The Organisation for Economic Cooperation and Development (OECD) report has called for the Australian Government to implement tougher fines and sanctions against companies and individuals found guilty of bribing foreign officials.
The review of Australia's anti-bribery sanctions published in Paris overnight also said communication between state, territory and Australian Federal Police should be improved to ensure bribery allegations were properly reported.
Labor's foreign affairs spokesman Kevin Rudd said the federal government should be doing more to stamp out bribery.
"This OECD report means now that Australia's international reputation is at stake," Mr Rudd told ABC radio.
"It specifically says that Australia has been ineffective in enforcing laws concerning the payment of bribes to foreign governments."
Mr Rudd seized on comments by the Australian Taxation Office (ATO), which had told the OECD: "The ATO's current view is the payment of foreign bribes is not a significant occurrence in Australia".
"Now, what we have from the Australian Taxation Office is an extraordinary statement to the OECD," he said.
"I mean what planet is the Howard government on at present?"
The report comes on the second day of an inquiry into Australian wheat exporter AWB's role in propping up former Iraqi dictator Saddam Hussein's regime through a discredited United Nations' program.
The investigation, headed by former New South Wales judge Terence Cole QC, will decide whether the former Australian Wheat Board's actions under the UN oil-for-food program amounted to bribery or broke any other Australian laws.
Mr Rudd said the inquiry had already uncovered some worrying developments.
"Already we have evidence concerning the nearly $300 million being paid by a major Australian company, approved by the Howard government to Saddam Hussein's regime," he said.
"Furthermore, we have evidence presented in the inquiry yesterday that the AWB's arrangements may also have included countries such as Iran and Pakistan.
"If the OECD report has been well-considered by the organisation (OECD) in Paris then obviously it's reflecting on a broader OECD concern about this sort of practice being used with foreign governments."