Britain has been slammed by an international watchdog for its failure to stop bribes paid by companies dealing in foreign markets.

A damning report released today accused the Government of failing to meets its legal obligations to tackle corporate corruption. It called for new legislation to deal with the problem "as a matter of high priority".

The review by the anti-bribery working group of the Organisation for Economic Cooperation and Development was launched after the Serious Fraud Office dropped its investigation into an arms deal between BAE Systems and Saudi Arabia.

The 75-page report criticised the UK for failing to implement the organisation's anti-bribery guidelines, which should have come into force nine years ago.

It said: “The Working Group is disappointed and seriously concerned with the unsatisfactory implementation of the Convention by the UK.

“The continued failure of the UK to address deficiencies in its laws on bribery of foreign public officials and on corporate liability for foreign bribery has hindered investigations."

The report comes as a wake-up call to British business a day after the head of the Financial Services Authority, Lord Turner, warned that the fallout from the financial crisis would result in an end to so-called "light touch" regulation.

Recently, the UK has taken steps to tackle corporate corruption, with tougher new legislation expected to be introduced in the next session of Parliament.

Last month, it secured the first conviction against an individual businessman for involvement in foreign corruption, while the Serious Fraud Office has adopted a more aggressive stance similar to regulators in the US.

On October 6, it forced Balfour Beatty, the construction group, to surrender £2.25 million in unlawful proceeds over irregular accounting practices at an Egyptian subsidiary. Lawyers expect that such deals will become increasingly common, with authorities encouraging companies to report abuses and pay a fine in return for avoiding criminal prosecution.

However, although the working group acknowledged these measures, it said that further, drastic reforms were "urgently needed" and "should be dealt with as a matter of political priority".

It added: "Recent cases have also highlighted systemic deficiencies that make clear the need to safeguard the independence of the Serious Fraud Office and eliminate unnecessary obstacles and prosecution.”

Jeremy Cole, a partner at law firm Lovells who specialises in bribery and corruption cases, said: "A tough regime of enforcement similar to that in the US is required. Stateside there have been 105 foreign bribery prosecutions in 11 years, compared with one in the UK. The UK is way off the pace."

However, Mr Cole added that the Serious Fraud Office was forced to operate on a much smaller budget than comparable regulators in the US.

Unveiling the report at a press conference at OECD headquarters in Paris, the Working Group’s chairman, Mark Pieth, said he was determined to send a very strong message to the UK authorities that action to remedy the situation had to be taken immediately.

Mr Pieth said: “There is a question about whether there is the political will. At the same time, we have also seen signals that we are welcome and we want to say to the UK authorities that we are here to help.”

Mr Pieth, a law professor, emphasised that the lack of implementation in the UK of the anti bribery Convention did not necessarily reveal anything about the state of UK companies.

The Working Group will ask the UK to provide quarterly written reports on “legislative progress” and warned it may carry out follow-up visits to the UK and take “further appropriate action”.

Jack Straw, the Justice Secretary, said the UK was “fully committed” to tackling corruption and would study the report’s findings carefully.

Mr Straw, who was appointed the Government’s “anti-corruption champion” this week, said: “The Government welcomes the Working Group on Bribery’s report and will now carefully consider its recommendations, alongside the Law Commission’s imminent proposals on bribery law reform."

James Bagge, a lawyer at law firm Norton Rose, said that failure by the British authorities to introduce "modern legislation" to tackle corruption would result in foreign regulators increasingly targeting UK companies. "Better one's case be investigated by one's own peers than by others," he said.

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