade of 'F'.
Dublin-based Accenture, Airbus in the Netherlands and British Rolls-Royce were among the top-rated in Europe, each scoring a 'B' based on public information while both Accenture and Airbus reached the 'A' level when internal information provided to Transparency International was considered.
No companies in Europe and central Asia received the top 'A' grade based solely on publicly available information.
"When you look at, say, North America compared to Europe, it looks as if the European companies are more often in the 'D', 'E' and 'F' bands, but the US is a much larger group," Fish told The Local.
The report also recommends steps that company CEOs, country leaders and investors can take to improve anti-corruption measures, such as having more disclosure of programmes on company websites and conducting independent reviews.
"Just as companies have a responsibility, governments equally have a responsibility," Fish explained. "Politicians can really push to help the industry improve."
There is no suggestion that any individual company in the report has engaged in corrupt practices.