PITTSBURGH - A subsidiary of Alcoa Inc. (AA) 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.
Corporate secretary Jeffrey Heeter on
Thursday pleaded guilty 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
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
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
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
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
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.