TORONTO (miningweekly.com) – US aluminium smelter, refiner and products manufacturer Alcoa and a subsidiary on Thursday said investigations by the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) regarding certain legacy alumina contracts with Aluminium Bahrain (Alba) had been resolved after it pleaded guilty and agreed to pay $384-million in penalties for bribing officials in the kingdom of Bahrain through a London-based middleman.

Under the terms of the DOJ resolution, Alcoa World Alumina (AWA) pleaded guilty to one count of violating the antibribery provisions of the Foreign Corrupt Practices Act (FCPA). The DOJ was bringing no case against Alcoa.

An SEC investigation found that more than $110-million in corrupt payments were made to Bahraini officials with influence over contract negotiations between Alcoa and a major government-operated aluminium 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 illicit payments to retain Alcoa’s business as a supplier to the plant.

“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 said in a press release.

The DOJ said AWA had earned $446-million in profits by using the middleman to cut a long-term deal to sell raw materials to Alba through other affiliated companies, including Alcoa of Australia. The criminal conduct occurred from 2004 to 2009.

“As the beneficiary of a long-running bribery scheme perpetrated by a closely controlled subsidiary, Alcoa is liable and must be held responsible. It is critical that companies assess their supply chains and determine that their business relationships have legitimate purposes," SEC enforcement division codirector George Canellos said.

Alcoa had also settled civil charges filed by the SEC in an administrative proceeding relating to the antibribery, internal controls, books and records provisions of the FCPA.

The SEC enforcement division’s FCPA unit chief Kara N Brockmeyer added that the extractive industries had historically been exposed to a high risk of corruption, with those risks being as real today as when the FCPA was first enacted.

AWA, a company within Alcoa World Alumina and Chemicals (AWAC), which is the unincorporated bauxite mining and alumina-refining venture between Alcoa and Alumina Limited, had reached a settlement with the DOJ that would see AWA pay $223-million, including a fine of $209-million in five equal instalments over four years.

The first instalment of $41.8-million, as well as a one-time administrative forfeiture of $14-million, would be paid in the first quarter of 2014, while the remaining instalments of $41.8-million would each be paid in the first quarters of 2015 to 2018.

During the second quarter of 2013, Alcoa recorded a $103-million charge ($62-million after noncontrolling interest) for the DOJ investigation.

Under the terms of the settlement with the SEC, Alcoa had agreed to a settlement amount of $175-million, but would be given credit for the $14-million one-time forfeiture payment, which was part of the DOJ resolution. This would result in a total cash payment to the SEC of $161-million payable in five equal instalments over four years.

The first instalment of $32.2-million would be paid to the SEC in the first quarter of 2014, and the remaining instalments of $32.2-million would each be paid in the first quarters of 2015 to 2018.

Alcoa said there was no allegation in the filings by the DOJ and there was no finding by the SEC that anyone at Alcoa had knowingly engaged in the conduct at issue.

The DOJ credited Alcoa for “the substantial cooperation [with] the department” throughout the investigation. The department had also credited Alcoa with launching an independent investigation overseen by a special committee of the board and implementing enhanced due diligence reviews of third-party agents and consultants.

Similarly, the SEC had agreed that Alcoa “fully cooperated with the staff of the commission”. The SEC also acknowledged Alcoa’s extensive compliance efforts, including its comprehensive compliance reviews of anticorruption policies and procedures and enhancements made to internal controls.

Alcoa said it welcomed the resolution of this legacy legal matter with the US government.

Under an agreement between Alcoa and Alumina Limited, the costs (including all associated legal fees) of the settlements with the DOJ and the SEC, as well as the $85-million civil settlement with Alba reached in October 2012, would be allocated between Alcoa and Alumina Limited on an 85% and 15% basis respectively.

As a result of the settlements with the DOJ and the SEC, including the impact of the allocation agreement between Alcoa and Alumina Limited, Alcoa would record a charge of $288-million ($243-million after-tax and noncontrolling interest) in the fourth quarter of 2013.

FULL-YEAR RESULTS

Meanwhile, Alcoa also reported its fourth-quarter and full-year results on Thursday, saying its repositioning programme was gaining traction.

For the quarter ended December 31, Alcoa reported a net loss of $2.3-billion, or $2.19 a share. Special items in the fourth quarter totalled $2.4-billion and included a noncash goodwill impairment of $1.7-billion related to primary metals.

Revenue in the quarter totalled $5.6-billion, despite a 7% lower year-on-year realised aluminium price.

For the full year, net loss totalled $2.3-billion, or $2.14 a share. Excluding special items, the adjusted net income was $357-million, or $0.33 a share, up 36% from 2012.

Revenue totalled $23-billion, compared with $23.7-billion in 2012 as realised aluminium prices declined 4% year-on-year.

Alcoa said as part of its repositioning programme, 16% of its global smelting capacity was now offline.

The company’s stock fell $0.44 to $10.25 a share on the NYSE on Thursday.