Has the cost of doing business in countries such as China and India, and in the Middle East and Africa just got higher? As well as paying bribes to government officials to win export contracts in the first place, it looks as if Western companies must also factor in paying off their own governments — in the form of substantial fines — when caught in the act.

The BAE Systems case has brought into focus the long-running controversy about corrupt payments made by corporations to win business overseas. In its aftermath there is a widespread feeling that things must move on, motivated not least by Lord Woolf’s report published last week.

Despite being signatories to the Organisation for Economic Co-operation and Development convention on bribery, there have been no meaningful prosecutions for offences of this kind in the UK. Adam Vause, a senior associate with Norton Rose who specialises in this work, says that the UK’s anti-bribery legislation is widely seen as “archaic and overcomplicated”. Meanwhile, British companies have been making facilitation payments (that is, greasing officials’ palms) for years safe in the knowledge that there will be no consequences (despite this breaking the law). Moreover, beyond campaigning groups, the damage to reputation for being caught in a bribery case is virtually nil.

But the world is changing. The effect of the BAE case is likely to accelerate the introduction by the Law Commission of proposals for anti-bribery legislation that is more in keeping with the modern world. The American flexing of muscles over this area will also make companies more circumspect about what they do. According to Vause, we can expect increasing co-operation between the Department of Justice and the Securities and Exchange Commission (SEC) in the US and the Serious Fraud Office and the Serious Organised Crime Agency in the UK. Meanwhile, says David Greene, of Edwin Coe, we may not have heard the last of the BAE case, especially if the US decides to pursue its investigations. Subject to the extradition arrangements between the US and the UK, we could yet watch BAE executives dragged off in chains to face an American jury.

The extraterritorial instinct of the Americans can be traced back, says Neil Fagan, of Lovells, to the 18th-century Alien Torts Statute, framed to enable the fledgeling republic to prosecute pirates. Used in conjunction with the Foreign Corrupt Practices Act this is having far-reaching consequences on sectors such as pharmaceuticals in Africa where bribery could be seen, says Bob Goldspink, a British partner of Morgan Lewis, the US firm, even in simple acts of sponsorship such as paying for doctors to attend a medical conference or taking part in a medical trial.

“The US Department of Justice and the SEC are pursuing this with a vengeance,” Goldspink says. “The fines being imposed on companies run into the millions and there are other penalties that are both onerous and expensive, including, for example, having to accept and pay for the presence of an external monitor within the company.”

Meanwhile, the aggressive stance adopted by the Americans is starting to rub off elsewhere. A textbook example of how a business, once in the frame, can be hit upon by all and sundry is provided by Siemens, the German engineering company. Since September it has faced bribery or similar charges and investigations in countries including Nigeria, Norway, Italy, Slovakia and Russia and has also been invited by the development banks of Asia, Africa and InterAmerica as well as the European Bank for Reconstruction and Development and the European Investment Bank to help them with their inquiries.

For businesses it is imperative — whatever their view on what the ethics might be — to be seen to respond. Fagan says this is part of the bigger picture of the large corporates wanting to be seen to be behaving responsibly over a number of sensitive issues — such as sustainability, the environment and so on — which can be embraced by policies on corporate social responsibility.

These have to be formalised into standards of conduct, and firms such as Norton Rose say that they are increasingly being brought in to help clients to “get their house in order” drawing up ethical codes. This reflects much of what Lord Woolf said in his review of BAE but it is also important in building defences against assault by the American authorities. “In the US, that you have a robust anti-corruption policy in place may go some way towards persuading the authorities that they should not target you,” Vause says. As well as drawing up these codes lawyers are also being brought in to run training sessions and even undertake a compliance role.

While this is being given increasing priority by the multinationals, is it having much impact on middle-ranking UK business? According to Clive Garston, of Halliwells, for whom these businesses are the core of its practice, there is little evidence that ethical codes are being discussed. In the absence of such a code, they could find themselves caught out by the tactics of a rogue salesman. Then the penalties could be serious indeed.

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