## Facts

- Alcoa Inc. was a public issuer whose securities traded on the NYSE and whose subsidiaries sold alumina globally.
- From 1989 to 2009, Alcoa’s alumina business sold substantial volumes to Aluminium Bahrain B.S.C. (Alba), a Bahraini state-controlled smelter.
- Alcoa’s Australian and alumina subsidiaries used a London-based consultant with ties to Bahrain’s royal family to help secure and maintain supply contracts with Alba.
- The consultant operated through shell entities (including an intermediary that acted as a purported distributor) and received commissions and markups on alumina sales, despite the lack of legitimate services in many instances.
- From 2005 through 2009, a subsidiary caused the consultant to receive over $188 million from sales markups; the funds facilitated at least $110 million in corrupt payments to Bahraini officials, including officials with influence over Alba’s contracting decisions.
- Alcoa and its subsidiaries provided financial support (including a credit arrangement) that further enabled the intermediary structure.
- The relevant payments were recorded as legitimate commissions or distributor-related amounts, and the SEC found Alcoa’s internal accounting controls were insufficient to prevent or detect the improper payments.
- The proceeding was coordinated with a parallel DOJ criminal case involving a majority-owned Alcoa subsidiary.

## Issues

1. Whether an issuer violates the FCPA anti-bribery provisions by causing subsidiary payments to be made through a third-party intermediary that funnels value to foreign officials to obtain or retain business.
2. Whether an issuer violates the FCPA books-and-records and internal-controls provisions by inaccurately recording payments tied to bribery as legitimate commissions/markups and failing to maintain adequate internal accounting controls.

## Decision

- In a settled administrative order, the SEC found Alcoa violated Exchange Act § 30A (FCPA anti-bribery) and Exchange Act §§ 13(b)(2)(A) and 13(b)(2)(B) (books-and-records and internal-controls).
- The SEC ordered Alcoa to cease and desist from committing or causing future violations of those provisions.
- The SEC ordered disgorgement of $175 million (with limited crediting tied to forfeiture in the parallel DOJ matter).
- Together with the DOJ resolution, Alcoa and its subsidiary paid a combined $384 million in monetary sanctions.

## Legal Principles

- FCPA anti-bribery liability may arise from indirect payments made through consultants, agents, or distributors where the intermediary is used to convey value to foreign officials to obtain or retain business.
- An issuer must maintain books and records that, in reasonable detail, accurately and fairly reflect transactions; recording bribery-related outflows as legitimate commissions or distributor markups can violate § 13(b)(2)(A).
- An issuer must maintain internal accounting controls sufficient to provide reasonable assurances that transactions are executed and recorded as authorized; failing to address third-party corruption risk can violate § 13(b)(2)(B).
- Parent issuers may be held responsible for FCPA compliance failures in closely controlled subsidiaries when the parent benefits from the business obtained and the misconduct is reflected in consolidated reporting.

## Conclusion

The SEC’s settled order imposed cease-and-desist relief and substantial disgorgement against Alcoa for FCPA violations arising from long-running alumina sales funneled through a consultant and shell entities to fund bribes to Bahraini officials, and for related books-and-records and internal-controls failures that mischaracterized the payments as legitimate business expenses.


In re Alcoa Inc., Exchange Act Release No. 71261, File No. 3-15673 (SEC Jan. 9, 2014)