Bribes made to Middle Eastern officials totaling an estimated $110 million will cost Alcoa Inc. and a related company $384 million under agreements between the firms and federal agencies, closing one part of a corruption investigation that may now focus on unnamed individuals.
A Pittsburgh-based company, Alcoa World Alumina, pleaded guilty Thursday to violations of the Foreign Corrupt Practices Act and must pay $223 million, guaranteed by parent company Alcoa Inc., to the Department of Justice and the IRS. Alcoa Inc. must pay $161 million to the Securities and Exchange Commission for its involvement in the same acts.
"The investigation is ongoing with respect to individuals," said U.S. attorney David Hickton, declining to say whether they are local, domestic or foreign. The resolution of the accusations against the companies, he said, reflects "a commitment by our country and our companies to play by the rules as they have been defined by Congress."
A release by Alcoa Inc. noted that "there is no allegation ... that anyone at Alcoa Inc. knowingly engaged in the conduct at issue." It also noted that the parent company cooperated with the investigation, and that the payments will be made in five installments over four years.
Alcoa stock closed down 14 cents a share, at $10.69, on heavier-than-normal volume.
The deal roughly doubles the costs Alcoa and related companies have borne in relation to the bribes. In 2012, they settled a 2008 civil lawsuit filed by Aluminium Bahrain BSC, known as Alba, for $85 million in cash plus business concessions characterized as having a value of around $360 million.
According to the federal criminal charges, Alcoa World Alumina's plea agreement and federal news releases, Alcoa-related companies paid a middleman to secure contracts to supply the raw material alumina to Alba. The middleman then paid what the SEC characterized as "more than $110 million in corrupt payments ... to Bahraini officials." The officials, including members of the Kingdom of Bahrain's royal family, in turn arranged that Alba would overpay for alumina, to the tune of $400 million over 20 years.
Alba's lawsuit accused Canadian-British businessman Victor Dahdaleh of being the middleman.
Mr. Dahdaleh was charged with corruption in the United Kingdom. Last month, following a five-week trial at which Mr. Dahdaleh argued that his payments were not corrupt and evidence did not develop the way prosecutors had hoped, a judge directed a jury to return a not guilty verdict.
"Last Dec. 10, my client Mr. Dahdaleh was acquitted in a criminal trial in London on all counts in a case involving alleged payments in Bahrain," said David E. Kendall, attorney for Mr. Dahdaleh. He declined to comment on whether that could preclude U.S. charges.
Mr. Hickton would not say whether he would consider charging someone who had faced related criminal accusations in overseas courts.
The charges accused a Pittsburgh-based executive of Alcoa World Alumina of direct involvement in the schemes but did not identify him.
The charges quoted documents including a 2003 email by an Alcoa World Alumina executive in which the executive told a company attorney that he "shouldn't get too involved with how the Distributor and the [Bahraini] Government interact." The attorney responded that he needed to understand the distributor's role "completely ... for Foreign Corrupt Practices Act purposes."
In 2004, an attorney for Alcoa World Alumina noted that the arrangement "created a lot of anxiety in the organization." That did not prevent the firm from negotiating, at year's end, a deal involving the middleman to sell 1.78 million tons of alumina per year, for 10 years, to Alba at inflated prices, according to the charges.
In the years that followed, Alcoa World Alumina extended to the middleman tens of millions of dollars in lines of credit, according to the charges. The middleman in turn made extensive real estate investments in Bahrain.
"This case is the result of unraveling complex financial transactions used by Alcoa World Alumina LLC's agent to facilitate kickbacks to foreign government officials," IRS criminal investigations chief Richard Weber said in a news release.
The charges described the flow of funds through a half-dozen companies on four continents, through bank accounts in Luxembourg, Liechtenstein, Switzerland and the British dependency of Guernsey, and to four unnamed Bahraini officials, three of whom were characterized as royal family members.
Mr. Hickton said that the result was enrichment of a select, corrupt few at the expense of those who play fair and the general public, including victims as far afield as "the kids who aren't getting books for school."
Federal sentencing guidelines suggested penalties of $446 million to $892 million -- twice to four times what Alcoa World Alumina will pay in fines and forfeitures, and more than the total payments even when the SEC levy is included.
Mr. Hickton acknowledged that violators who plead guilty are routinely given some credit for accepting responsibility, but said the penalties were based on complex negotiations, and not simply "50 percent off the guidelines."
Alcoa World Alumina will be on probation for four years, meaning federal probation officers can haul officials into court if they don't comply with the payment schedule and required corporate resolutions.
Rich Lord: firstname.lastname@example.org or 412-263-1542. Twitter @richelord
Rich Lord: email@example.com or 412-263-1542. Twitter: @richelord. First Published January 9, 2014 9:26 AM