Justice Dept. opens Alcoa bribery probe

ByDaniel Lovering, AP Business Writer

PITTSBURGH -- Federal prosecutors have launched an investigation into allegations that Alcoa AA and affiliates bribed officials in the Persian Gulf country of Bahrain to secure hundreds of millions of dollars in overpayments.

The U.S. Justice Department asked a judge to halt a federal civil lawsuit against the Pittsburgh-based company that accused Alcoa of bribing the officials through secretive shell companies in Asia and Europe.

Aluminum Bahrain B.S.C., controlled by the Bahrain government and known as Alba, is seeking more than $1 billion in damages from Alcoa and other affiliated defendants, according to the lawsuit filed last month.

Alba operates one of the world's largest aluminum smelters. It has been an Alcoa customer for about three decades and buys most of its alumina — a material used to make aluminum — from the company.

The Bahrain firm's allegations "could be relevant to the government's criminal investigation and a potential criminal trial," if they are shown to be true, prosecutors said in documents filed Thursday in U.S. District Court.

The lawsuit alleges that Alcoa and its affiliates violated mail and wire fraud laws and the Foreign Corrupt Practices Act, among other statutes.

The two companies agreed to the government's request to temporarily halt the civil proceedings, according to court documents.

"We obviously are going to cooperate fully," Alcoa spokesman Kevin Lowery said. "We see this as an opportunity to see a speedy resolution to the entire matter."

A Justice Department spokeswoman declined to comment.

Also named in Alba's lawsuit are Alcoa World Alumina — a joint venture between Alcoa and Australia's Alumina — William Rice, an Alcoa World Alumina executive, and Victor Dahdaleh, a Canadian who has acted as an agent for Alcoa and Alcoa World Alumina.

Alba contacted Alcoa about the bribery allegations shortly before filing its lawsuit on Feb. 27, giving the Pittsburgh-based company two weeks to investigate and settle the matter, Lowery said earlier.

Alcoa conducted a review, he said, but found no evidence of wrongdoing and planned to vigorously defend itself.

Alba said the defendants bribed at least one former senior official from the company and the Bahrain government to persuade Alba to cede a controlling stake in the company to Alcoa and pay excessive prices for alumina.

The lawsuit alleges that the scheme started in 1993 but was not discovered until last year, and bribes were sent through a series of shell companies ultimately controlled by Alcoa and affiliated individuals.

Joshua Hochberg, a Washington, D.C.-based attorney who was head of the Justice Department's fraud section from 1998 to 2005, noted that the government had made cases involving the Foreign Corrupt Practices Act a priority in recent years.

But the Alba case was unusual, he said, because the Justice Department was forced to acknowledge the investigation publicly and because a foreign government had positioned itself as the victim.

"If it turns out Alcoa was at fault and Bahrain recoups significant money, it may encourage more countries in their own self-interest to bring these kinds of cases," said Hochberg, of the law firm McKenna Long & Aldridge.

"Typically, in the past, the DOJ contacted countries to obtain evidence, rather than having the foreign country report to DOJ that it had been victimized," he said.

Alcoa is the world's third-largest aluminum producer. It reported revenue in 2007 of $30.75 billion, an all-time record.

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