OECD says Britain lacks the will to tackle corrupt business

Report condemns 'systemic deficiencies'

Investigations into British firms acccused of bribing foreign companies are being hindered by a lack of "political will" to address the problem, according to a damning report by an international economic watchdog.

An inquiry by the Organisation for Economic Co-operation and Development (OECD) – launched in the aftermath of the Serious Fraud Office's decision to drop an investigation into BAE Systems over bribery allegations relating to a £43bn arms deal with Saudi Arabia, and other alleged corruption cases – concluded that reform was urgently needed to address "systemic deficiencies" in the legal system.

Action was necessary, the report said, to establish "effective corporate liability for bribery as a matter of high priority".

The Justice Secretary, Jack Straw, who was appointed the Government's "anti-corruption champion" this week, said the UK was "fully committed" to tackling corruption, saying it "hurts honest companies and raises the costs of doing business".

The 75-page inquiry report 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. Reforms are urgently needed and should be dealt with as a matter of political priority.

"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."

In 2006, the Serious Fraud Office stopped its investigation into allegations that BAE Systems made illegal payments to Saudi officials using a slush fund. The company has denied the claim. The Government defended the decision, warning that Saudi Arabia could stop co-operating over issues of national security, and the law lords eventually overturned a court ruling that the SFO had acted unlawfully.

As the report was unveiled in Paris yesterday, Mark Pieth, chairman of the OECD's Working Group on Bribery, said he wanted to send a strong message to the UK that it must live up to its international commitments.

The UK has failed to implement the OECD anti-bribery convention, which was ratified 10 years ago, and the working group has called for new legislation three times before, in 2003, 2005 and 2007. "The purpose of the recommendations we are making is to motivate. We are saying this situation cannot go on," said Mr Pieth, a law professor.

Mr Straw said the Government welcomed the report and "will now carefully consider its recommendations. Reform of our bribery laws is a key part of the strategy I announced to Parliament this week, on my appointment as anti-corruption champion," he said.