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Harry Cassin
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Questions And More Questions About Alba v. Alcoa

What’s the story behind this case? To be honest, we’ve got lots of questions and so few answers.

This we know: Aluminum Bahrain BSC (“Alba”) sued Alcoa Inc., its long-time raw materials supplier, for corruption and fraud in a Pittsburgh federal court. Alba — majority owned by the government of Bahrain — alleged that it paid $2 billion in overcharges over a 15-year period. The money went to overseas accounts controlled by Alcoa’s agent. Some of the money was then used to bribe Alba’s executives in return for more supply contracts. Among the Bahraini officials alleged to be involved is Alba’s former chairman, who also served as the country’s powerful minister of petroleum.

Before filing the suit, Alba confronted Alcoa. It demanded a payment of $1 billion within two weeks. A spokesman for Alcoa reported later, “We said we’d be happy to do a more extensive investigation with them – they said ‘we’ll see you in court.’”

Alba launched its lawsuit in late February 2008. As if on cue, the U.S. government appeared in the same federal court in Pittsburgh three weeks later. The government asked the court to stay Alba’s civil suit pending a criminal investigation into whether Alcoa and its executives and agents violated the Foreign Corrupt Practices Act and mail and wire fraud statutes. Alcoa said it’s innocent and will cooperate with the feds.

So what’s going on here?

First off, we’re having trouble understanding why Alba sued Alcoa in a U.S. court. Foreign governments and their companies work extra hard to avoid being dragged into civil litigation in the United States. Despite arguments about confidentiality, privilege and sovereign immunity, civil lawsuits expose foreign parties to U.S.-style discovery, and that’s bad news. They can be compelled to turn over any documents or other information that might lead to the other side’s discovery of relevant evidence. That’s a broad category. Their representatives can be deposed and their facilities inspected. In other words, in civil litigation there’s no place to hide.

Dan Newcomb — author of the annual FCPA Digest — said this in a Wall Street Journal story about the case: “The reason it’s rare for governments to accuse U.S. companies of corruption in American courts is that once you raise a question of corruption, the sovereign runs the risk they will be embarrassed by the requests of discovery from the private party.” In this case, he added,”They have to be prepared to withstand Alcoa coming back to them and saying, ‘We want to look at every other corrupt transaction you have been involved in.’ ”

Alcoa’s version of recent events is important. It said Alba gave it just two weeks to pay $1 billion or face a lawsuit. Two weeks? That’s a meaningless deadline. As Alba and its lawyers would know, corporate giants cannot possibly decide to settle huge claims involving potentially felonious allegations in two weeks. More like a year or maybe two. Which is probably less time than a complicated and well-defended civil suit would require.

Alba’s allegations are filled with dynamite. Alcoa’s reaction to them was what we’d expect. It wanted to investigate the facts and, we imagine, start the process of reconciliation with its huge, long-time customer. That’s a normal commercial response, and it makes sense. What doesn’t make sense is why Alba refused — why it rushed into a public lawsuit in U.S. federal court without first giving private negotiations with Alcoa a chance to work.

Did Alba file the lawsuit because it wanted the U.S. government to investigate Alcoa? Probably not. The civil suit, after all, was the long way around to the Justice Department. Alba could have taken its allegations and evidence directly to the DOJ from the start. The prosecutors would have been compelled to call on Alcoa right away. So again, what was the point of the civil suit? We’re not sure. The suit, by the way, now looks like a distraction for everyone, as demonstrated by the DOJ’s move last week to stay the proceedings — which even Alba didn’t oppose.

If Alba didn’t expect to be paid the $1 billion in two weeks — if instead it wanted all along to file its lawsuit and make a big splash in the U.S. press — the question is why? Why file the civil suit when it could have dealt with Alcoa in a safer and less public way? So our real question is whether Alcoa is the target of Alba’s U.S. lawsuit? Or is the target something or someone else? Is Alcoa collateral damage? We’re not conspiracy theorists — the simple explanation is usually right — and we have no idea what’s happening inside Bahrain’s leadership. But we’re having trouble seeing the big picture here.

Finally, what if Alcoa’s account of Alba’s two-week payment demand isn’t accurate? In that case, Alcoa has some tough questions to answer. When did it learn about the fraud and bribery allegations? What investigation did it do? Who within Alcoa might have been involved? Did it self-report the allegations and its internal reactions to them to the SEC and the DOJ? If not, why not? And when was it planning to disclose all this to shareholders?

Stay tuned.

View prior posts about Alba and Alcoa here.

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1 Comment

  1. Alba made its move in the US to avoid the shy judicial system in Bahrain and to strike back on the country’s powerful political figures in order to keep their hand’s off Alba’s money. Going public is a big slap in the face to some powerful figures in the country. The senior government official who was involved is a member of the royal family (he’s the King’s cousin and at the same time he’s the prime minister’s brother-in-law).

    Hope this explains a bit why this was taken to the US.

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