Onus is now on business to prevent dishonesty and act seen as indirect response to BAE case

"Fragmented and complex" anti-corruption laws dating back to the 1880s were finally overhauled last week with the passing of what experts describe as one of the most significant reforms to corporate criminal law in a century.

The Bribery Act, which received royal assent last Thursday, heralds a clampdown on large UK businesses making payments to officials overseas to facilitate business, say experts. The new act has introduced an offence of corporate failure to prevent bribery. It is the first time such a law has existed in the UK. It also requires companies to have "adequate processes" in place to prevent such offences.

The act is seen as a response to the BAE Systems case, where the prosecution against the defence company was dropped after the intervention of Lord Goldsmith, then attorney general. Earlier this year, BAE agreed to pay £300m in fines after signing up to a plea bargain with Britain's Serious Fraud Office and the US department of justice. But the case has had a long-term impact on Britain's reputation: its position in the international "corruption index" has slipped to 17th, behind Japan, Hong Kong and Austria.

"The strictness of the act can be seen as an indirect consequence of the BAE case and the damage done to the UK's international reputation by the government's handling of it," said Eoin O'Shea, head of the anti-corruption group at Lawrence Graham, an international business law firm. "The act will force British businesses to be proactive in tackling bribery."

The offence of failing to prevent bribery is "strict liability", so that failure to have adequate processes will result in prosecution, regardless of whether prosecutors can show corrupt intent.

Experts have predicted that the new rules will lead to an increase in investigations. Government figures indicate a £2m annual cost of extra investigations, prosecutions and court hearings.

"Any company not actively examining the history of its third-party relationships to determine exposure to bribery and corruption risk will have significant difficulties in being able to demonstrate compliance with the new law," said David Leppan, founder of World-Check, a risk intelligence company that has launched a "Bribery Act solution" to help multinationals comply with stricter rules.

However, the legislation continued to attract controversy during its final stages in parliament because of defences available to law enforcement agencies. The act proposed to exempt them from corrupt behaviour where "necessary for the prevention of a serious crime", but this defence was removed at the last minute and now applies only to the intelligence services and armed forces.

Corporate executives have expressed concern that the measures will place them at a competitive disadvantage to companies in the United States, as measures in the new law such as the ban on so-called "facilitation payments" go further than US anti-corruption rules.

The Tories have also criticised the "unacceptable rush" of the bill through parliament before the election.

"The lack of time provided by the government … did not allow us to study the practical application of the bill to the extent that we wished," said Jonathan Djanogly, the shadow solicitor general.

But campaigners welcomed the law, saying it would help to restore the UK's reputation and help developing countries. "This act sends out a strong message to UK plc and the rest of world – the UK will not tolerate bribery," said Chandrashekhar Krishnan, executive director of Transparency International UK.

"Corruption disproportionately affects the poor and is a persistent threat to development and democracy. The UK will now have greater credibility in encouraging good governance in countries that receive UK aid and in persuading major emerging economies to stop their own companies paying bribes."

A survey in 2006 by Control Risks, a consultancy, estimates that a quarter of UK-based international companies have lost business to corrupt competitors in recent years, while figures from the World Bank suggest that bribery adds up to 10% to the total cost of doing business globally.