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 Two deals, announced on Thursday, settle criminal and civil
allegations that two of the joint venture's subsidiaries bribed
officials for years so they could supply raw materials to Aluminum
Bahrain, or Alba. The Bahraini metal producer has links to the tiny
Gulf kingdom's royal family.
Alcoa Inc failed to maintain adequate internal controls to prevent
or detect more than $110 million in improper payments funneled to
Alba through a consultant between 1989 and 2009, according to the
U.S. Securities and Exchange Commission, which brought civil charges
under the Foreign Corrupt Practices Act. The Department of Justice
brought criminal charges under the same law.
"As the beneficiary of a long-running bribery scheme perpetrated by
a closely controlled subsidiary, Alcoa is liable and must be held
responsible," George Canellos, co-director of the SEC's enforcement
division, said in a prepared statement.
The Alcoa settlement is part of a broad crackdown by U.S.
authorities on improper payments made by companies to win business
in foreign jurisdictions.
Some of the largest U.S. companies, including Wal-Mart Stores Inc
and Avon Products Inc, have spent hundreds of millions on internal
investigations into possible misconduct in foreign markets.
The Justice Department is investigating whether Wal-Mart paid bribes
in Mexico to obtain permits to open new stores, and whether
executives covered up an internal inquiry into the payments. It is
also looking into possible misconduct by the world's largest
retailer in Brazil, China and India.
To date, the largest combined Justice Department-SEC settlement was
$800 million, paid by Germany's Siemens AG to resolve allegations of
widespread bribery in 2008.
Alcoa's $384 million settlement ranks as the fourth largest, the SEC
said in a release.
Shares of top U.S. aluminum producer Alcoa, which previously said it
was in settlement talks, fell 1.3 percent to end regular trading at
$10.69 on the New York Stock Exchange.
In a statement, New York-based Alcoa took pains to distinguish the
parent company from its joint venture.
"There is no allegation in the filings by the DOJ and there is no
finding by the SEC that anyone at Alcoa Inc knowingly engaged in the
conduct at issue," it said in a release.
"I don't think there is too much relevance to the current personnel
or the future. It is water under the bridge," said John Tumazos,
analyst at Very Independent Research.
"RED FLAGS"
Bribery allegations involving Alba — now under new management — have
played out in several countries for more than five years.
In one of Britain's biggest corruption prosecutions in years, a
British-Canadian businessman was charged with paying former Alba
managers bribes linked to the supply agreements between 1998 and
2006.
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The businessman, Victor Dahdaleh, was accused of acting as a
middleman between a member of Bahrain's royal family and suppliers,
including Alcoa. But his trial fell apart in December after two
lawyers who played a crucial role in the case refused to testify,
and another witness changed his testimony.
Alcoa was not accused of wrongdoing in the Dahdaleh case, and it
was not a party to those proceedings.
Dahdaleh's lawyer argued that the payments were a Bahraini "custom
and practice" and were approved by Sheikh Khalifa bin Salman
al-Khalifa, the prime minister and a member of the Bahraini royal
family. Reuters could not reach him for comment during the trial.
In the SEC's release on Thursday, the U.S. regulator said Alcoa's
subsidiaries used a London-based consultant to funnel the payments
to officials, but it did not name the consultant. The subsidiaries
cited by the SEC are Alcoa World Alumina and Alcoa of Australia,
both of which are parts of the joint venture.
A manager at one of the subsidiaries said the consultant would "keep
the various stakeholders in the Alba smelter happy," according to
the SEC. The regulator said Alcoa did not try to determine whether
there was a legitimate reason to use a go-between "despite the red
flags inherent in this arrangement."
PAYMENTS OVER FOUR YEARS
As part of Thursday's deals, Alcoa settled the charges brought by
the SEC, agreeing to pay $161 million in five installments over four
years. The company settled a civil lawsuit with Alba in 2012.
The Justice Department's deal was with Alcoa World Alumina LLC, a
joint venture with Australia's Alumina Ltd. The venture, 60
percent-owned by Alcoa, agreed to plead guilty to a single count of
violating the Foreign Corrupt Practices Act and pay $223 million in
five installments over four years
Under a previous agreement with Alumina Ltd, the Australian company
will contribute 15 percent of the cost of the settlements, including
legal fees.
Alcoa will take a $288 million charge in the fourth quarter of 2013
related to the settlements.
The company is scheduled to report fourth quarter-results after
North American equity markets close on Thursday.
(Reporting by Allison Martell;
additional reporting by Kristin Ridley in London, Josephine Mason
and Karey Van Hall in New York and Nicole Mordant in Vancouver;
editing by Jeffrey Benkoe, Lisa Von Ahn, Frank McGurty and Steve
Orlofsky)
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