Police investigators from the International Serious Crimes Unit raided the home and offices on Tuesday of Israel Aircraft Industries CEO Moshe Keret.
Keret, who was taken to the unit's headquarters in Petah Tikva where he was questioned under warning throughout the day, was suspected of receiving bribes and other benefits from IAI-approved merchants.
Police seized documents and other material from his home and offices and detained his private secretary for questioning.
The police investigation was launched following a report by the State Comptroller, who discovered alleged financial irregularities in IAI deals involving two businessmen with ties to the state-owned defense company and who served as its agents for years throughout Europe.
The comptroller's report prompted the head of security at the Defense Ministry, Yehiel Horev, to launch a covert investigation that was later passed on to the police.
The two agents - one closely connected to the Labor Party and the father of Keret's secretary - were questioned last month by police. The businessmen were suspected of bribing Keret and additional IAI senior officials in exchange for preferential treatment and higher-than-average commissions on deals with European countries.
The deals now under investigation include the controversial Phalcon spy plane that Israel was supposed to sell China. It was sold to India instead, after the United States nixed the China sale.