International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Friday, August 22, 2014

Billionaire Found in Middle of Bribery Case Avoids U.S. Probe

Read How Billionaire Victor Dahdaleh Got Away on Bloomberg -

In January, a unit of Alcoa Inc., the biggest U.S. aluminum producer, pleaded guilty to foreign bribery charges brought by the U.S. Justice Department. Alcoa also settled claims by the Securities and Exchange Commission and agreed to pay a $384 million fine -- the fifth-largest such penalty ever.

The Alcoa subsidiary admitted to paying bribes to government officials in Bahrain for more than a decade to win contracts to sell alumina, a compound essential in making aluminum, to the Persian Gulf state’s processing plant. Not named and not charged in the case was the person who made those payments, whom the Justice Department identified in court only as “Consultant A.”

SECSEC Charges Alcoa With FCPA Violations

An SEC investigation found that more than $110 million in corrupt payments were made to Bahraini officials with influence over contract negotiations between Alcoa and a major government-operated aluminum plant.  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.  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. 

Alcoa agreed to settle the SEC’s charges and a parallel criminal case announced today by the U.S. Department of Justice by paying a total of $384 million.

According to the SEC’s order, Alcoa’s Australian subsidiary retained a consultant to assist in negotiations for long-term alumina supply agreements with Alba and Bahraini government officials.  A manager at the subsidiary described the consultant as “well versed in the normal ways of Middle East business” and one who “will keep the various stakeholders in the Alba smelter happy…”  Despite the red flags inherent in this arrangement, Alcoa’s subsidiary inserted the intermediary into the Alba sales supply chain, and the consultant generated the funds needed to pay bribes to Bahraini officials.  Money used for the bribes came from the commissions that Alcoa’s subsidiary paid to the consultant as well as price markups the consultant made between the purchase price of the product from Alcoa and the sale price to Alba. 

DOJ Release on Guilty Plea

As admitted in the charging documents, in 2004, Alcoa World Alumina corruptly secured a long-term Justice logoalumina supply agreement with Alba by agreeing to purportedly sell over 1.5 million metric tons of alumina to Alba through offshore shell companies owned by Consultant A.   The sham distributorship permitted Consultant A to mark up the price of alumina by approximately $188 million from 2005 to 2009, the duration of the corrupt supply agreement.   Court filings allege that Consultant A used the mark-up to pay tens of millions in corrupt kickbacks to Bahraini government officials, including senior members of Bahrain’s Royal Family.   To conceal the illicit payments, Consultant A and the government officials used various offshore bank accounts, including accounts held under aliases, at several major financial institutions around the world, including in Guernsey, Luxembourg, Liechtenstein and Switzerland.

https://lawprofessors.typepad.com/intfinlaw/2014/08/billionaire-found-in-middle-of-bribery-case-avoids-us-probe.html

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