The Serious Fraud Office’s decision to drop its corruption investigation into the BAE Systems arms deal with Saudi Arabia is still haunting ministers. Within weeks judgment will be given in a High Court challenge brought by the Campaign Against Arms Trade and the Corner House over that decision. And the result will be of more than academic interest. If Lord Justice Moses criticises the Government as trenchantly as he did in court, the case will not only finish in the House of Lords — pressure for reform of the corruption Acts will be overwhelming.

For companies this can only be good news. The UK is signatory to a web of anti-corruption treaties under the auspices of the Organisation for Economic Co-operation and Development (OECD), the United Nations, the Council of Europe and the European Union. According to Transparency International’s bribe payers’ index 2006, the UK is one of the ten countries whose companies are least likely to use bribery. Superficially, our position looks good.

But as the Corner House case revealed, the conduct of BAE during the al-Yamamah deals was questionable. The SFO’s decision to pull the plug on the investigation raises questions both about the rule of law and fairness in deciding which cases to prosecute.

Documents from the judicial review reveal limitations in the SFO’s investigative powers and its lack of independence. The Prevention of Corruption Act 1906 requires the consent of the Attorney-General for proceedings. Yet pending any change as a result of the present review of the post, the Attorney occupies the uncomfortable position of being both law officer and member of the Government.

As if this were not bad enough, Article 5 of the OECD Convention specifically prohibits the possible adverse effects on economic trade or the relations between states from being taken into account when deciding to prosecute a case of international bribery. Yet as a matter of UK Government policy the Attorney-General is permitted, before reaching a decision, to obtain “soundings” from government departments — in which, presumably, trade and politics are the key factors.

In BAE, Tony Blair, then Prime Minister, and the Ministry of Defence managed both to flag up in lurid terms and to disavow important economic considerations and UK-Saudi relations when lobbying the Attorney.

Robert Wardle, director of the SFO, and Lord Goldsmith, QC, then Attorney-General, who united in terminating the investigation, still differ on central aspects of the Prevention of Corruption Act. The 1906 Act reflects its origins. At its heart is the concept of breach of trust by an agent acting on behalf of a principal. Today, the hurdle this creates to prosecution is often insuperable. Not least of the problems is that consent to the allegedly corrupt payment by the principal constitutes a defence for the agent. The more corrupt the country, the less likely you are to commit an offence of corruption.

Few other countries include the agent/principal element in their definition of corruption. The Government issued reform proposals in 1997, followed by a Law Commission report in 1998, a White Paper in 2000, a draft corruption Bill in 2003, a Home Office consultation in 2005 and a finally a Law Commission consultation in November 2007, all shifting the emphasis from breach of trust to improper act/breach of duty.

The CBI has welcomed reform to clarify the law on corruption, taking the line that corruption “distorts markets and harms overall economic social and political development, particularly in developing countries”. Given the damage to the UK’s standing by the BAE Systems affair, the CBI should get what it wants.

But more remains to be done. Early 20th-century parliamentarians clearly did not envisage an overseas element to corruption cases. Today there is near-universal doubt, shared by Lord Goldsmith, and the Law Commission, that there was power before the Anti-Terrorism Crime and Security Act 2001 to prosecute corruption offences committed abroad. Yet the SFO still expends a substantial part of its limited budget investigating arrangements made overseas before 2002.

With a sad record of expensive and unsuccessful cases including BAE, the SFO needs to make tough decisions on its back catalogue of cases. It also needs to talk to its paymasters about the difficulties in policing complex international agreements with a toolkit designed in 1906. Government should ask if the UK’s strategy might be served by devolving the Attorney-General’s guardianship of the public interest to the Director of Public Prosecutions.

While legal uncertainties offer wriggle room to potential defendants, the real cost to UK companies is the length of investigations and the glacial pace at which the Attorney-General deliberates. The average inquiry takes two years and the more complex up to four. Such delays serve no one, least of all those under investigation. Rumours about SFO investigations damage reputations and share values and can compromise companies’ ability to do business over several years. The sight of government-backed players receiving their get-out-of-jail cards from the Attorney-General rubs salt in the wound.

Extra resources have been allocated to the SFO to fund these complex investigations. But the big win could be the opportunity to reform one of the UK’s most antiquated and commercially damaging pieces of legislation.

Ben Rose is a partner and Arturo John a solicitor at Hickman and Rose

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