Aluminum producer Alcoa today agreed to pay a total of $384 million to the Securities and Exchange Commission and the Department of Justice to settle civil and criminal charges over violations of the Foreign Corrupt Practices Act.

On Jan. 9, Alcoa World Alumina pleaded guilty in the Western District of Pennsylvania and agreed to pay a criminal fine of $209 million and administratively forfeit $14 million. As part of the plea agreement, Alcoa agreed to maintain and implement an enhanced global anti-corruption compliance program.

“The law does not permit companies to avoid responsibility for foreign corruption by outsourcing bribery to their agents," said Acting Assistant Attorney General Mythili Raman of the Justice Department's Criminal Division.

In a parallel action, Alcoa also agreed to pay $161 million in disgorgement to the SEC, bringing the total amount of criminal and regulatory penalties to be paid by Alcoa and Alcoa World Alumina to $384 million. In a statement, Alcoa said it "welcomes the resolution" of the case. 

The settlement also puts a spotlight on the growing enforcement efforts by the Internal Revenue Service—Criminal Investigation (IRS-CI) unit to target complex financial transactions used to facilitate kickbacks to foreign government officials. “IRS-CI will not be deterred by the use of sophisticated international financial transactions as we continue our ongoing efforts to pursue corporations and executives who use hidden offshore assets and shell companies to circumvent the law,” said IRS-CI Chief Richard Weber.  

Case Details

According to court papers, Alcoa of Australia, another Alcoa-controlled entity, secured a long-term alumina supply agreement with Aluminum Bahrain B.S.C. (Alba), 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 bribery payments to retain Alcoa's business as a supplier to the plant. 

Over time, Alcoa of Australia expanded the relationship with the middleman to begin invoicing increasingly larger volumes of alumina sales through his shell companies, which allowed him to make larger bribe payments to certain government officials.

U.S. Attorney David Hickton of the Western District of Pennsylvania said the case show that “multinational corporations cannot get away with using middlemen to structure sham business arrangements that funnel kickbacks to government officials.”

According to the SEC, 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 SEC also determined that Alcoa did not conduct due diligence or otherwise seek to determine whether a legitimate business purpose existed for the use of a middleman. 

“It is critical that companies assess their supply chains and determine that their business relationships have legitimate purposes,” said George Canellos, co-director of the SEC Enforcement Division.

Nothing in the filings by the Justice Department, or any findings by the SEC, alleges that Alcoa knowingly engaged in the conduct at issue, according to the statement by Alcoa.

Remedial Efforts

According to the SEC order, Alcoa voluntary disclosed some of these issues to the SEC and the Justice Department in February 2008. From that point, Alcoa's board of directors appointed a special committee to oversee an internal investigation by independent counsel. Alcoa's counsel regularly reported on the results of the investigation and fully cooperated with the SEC, according to the agency.

Alcoa also undertook extensive remedial actions, including a comprehensive compliance review of anti-corruption policies and procedures, including its relationship with intermediaries.

Alcoa also enhanced its internal controls and compliance functions;  developed and  implemented enhanced FCPA compliance procedures, including the development and implementation of policies and procedures—such as the due diligence and contracting procedure  for intermediaries; and conducted comprehensive anti-corruption training throughout the company.

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