A subsidiary of aluminium producer Alcoa has pleaded guilty and, with the parent company, will pay a total of US$384m in penalties for bribing officials in the Middle Eastern kingdom of Bahrain through a London-based middleman.
A company official entered the plea on behalf of Alcoa World Alumina, which will pay US$223m in fines and criminal penalties for violating the anti-bribery provisions of the US Foreign Corrupt Practices Act (FATCA), which regulates the conduct of American businesses abroad. Its parent, which must guarantee the payments also agreed to a separate US$161m civil penalty for related Securities and Exchange Commission (SEC) violations.
“Alcoa’s subsidiaries used a London-based consultant with connections to Bahrain’s royal family as an intermediary to negotiate with government officials and funnel the illicit payments to retain Alcoa’s business as a supplier to the plant,” the SEC announced in a news release.
“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 US Department of Justice (DoJ) said that Alcoa World Alumina made profits of US$446m by employing the middleman to agree a long-term deal to sell raw materials to Aluminum Bahrain BSC, through other affiliated companies, including Alcoa of Australia. The criminal conduct occurred over the period 2004 to 2009. Aluminum Bahrain, also known as Alba, is a government-controlled aluminum manufacturer in the Middle Eastern country.
George Canellos, co-director of the SEC enforcement division, commented: “As the beneficiary of a long-running bribery scheme perpetrated by a closely controlled subsidiary, Alcoa is liable and must be held responsible. It is critical that companies assess their supply chains and determine that their business relationships have legitimate purposes.”
Federal prosecutors began their investigation in 2008, when Alba filed a federal lawsuit accusing Alcoa and affiliated companies controlled by the alleged middleman – London billionaire Victor Dahdaleh – of paying US$9.5m in bribes to Bahrain officials and Alba executives, resulting in Alba paying inflated prices for raw materials.
When Alba amended its lawsuit in July 2011, Alcoa responded that it was merely “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.”
Subsequently, in October 2012 Alcoa paid Alba US$85m to settle all claims against it by Alba, meaning Alcoa will have paid a total of US$469m in criminal fines, civil penalties and settlements for the Alba transactions. Alcoa and its subsidiary will pay the combined SEC and DoJ penalties of US$384m in five installments over four years to lessen the financial impact on the companies and shareholders.
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