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Alcoa affiliate to pay $384M, pleads guilty in bribery case; $2.3 billion 4Q loss

| Thursday, Jan. 9, 2014, 10:24 a.m.

A joint venture controlled by Alcoa Inc. pleaded guilty on Thursday to a criminal charge and agreed to pay $384 million in penalties to end investigations by the Department of Justice and the Securities and Exchange Commission of bribery allegations made by a Bahraini aluminum maker.

The guilty plea involved violations of the Foreign Corrupt Practices Act of 1977, which was written to stop kickbacks by American companies to public and private officials overseas.

Jeffrey Heeter, an Alcoa World Alumina official, entered the guilty plea before U.S. District Court Judge Donetta Ambrose, who imposed a sentence of four years of probation in addition to the fines. Heeter declined to comment afterward.

Alcoa World Alumina is owned by Alcoa and Alumina Ltd. of Australia, a separate company.

U.S. Attorney David Hickton said the settlement ends the prosecution of Alcoa World Alumina, but not the criminal investigation of individuals connected to the bribery. He said the probe involves offshore bank accounts in Switzerland, Luxembourg, Liechtenstein and Guernsey.

“This is a complex investigation with thousands of documents,” he said, declining to comment further.

Alcoa employs about 2,000 in Western Pennsylvania. Its executive offices are in New York.

The criminal charges are related to a civil lawsuit filed in 2008 by Aluminium Bahrain BSC, known as Alba.

Alba contended that Alcoa affiliates controlled by London billionaire businessman Victor Dahdaleh bribed Bahraini officials and Alba executives, resulting in Alba's overpaying $420 million for raw materials, including alumina, from 1997 to 2009. The government has traced about $50 million in payments to Bahraini officials.

Dahdaleh has denied the charges.

Alain J.P. Belda was Alcoa's CEO from 1999 to 2008 when most of the conduct in question occurred. Alcoa said there are no allegations that “anyone at Alcoa Inc. knowingly engaged in the conduct at issue.”

Alcoa in October 2012 agreed to pay $85 million to settle the civil lawsuit filed by Aluminium Bahrain.

Alcoa's cooperation in the settlement and its financial condition were important factors in reducing potential penalties, the government said in court papers. The aluminum maker's business and reputation, if damaged at all, will recover quickly, anti-corruption experts said.

Alcoa World Alumina agreed to pay a fine of $209 million and forfeit $14 million to the Internal Revenue Service as part of the Justice Department settlement. Federal guidelines indicated a fine in the range of $446 million to $892 million.

“Alcoa had to be punished in some way, but it was substantially less than the guidelines, and the Justice Department went out of its way to say Alcoa cooperated,” said Lloyd T. O'Carroll, aluminum industry analyst with Davenport & Co. LLC in Richmond, Va.

When such allegations surface, they tarnish reputations whether they are valid or not, O'Carroll said.

“Maybe they should have known, but there's no evidence,” he said. “I don't see anybody not doing business with Alcoa or a government saying it doesn't want them there because of this.”

Attorney Dan Newcomb, who heads an anti-corruption practice at Shearman & Sterling in New York, said, “These kinds of things are rarely fatal to a company. The worst impact is at the time of the announcement of the allegations, not at the time of their resolution.

“Generally, resolutions result in the stock increasing, or doing better relative to their peers, because the problem is behind them.”

Alcoa shares closed at $10.65, down 18 cents.

The Justice Department said Alcoa's cooperation included appointing a special committee to investigate, providing documents and making employees available for interview. It hired senior legal and ethics and compliance officers, implemented reviews of third-party agents and consultants, and enhanced anti-corruption compliance procedure.

In addition to the SEC settlement, Alcoa World Alumina agreed to pay $161 million to settle civil charges by the SEC related to the anti-bribery and other provisions of the act.

Alcoa said it will pick up 85 percent of the costs of the investigations. In the second quarter of 2013, Alcoa recorded a $103 million expense for the investigations.

Under the settlement with the Justice Department, Alcoa World Alumina will pay the $209 million fine in five equal installments over four years.

Alcoa reported a fourth-quarter loss of $2.3 billion, or $2.19 per share, which included a $288 million expense for all costs from the investigations, and a $1.7 billion write-down of smelter acquisitions at Alumax and Reynolds Metals more than a decade ago.

CEO Klaus Kleinfeld called them “decisive actions” in his continuing restructuring of the company.

The loss compared with a profit of $242 million, or 21 cents a share, a year ago.

John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or Staff writer Brian Bowling contributed to this report.

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