London: Indian companies with offices in the UK and British companies operating in India will be covered by a tough new act that seeks to prosecute companies and individuals who not only offer or receive bribes but also fail to prevent bribery.

The Bribery Act 2010, which comes into force on Friday, overhauls existing British laws dating back to 1889 and creates offences in the UK or abroad that carry prison terms of up to 10 years and unlimited fines.

Failure to prevent bribery has also been made an offence under the act.

In recent years, many Indian companies have opened offices in London and elsewhere in the UK, while many British companies have expanded their operations in India to tap India's growing economy.

The official guidance on the new act says: "Bribery undermines democracy and the rule of law and poses very serious threats to sustained economic progress in developing and emerging economies and to the proper operation of free markets more generally."

It adds: "The Bribery Act 2010 is intended to respond to these threats and to the extremely broad range of ways that bribery can be committed.

"It does this by providing robust offences, enhanced sentencing powers for the courts (raising the maximum sentence for bribery committed by an individual from 7 to 10 years imprisonment) and wide jurisdictional powers."

Lawyers are reportedly being consulted by Indian companies with operations in the UK on the act's implications for them.

Official sources believe the new legislation will help cement Britain's position as a leader in the fight against business and corporate corruption. The act specifically creates a standalone offence of bribery of a foreign public official".

According to the act, an offence is committed where a person offers, promises or gives a financial or other advantage to a foreign public official with the intention of influencing the official in the performance of his or her official functions.

The person offering, promising or giving the advantage must also intend to obtain or retain business or an advantage in the conduct of business by doing so.

However, the offence is not committed where the official is permitted or required by the applicable written law to be influenced by the advantage, the official guidance says.

Bona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations, is recognised as an established and important part of doing business and it is not the intention of the act to criminalise such behaviour.

"The Government does not intend for the Act to prohibit reasonable and proportionate hospitality and promotional or other similar business expenditure intended for these purposes.

"It is, however, clear that hospitality and promotional or other similar business expenditure can be employed as bribes," the guidance says.

In order to amount to a bribe, there must be an intention for a financial or other advantage to influence the official in his or her official role and thereby secure business or a business advantage.

Companies prosecuted under the act must show they have "adequate procedures" in place to stop bribes.

Such procedures may include providing anti-bribery training to staff, carrying out risk assessments for the markets being operated in, or carrying out due diligence on the people being dealt with.

However, a survey released in June 2011 by the consultants KPMG found that 71 per cent of companies believed there are some places in the world where business cannot be done without engaging in bribery and corruption.