Alcoa settles Bahraini bribery scandal for $384 mn

Global aluminum giant Alcoa Inc has reached a settlement with the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) on the bribery charges involving an Alcoa subsidiary and the Middle Eastern company Aluminium Bahrain BSC (Alba).

Under the settlement, Alcoa World Alumina LLC (AWA), a company within Alcoa World Alumina and Chemicals, the bauxite mining and alumina refining venture between Alcoa Inc and Alumina Ltd, will pay a total of $384 million as penalties and fines for pleading guilty to one count of violating anti-bribery provisions of the Foreign Corrupt Practices Act.

As part of the DOJ resolution, AWA will pay a total of $223 million in five installments over a period of four years. The first installment of $55.8 million, including a one-time administrative forfeiture of $14 million, will be paid in the first quarter of 2014, and the remaining amount will be paid in installments of $41.8 million during the first quarters of 2015-2018, the company said in a statement.

Under the settlement of civil charges with the SEC, which relates to the anti-bribery, internal controls and books and records provisions, Alcoa agreed to pay $175 million, less the $14-million credit on account of one-time forfeiture payment under the DOJ resolution.

The cash payment of $161 million to the SEC will be paid in five equal installments of $32.2 million over a period of four years beginning the first quarter of 2014 and ending on the first quarter of 2018.

Pittsburg, Pennsylvania-based Alcoa is the world's third-largest aluminum company after Rio Tinto Alcan and Rusal.

Alba, a Bahraini government company operating one of the largest aluminum smelters in the world, had been a customer of Alcoa for raw materials during 1989-2009. SEC investigation revealed that Alcoa made over $110 million in corrupt payments to Bahraini officials who had influence over contract negotiations between Alcoa and Alba.

 ''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 said in a statement.

''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,'' it further stated.

Both DOJ and SEC have acknowledged Alcoa's full cooperation with regard to the investigation.

''Alcoa welcomes the resolution of this legacy legal matter with the US government,'' the company said.

The costs of the settlements with DOJ and SEC as well as an $85-million settlement reached with Alba, will be shared between Alcoa and Alumina Ltd on an 85 per cent and 15 per cent basis, Alcoa said.

As a result of the settlements, the company said that it will record a charge of $288 million in the fourth quarter of 2013. In the second quarter of 2013, Alcoa had recorded a $103 million charge for DOJ investigation.

Yesterday, Alcoa reported a quarterly loss of $2.3 billion compared with a net income of $242 million a year ago, primarily on account of $1.7 billion non-cash impairment charge on related to past acquisitions. Revenue for the quarter declined to $5.6 billion from $5.9 billion.

Average price of the metal fell 10 per cent to $1815 a tonne on the London metal exchange compared to last year, the lowest level in 4 1/2 years.

Following the news, shares in Alcoa dropped 3 per cent to $10.52 yesterday morning in New York, but recovered later to close at $10.69, down 1.3 per cent. The stock made a gain of over 18 per cent in 2013.