A company controlled by the Persian Gulf state of
Bahrain accused Alcoa Corp. of a 15-year conspiracy involving
overcharging, fraud and bribery.
A suit in federal court in Pittsburgh by Aluminum
Bahrain BSC alleged that Alcoa steered payments for an aluminum
precursor ingredient to a group of tiny companies abroad, in order to
pay kickbacks to a Bahraini "senior government official." The Bahraini
firm, known as Alba, alleged that Alcoa had overcharged it for the
precursor material, alumina.
Bank records and invoices show that more than $2
billion in Alba's payments for alumina passed from Bahrain to tiny
companies in Singapore, Switzerland and the Isle of Guernsey. The suit
alleged that some of the money found its way back to officials involved
in granting the contracts.
"Defendants...furthered their fraud through bribes
paid to one or more officials of the Government of Bahrain," said the
suit, which didn't name the officials and didn't cite any direct
evidence of such payments.
Alcoa said it will look into the matter. "We have not
had the opportunity to review these allegations and are not in a
position to comment," spokesman Kevin Lowery said. "However, we are
completely unaware of any wrongdoing by the company or its employees."
Alcoa, based in Pittsburgh, is one of the world's largest metals
companies, with more than $30 billion in annual sales.
Under the Microscope
The allegations from Bahrain, a staunch U.S. ally in
the Gulf area, represent an unusually sweeping assertion by a foreign
government of improper behavior by a U.S. corporation. It is highly
unusual for a country to use U.S. courts to accuse an American company
of bribery. The dispute is likely to put Alcoa under the microscope of
the Justice Department, which has been cracking down on questionable
dealings between U.S. companies and foreign officials.
The case also shines a light on U.S. companies' use of
non-U.S. intermediaries to conduct business in unfamiliar countries
that may have looser business practices. Alcoa's contracts with Bahrain
are negotiated by a Canadian businessman who receives the payments from
Bahrain and passes them along to Alcoa. The small firms into which
Bahrain's payments for alumina were channeled had been set up by the
Canadian, who is a longtime Alcoa agent, and two former Alcoa
employees, corporate records show.
Account records show most of the funds for alumina
bought by Alba are currently paid into the Royal Bank of Canada, which
also helped set up some of the offshore firms. A spokeswoman for the
bank couldn't immediately be reached.
Critics say the use of non-U.S. intermediaries to
conduct business abroad can permit U.S. companies to benefit from
influence-buying without exposure to the U.S. Foreign Corrupt Practices
Act, a 1977 law making it a crime for U.S. companies to pay bribes or
The allegations in the suit emerged through an effort
by Bahrain itself to root out misbehavior. Under a contract signed late
last year with Kroll Associates, a U.S. investigative firm, Bahrain has
uncovered cases of corruption in its state-owned enterprises, and
numerous individuals have been arrested.
Alcoa's dispute with one of its best customers comes
at a delicate time for the firm, which faces competition from rivals
such as Rio Tinto after losing a battle for the assets of Alcan
Inc. last year. Alcoa has been seeking to obtain access to cheaper
energy supplies, possibly through acquisitions in areas such as the
Persian Gulf. Aluminum makers, amid surging demand, have been jockeying
to corner supplies of natural gas in the Mideast to fuel new metals
plants. That's a strategic shift after years of building plants close
to consumers in Europe and the U.S.
Bahrain, meanwhile, has long sought to diversify its
economy away from oil and toward manufacturing businesses that can use
the region's plentiful energy. Bahrain's 77%-owned Alba now runs one of
the world's largest smelters. The United Arab Emirates and Saudi Arabia
are following suit with plants of their own. If Bahrain's claims
against Alcoa give the Pittsburgh company a black eye in the region,
that could hobble its strategic repositioning effort.
At the center of the controversy is a Canadian
businessman of Jordanian origin named Victor Dahdaleh, who helped bring
Alba and Alcoa together. The 68-year-old Mr. Dahdaleh, whose holdings
are known as the Dadco Group, is a longtime partner of Alcoa in its
Australian mining operations. He is also a part-owner with Alcoa of the
national bauxite company of Guinea, a poor African nation that
consistently ranks as one of the world's most corrupt.
Beginning in 1990, the suit alleges, Alcoa began
assigning its supply contracts to a series of companies set up by Mr.
Dahdaleh. "...These assignments served no legitimate business purpose
and were used as a means to secretly pay bribes and unlawful
commissions as part of a scheme to defraud Alba," the Bahraini suit
"This [lawsuit] is without merit, and we will contest
it vigorously," said a spokeswoman for AA Alumina & Chemicals, a
Swiss firm that was a conduit for some alumina payments and was
affiliated with Mr. Dahdaleh.
Invoices seen by The Wall Street Journal show that
more than $2 billion went through such offshore companies. Much of it
passed through Chase Manhattan bank in New York and ended up in
accounts at the Royal Bank of Canada, account records show.
The first such entity was a Singapore firm called
Alumet Asia PTE, which records indicate was controlled by Mr. Dahdaleh
through Royal Bank of Canada trust companies in Guernsey and Jersey --
sovereign islands in the English Channel known for their financial
Aluminum-industry executives say the use of brokers,
traders and other intermediaries is common in the field. Such middlemen
assume risks that producers would prefer to lay off, they said.
One internal Alba memo cited a possible innocent
explanation for routing payments through small firms -- namely, to keep
information from competitors. Alcoa will "assign this [alumina
purchase] contract to an associated company in Singapore to avoid
prices being known through statistics released by the Australian
Government," said a Dec. 2, 1996, Alba memo.
The Alba lawsuit asserts, however, that this
explanation was false. "Alumet Asia existed solely as a front for the
sales of alumina to Alba and a vehicle for defrauding Alba," it says.
Alumet Asia was dissolved 11 days after its last invoice to Bahrain in
The payments from Alba were redirected to AA Alumina,
which Swiss records show was owned and run by a former Alcoa executive
named David Dabney, who had gone to work for Mr. Dahdaleh. But invoices
show that the payments continued to flow into the same account at the
Royal Bank of Canada used by Alumet Asia. Mr. Dabney, who now lives in
the U.S., couldn't be reached for comment. He is not a defendant.
Alba alleged that its 2005 contract was inflated by
around 10%, which works out to some $65 million a year. The company has
already made 80 payments to the offshore firms, most for more than $15
The reason it's rare for governments to accuse U.S.
companies of corruption in American courts, said attorney Dan Newcomb
of Shearman & Sterling, is that "once you raise a question of
corruption, the sovereign runs the risk they will be embarrassed by the
requests of discovery from the private party." In this case, he added,
"They have to be prepared to withstand Alcoa coming back to them and
saying, 'We want to look at every other corrupt transaction you have
been involved in.' " Mr. Newcomb called Bahrain's move an indication of
the level of concern in the region that oil wealth will be lost to
fraud and waste.
Attorney Mark J. MacDougall of Akin, Gump, Strauss,
Hauer & Feld, which represents the Bahraini manufacturing firm,
said, "This is obviously an important case for Alba and the people of
Bahrain. Our client is confident of a full and fair adjudication of
this case in the United States."
Write to Glenn R. Simpson at firstname.lastname@example.org
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