A unit of Alcoa agreed to plead guilty Thursday in the Western District of Pennsylvania to one count of violating the anti-bribery provisions of the FCPA with a 2004 corrupt transaction. Alcoa World Alumina LLC, a majority-owned subsidiary, will pay a criminal fine of $209 million and forfeit $14 million to settle the DOJ’s charges. Alcoa Inc., the corporate parent, also agreed to resolve civil charges brought by the Securities and Exchange Commission by disgorging $161 million.
The $384 million settlement ranks 5th on the Top 10 FCPA cases of all time. The disgorgement ranks 3rd on the list of the biggest FCPA-related corporate disgorgements.
Beginning in 1989, one of Alcoa’s largest customers was Aluminum Bahrain B.S.C. (Alba), an aluminum extraction company with the Bahrain government as a 77 percent stakeholder. Members of the Bahrain royal family and other governmental officials sat on Alba’s board of directors, exerting great influence over the company.
When Alcoa’s subsidiaries began discussing the option of entering into a long-term contract with Alba, it hired a London-based middleman with close ties to certain royal family members as a sham sales agent and agreed to pay him a corrupt commission intended to conceal bribe payments, according to court documents.
The DOJ and SEC didn’t name the middleman. But in one of Britain’s largest corruption prosecutions in years, British-Canadian businessman Victor Dahdaleh was charged with paying former Alba managers $66 million in bribes linked to supply agreements made between 1998 and 2006.
His London prosecution fell apart last month when two lawyers from the U.S. law firm Akin Gump who played a crucial role in the investigation, refused to testify, and Bruce Hall, a former CEO of Alba who had pleaded guilty to U.K. charges of accepting bribes, changed his evidence.
Dahdaleh had admitted making payments to Alba officials but pleaded not guilty to the U.K. charges, relying on the defense of “principal’s consent” under Britain’s Prevention of Corruption Act 1906. His defense, his lawyers said, was that the payments to Alba officials were essentially a tax or “government sponsorship” that were common practice in Bahrain.
According to the U.K. charges, Dahdaleh paid about $62 million to the former Alba chairman, Sheikh Isa Bin Ali Al Khalifa.
Alcoa wasn’t accused of wrongdoing in that case and it was not a party to the proceedings.
The SEC alleged Thursday that Alcoa’s subsidiaries used the London-based consultant to funnel the payments to officials and, over time, that Alcoa expanded his role to include invoicing for larger volumes of sales through his shell companies. The SEC settled the matter through an administrative order and didn’t file the civil charges in court.
The sham distributorship permitted the middleman to mark up the price of alumina by $188 million over the next five years, U.S. prosecutors said. Some of the money was used for bribe payments to certain Bahrain government officials and senior members of Bahrain’s royal family, the U.S. alleged.
To conceal the illicit payments, the middleman and Bahrain officials used offshore bank accounts at several major financial institutions around the world, including in Guernsey, Luxembourg, Liechtenstein and Switzerland.
Alba sued Alcoa in 2008 for bribing Alba officials and overcharging for supplying raw materials. The parties settled the lawsuit in 2012, with Alcoa agreeing to pay $85 million without admitting liability.
The DOJ’s January 9, 2014 release is here.
The SEC’s Securities Exchange Act of 1943 Release No. 71261, Accounting and Auditing Enforcement Release No. 3525, and Adminsitrative Proceeding File No. 3 -15673 (all dated January 9, 2014) are here.
Julie DiMauro is the executive editor of FCPA Blog and can be reached here.