Alcoa: Alumina for the Smelter, Payments for Its Officials

In the Alcoa FCPA case, Alcoa Inc. agreed to a $175 million civil settlement with the Securities and Exchange Commission over alleged bribery in its Bahrain alumina business. The agency alleged more than $110 million in payments to Bahraini officials who could influence the customer’s supply negotiations. If you know what an intermediary actually does for that money, you may know what the sales ledger leaves out.

The agency announced the settlement on January 9, 2014, requiring Alcoa to give up gains from the alleged scheme. The transaction behind this FCPA settlement involved Australian alumina, a London-based consultant and a government-controlled smelter in Bahrain. The agency’s Foreign Corrupt Practices Act allegations described bribes recorded as legitimate commissions or sales to a distributor.

The Alumina Business Behind the Allegations

The Securities and Exchange Commission described Alcoa’s smelter-grade alumina business: mining bauxite, refining it into alumina and supplying smelters that produce aluminum. According to the agency, Alcoa’s Australian mining operations supplied the alumina sold to Aluminium Bahrain, known as Alba.

The agency said that from 1989 to 2009, Alba was one of the largest customers of Alcoa’s global bauxite and alumina refining business. Bahrain’s government controlled the customer. That put officials with influence over supply negotiations inside a commercial relationship worth retaining.

According to the agency, Alcoa’s Australian subsidiary retained a consultant to help negotiate long-term supply agreements with Alba and Bahraini government officials. The announcement quoted a subsidiary manager describing someone who “will keep the various stakeholders in the Alba smelter happy…”

The agency alleged that Alcoa never investigated whether the middleman’s involvement had a legitimate business purpose. Happy stakeholders, apparently. We want to know what work the consultant was paid to do, and whose satisfaction counted.

Commissions and Markups Fed the Same Payment Channel

According to the agency, the consultant financed the alleged bribes from both sides of the sale. Its account described commissions paid by Alcoa’s subsidiary and the consultant’s markup between the price paid to Alcoa and the price charged to Alba.

That distinction matters to someone inside the trade. A commission appears as a payment for the intermediary’s work, while a resale margin sits between the supplier’s selling price and the customer’s buying price. Looking at the commission alone would miss the other source of money the agency identified.

The useful comparison is the whole commercial transaction: what Alcoa sold, what the consultant charged Alba, what services the consultant supposedly provided and who ultimately benefited. The payment trail connects the commercial explanation to the movement of money. A sales employee may understand the price negotiations, while someone in finance knows the commission approval or the account receiving the payment.

The agency alleged that recipients included senior government officials, Alba board members and Alba senior management. The customer was a government-controlled business, and the alleged beneficiaries were people positioned to influence its decisions. Calling the middleman a distributor did not explain why those people received the money.

Payments Beside the Supply Decisions

The Securities and Exchange Commission’s account of the consultant’s shell companies placed specific payments beside specific business decisions. In August 2003, the companies allegedly made two payments totaling $7 million for a Bahraini official’s benefit. Two weeks later, Alcoa and Alba signed an agreement in principle for Alcoa to participate in Alba’s plant expansion.

In October 2004, the consultant’s shell company allegedly paid $1 million to an account benefiting the same official. Alba went on to reach another supply agreement in principle with Alcoa. Around the time that agreement was executed, the consultant’s companies allegedly made three payments totaling $41 million for another official’s benefit.

For someone who worked on the contracts, those are recognizable decisions: an expansion agreement and a supply agreement. The account beneficiary supplies another part of the story. The agency’s allegations connected the consultant’s payments with officials who could influence the customer’s business, making the purpose of the money far more concrete than the word commission.

Alcoa’s Books and Records Allegations

The Securities and Exchange Commission brought its civil action against Alcoa Inc., the parent company. Its allegations addressed bribery, inaccurate books and records, and insufficient internal accounting controls.

The alleged accounting concealment was specific. Payments described as legitimate commissions or sales to a distributor allegedly concealed bribes, while the company lacked controls sufficient to prevent and detect them.

That is why the intermediary’s approval file belongs beside the sales and payment records. A contract can describe services, a ledger can record a commission, and a manager can approve an invoice. We want to know whether those descriptions match the work and the beneficiary, because the alleged Alcoa scheme ran through ordinary commercial categories.

The Same Blind Spot in Mining Deals

In BHP Billiton‘s Olympic hospitality case, the Securities and Exchange Commission alleged that invitation applications obscured the government roles of people the company treated as customers. Its settled order described the mismatch plainly:

The order also described employees failing to update the hospitality application when negotiations with an invited minister began over a nickel exploration permit. The person who knew about the permit negotiations knew something the approval form failed to show.

Och-Ziff presents another version of that separation. In its settled SEC order, the agency alleged that money intended to buy a Congolese entity went to a client account at the mining partner’s law firm in Gibraltar. From there, Och-Ziff could neither control the partner’s use of the money nor trace where it went, and the partner allegedly paid officials and judges to secure a favorable judgment.

These comparisons bring the Alcoa question into focus. An approval can omit the decision an official controls, and a payment can leave the company’s sight before reaching its beneficiary. Someone who knows the customer’s negotiations or the intermediary’s actual role can connect facts that the approved paperwork keeps apart.

What an Insider Adds to the Payment Trail

An insider’s value in an alumina transaction lies in knowing why a consultant entered the deal, who insisted on using that consultant, or what happened when someone questioned the commission. Sales, finance and compliance staff see different parts of those decisions. We connect that knowledge to the contract, the payments and the explanations inside the business.

The March 2019 working paper Do Corporate Whistleblower Laws Deter Accounting Fraud?, hosted by MIT Sloan, studied companies exposed to state False Claims Acts through state pension-fund investments. It found a lower estimated probability of accounting fraud after that exposure, but little evidence in its smaller internal-audit sample that increased investment in auditing explained the reduction.

Alcoa supplies a concrete example of the information an insider can understand: a commission’s stated purpose, a reseller’s margin and a government customer’s pending decision. Our work starts with that commercial knowledge. The labels in the ledger are the beginning of the conversation.

The Securities and Exchange Commission’s program can pay whistleblower rewards for information about foreign bribery. Separately, a whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We work through the applicable program with you and FCPA whistleblower lawyers who understand the transaction you describe.

You Know What the Middleman Did

If you know why an alumina supplier paid a consultant or where a reseller’s markup went, tell our whistleblower experts about the deal. We work with you to build your strongest FCPA whistleblower case from those contracts and payments, bring in FCPA whistleblower lawyers who understand metals transactions, and stand beside you through the process.