Thursday, January 9, 2014
PITTSBURGH (AP) — A subsidiary of Alcoa Inc. pleaded guilty Thursday and, along with the parent company, will pay a total of $384 million in penalties for bribing officials in the kingdom of Bahrain through a London-based middleman.
A company official on Thursday entered the plea on behalf of Alcoa World Alumina LLC, which will pay $223 million in fines and criminal penalties for violating the anti-bribery provisions of the Foreign Corrupt Practices Act. The law governs the conduct of American businesses abroad.
Parent company Alcoa Inc. must guarantee those payments and on Thursday also agreed to a separate $161 million civil penalty for related Securities and Exchange Commission violations.
"Alcoa lacked sufficient internal controls to prevent and detect the bribes, which were improperly recorded in Alcoa's books and records as legitimate commissions or sales to a distributor," the SEC said in a news release.
The U.S. Justice Department said Alcoa World Alumina earned $446 million in profits by using the middleman to cut a long-term deal to sell raw materials to Aluminum Bahrain BSC, through other affiliated companies, including Alcoa of Australia. The criminal conduct occurred from 2004 to 2009.
Aluminum Bahrain, also known as Alba, is a government-controlled aluminum manufacturer in the Middle Eastern country.
Federal prosecutors began investigating the transactions in 2008 when Alba filed a federal lawsuit accusing Alcoa and affiliated companies controlled by the alleged middleman — London billionaire Victor Dahdaleh — of paying $9.5 million in bribes to Bahrain officials and Alba executives. That resulted in Alba overpaying for raw materials, the lawsuit alleged.
When Alba amended its lawsuit in July 2011, Alcoa called it "a patchwork of claims about the alleged misdeeds of Victor Dahdaleh and Bahraini officials. The vague allegations against Alcoa personnel amount to no more than a series of guesses and overdrawn inferences."
Fifteen months later, Alcoa settled all claims against it by Alba for $85 million, meaning Alcoa will have paid $469 million in criminal fines, civil penalties and settlements for the Alba transactions. Alcoa and its subsidiary will pay the $384 million in penalties imposed Thursday in five installments over four years to lessen the financial impact on the companies and Alcoa shareholders.
Meanwhile, Alba's lawsuit is proceeding against Dahdaleh and others, as is the government's criminal investigation.
Dahdaleh's attorney, David Kendall, declined to comment on the federal investigation, but he told The Associated Press that last month Dahdaleh "was found not guilty on all counts in London of allegations regarding payments in Bahrain."
The United Kingdom's Serious Fraud Office dropped its criminal bribery charges after concluding there was no realistic prospect of conviction once a key witness changed his story and two American witnesses refused to take part in the trial. The case revolved around bribes Dahdaleh allegedly paid to senior Alba officials relating to Australian raw material supplies.
U.S. Attorney David Hickton, of Pittsburgh, said the investigation isn't over.
"The case is closed with this plea relating to the company's responsibility," Hickton said, before adding, "The investigation with respect to individuals and other entities is still ongoing."
Asked why prosecutors referred to the "middleman in London" in press releases but haven't charged that individual, Hickton said the ongoing investigation involves thousands of documents and foreign bank accounts in Switzerland, Luxembourg, Guernsey and Australia.
Hickton noted that Alcoa has cooperated with investigators and had instituted a corporate compliance program to prevent future corruption.
"There is no allegation in the filing by the DOJ and there is no finding by the SEC that anyone at Alcoa Inc. knowingly engaged in the conduct at issue," the company said in a statement.
But the charges against Alcoa World Alumina said an unidentified company executive balked at cutting out the middleman even after an in-house attorney warned in 2004 that his involvement "created a lot of anxiety in the organization."
The SEC determined there were more than $110 million in corrupt payments made to Bahraini officials who influenced contract negotiations between Alcoa and Alba's government-operated aluminum plant.
Alcoa "did not conduct due diligence or otherwise seek to determine whether there was a legitimate business purpose for the use of a middleman," the SEC said.