The FCPA Blog

The Justice Department has intervened for the second time in civil suits brought by Aluminium Bahrain BSC -- known as Alba -- against its raw material suppliers and brokers. Last week, the DOJ asked for a stay in Alba's suit against Japanese trading company Sojitz Corp. and its U.S. subsidiary. More than two years ago, the Justice Department obtained a stay in Alba's civil suit against Alcoa, Inc. The DOJ said discovery in the cases could interfere with the government's own investigation into potential criminal wrongdoing by Alcoa, Sojitz and other parties, including possible violations of the Foreign Corrupt Practices Act.

Alba sued Sojitz in December 2009, filing a $31 million claim in federal court in Houston. The suit alleged that from 1993 to 2006, Sojitz paid $14.8 million in bribes to two of Alba's employees in exchange for access to metals at below-market prices. Alba is majority-owned by the government of Bahrain.

In March 2008, Alba sued Alcoa Inc., its long-time raw materials supplier, for corruption and fraud. The suit in federal court in Pittsburg alleged that Alba paid $2 billion in overcharges during a 15-year period. The money, according to the suit, first went to overseas accounts controlled by Alcoa's agent, London-based Victor Dahdaleh, and some was then used to bribe Alba's executives in return for supply contracts.

Just weeks after Alba sued Alcoa, the Justice Department intervened in the case. It asked the court for a stay while the government investigates possible criminal violations of the FCPA and other laws by Alcoa and its executives and agent. The DOJ said the stay was needed to protect potential witnesses against civil discovery. The court granted the stay, which is still in effect. The DOJ hasn't commented on the status of its criminal investigation. Alcoa denied wrongdoing and said it is cooperating. Sources with knowledge of the government's investigation have reported to the FCPA Blog that the Justice Department had questions about Alcoa's initial explanations, which may have delayed potential settlement talks.

Alba did not oppose the DOJ's requests for stays in the Alcoa and Sojitz cases.

There's no private right of action under the Foreign Corrupt Practices Act. So Alba's claims against Alcoa and Sojitz were based on other federal laws, including RICO (18 U.S.C. § 1962(c)), conspiracy to violate RICO (18 U.S.C. § 1962(d)), fraud, and civil conspiracy to defraud. The complaint against Sojitz alleged the Japanese company used bribes to buy underpriced product and then "resold the aluminum it bought from Alba at below-market rates to U.S. companies including Enron Corp." Alcoa's conspiracy, Alba said in the civil complaint, "succeeded in exacting hundreds of millions of dollars in over payments, which continue to accumulate to this day. Among other things, Plaintiff seeks damages in excess of $1 billion, including punitive damages, for this massive, outrageous fraud."

Sojitz Corp. consists of 522 companies including 147 subsidiaries and affiliates in Japan and 375 overseas. Together they have 17,331 employees. The parent company's ADRs trade in the over-the-counter pink sheets under the symbol SZHFF.PK.

Download a copy of the government's May 27, 2010 memorandum in support of a stay in Aluminium Bahrain B.S.C v. Sojitz Corporation and Sojitz Corporation of America here.

Download a copy of the December 18, 2009 federal civil complaint in Aluminium Bahrain B.S.C v. Sojitz Corporation and Sojitz Corporation of America here.

Aluminium Bahrain BSC -- known as Alba -- has filed a $31 million civil suit in federal court in Houston against Japanese trading company Sojitz Corp. and its U.S. subsidiary, Sojitz Corporation of America. The suit alleges that from 1993 to 2006, Sojitz paid $14.8 million in bribes to two of Alba's employees in exchange for access to metals at below-market prices. Alba is majority-owned by the government of Bahrain.

There's no private right of action under the Foreign Corrupt Practices Act. So Alba's claims against Sojitz are based on RICO (18 U.S.C. § 1962(c)), conspiracy to violate RICO (18 U.S.C. § 1962(d)), fraud, and civil conspiracy to defraud. The complaint alleges that Sojitz used bribes to buy underpriced product and then "resold the aluminum it bought from Alba at below-market rates to U.S. companies including Enron Corp."

In September, the Wall Street Journal reported the U.S. Justice Department's investigation into "payments that Bahraini prosecutors allege were made by units of Japanese commodities-trading giant Sojitz Group to employees of an aluminum producer in Bahrain." The DOJ has never commented on the story. See our post here.

This is the second civil action Alba has filed in U.S. courts with allegations about potential FCPA violations. In March 2008, Alba sued Alcoa Inc., its long-time raw materials supplier, for corruption and fraud. The suit in federal court in Pittsburg alleged that Alba paid $2 billion in overcharges during a 15-year period. The money, according to the suit, first went to overseas accounts controlled by Alcoa's agent and some was then used to bribe Alba's executives in return for supply contracts.

Just weeks after Alba sued Alcoa, the Justice Department intervened in the case. It asked the court for a stay while the government investigates possible criminal violations of the FCPA and other laws by Alcoa and its executives and agent. The DOJ said the stay was needed to protect potential witnesses against civil discovery. The stay the court granted is still in effect. The DOJ hasn't commented on the status of its criminal investigation. Alcoa denied wrongdoing and said it is cooperating. See our post here.

Will the DOJ also intervene in Alba's suit against Sojitz? It needed the stay in the Alcoa case, it said, because:

The public is "an unnamed party in every lawsuit." United States v. Reaves, 636 F.Supp. 1575, 1578 (E.D. Ky. 1986) Here, the Complaint alleges that the defendants arranged for Alcoa, a public corporation, through its affiliates and agents, to make payments in violation of the anti-bribery provisions of the FCPA, among other crimes. The proposed stay enables the government to investigate these charges without potential prejudice to its investigation resulting from civil discovery . . . This would thus enable the government to vindicate the paramount public interest in the enforcement of federal criminal laws and resolution of the federal criminal investigation, should the government's investigation reveal evidence that federal criminal laws were violated. . . .

Sojitz Corp.'s website says that as of September 2009, its business consists of 555 companies including 165 subsidiaries and affiliates in Japan and 390 overseas, with 17,147 employees. Sojitz's U.S. subsidiary is headquartered in New York. The parent company's ADRs trade in the over-the-counter pink sheets under the symbol SZHFF.PK.

Download a copy of the December 18, 2009 federal civil complaint in Aluminium Bahrain B.S.C v. Sojitz Corporation and Sojitz Corporation of America here. 

The Wall Street Journal reported yesterday (here) that the Justice Department is "investigating payments that Bahraini prosecutors allege were made by units of Japanese commodities-trading giant Sojitz Group to employees of an aluminum producer in Bahrain." The story says $8.7 million in alleged bribes to employees at Aluminum Bahrain BSC, or Alba, were paid into secret accounts they controlled in Liechtenstein banks. Some of the payments reportedly passed through U.S. banks.

Sojitz acts as a broker for Alba's products, including aluminum billet and alloys. It allegedly enjoyed lower prices in exchange for the payments. The DOJ investigation of Sojitz, which does some business in the U.S., is reportedly based on information provided by Bahraini authorities. The Journal said they "have shared their findings with U.S. Justice Department prosecutors, according to people briefed on the investigation." The payments were allegedly made by units of Nissho Iwai, which merged with Nichimen in 2004 to form Sojitz.

In March 2008, Alba -- majority owned by the government of Bahrain -- sued Alcoa Inc., its long-time raw materials supplier, for corruption and fraud. The federal court suit in Pittsburg alleged that Alba paid $2 billion in overcharges during a 15-year period. The money, according to the suit, first went to overseas accounts controlled by Alcoa's agent and some was then used to bribe Alba's executives in return for more supply contracts. The Justice Department quickly intervened in the case, asking the court for a stay while the government investigates possible criminal violations of the Foreign Corrupt Practices Act and other laws by Alcoa and its executives and agent. Alcoa has denied any wrongdoing and said it is cooperating with the DOJ.

The Wall Street Journal said Bahrain filed a money-laundering indictment against two former Alba employees accused of taking kickbacks from Sojitz.

The Justice Department hasn't commented on the Alcoa investigation or the Wall Street Journal's story naming Sojitz.

Read prior posts about Alba and Alcoa here.
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He wasn't kidding. Last week's record-setting indictment under the Foreign Corrupt Practices Act of six individuals from one company highlights the Justice Department's strategy to target people, not just companies. In September last year, Mark Mendelsohn -- the DOJ official responsible for FCPA criminal prosecutions -- told an audience: The number of individual prosecutions has risen – and that’s not an accident. That is quite intentional on the part of the Department. It is our view that to have a credible deterrent effect, people have to go to jail. People have to be prosecuted where appropriate. This is a federal crime. This is not fun and games. See our post here.

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Victims Rights? Congress didn't want prosecutors deciding American foreign policy through FCPA enforcement actions, so bribe-taking foreign officials aren't targeted. Taking that a step further, the names of bribe-takers don't even appear in FCPA complaints. That censorship may make foreign-policy sense, but it's got people in Nigeria upset and frustrated. They want to hear from the Justice Department which of their officials took any of the $182 million in bribes that KBR admitted paying, and where the money is now. Reports are here and here.

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Ask him. Prosecutors think Jeffrey Tesler knows who got KBR's bribe money. They allege he's the middleman who was spreading it around. Tesler, 60, a London lawyer, was indicted in February for violating the FCPA. He now faces up to 55 years in prison. British police arrested him in March at the request of U.S. authorities. Last week, Tesler appeared at his first extradition hearing. The London Magistrates' Court released him on bail and continued the proceedings. Here's a press report.

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An open and shut case. Aluminum Bahrain's federal civil suit in Pittsburgh against Alcoa alleging behavior that would violate the FCPA appears in the docket as "Closed." But not really. The court's order from March 2008 says, "To allow the Government to fully conduct an investigation without the interference and distraction of ongoing civil litigation, it is ordered that this case is administratively closed, to be reopened at the close of the Government's investigation." We talked about the Justice Department's intervention in the case here.

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Where's Clayton? Regarding our post yesterday about Frederic Bourke (here), a reader asked, What's happened to Clayton Lewis? He worked for Omega Advisors Inc. It invested and lost more than $100 million with Viktor Kozeny in the failed Azeri privatization program. The government said Lewis knew about the bribery scheme allegedly involving Kozeny and Bourke but went ahead with Omega's investment anyway. In 2004, Lewis pleaded guilty to violating and conspiring to violate the FCPA. Where's he now? Still waiting to be sentenced. Almost everything in his court record is sealed. But a June 2008 letter from the DOJ said Lewis is a cooperating witness and shouldn't be sentenced until he's testified for the government at Bourke's trial. A copy of the letter can be downloaded here.

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Ashes to ashes? It's off our topic, but creepy. Two Los Angeles-area women allegedly cheated life insurance companies out of at least $750,000 by staging funerals for fictitious people. Last Wednesday, FBI agents arrested Faye Shilling, 60, and Jean Crump, 67, on federal fraud charges. According to the indictment, Shilling, a phlebotomist (a medical technician who collects blood), and Crump, an employee at a now-defunct Long Beach mortuary, cashed in life insurance policies for non-existent people they claimed had died. They allegedly obtained bogus death certificates, purchased burial plots and staged phony funerals to lend credibility to the scheme. When staging the funerals, the women allegedly "filled caskets with various materials" to make it appear they contained actual corpses. The DOJ's release is here.

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Real magic. What is it about Augusta that makes it so special? And this year was the final appearance of three-time champ Gary Player, 73. He showed up 52 times! Our favorite golf story: Gary Player was still on the practice tee, long after sunset, hitting balls. Buckets of them. Someone watching said, "I'd give anything to play golf like that man." Player looked up and said, "Would you really?" And he held out his hands to show the onlooker two bloody, torn-up palms.

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A community effort. Our thanks again to everyone who contributes time and resources to the FCPA Blog. We're thinking of our readers who send suggestions, tips, clips and encouragement. And those who order Bribery Abroad -- sometimes by the dozen. And our wonderful sponsors who stand shoulder-to-shoulder with us every day.
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Last February, Aluminum Bahrain BSC, or Alba for short, made big headlines by filing an explosive federal lawsuit against Alcoa. Bahrain-owned Alba accused its long-time U.S. supplier of overcharging for raw materials during a 15-year period, and using some of the money to bribe Alba's executives for more contracts. "Defendants’ conspiracy," Alba said in a complaint filed in Pittsburgh, "succeeded in exacting hundreds of millions of dollars in over payments, which continue to accumulate to this day. Among other things, Plaintiff seeks damages in excess of $1 billion, including punitive damages, for this massive, outrageous fraud."

Commercial disputes between multinational companies and overseas, government-linked customers are arbitrated in private or settled behind closed doors -- they're rarely decided in open court. And while the public brawl was unusual, what happened next was stranger still.

The Justice Department intervened in the case, asking the court to stay all discovery. It said the facts of Alba's allegations, if true, might violate the Foreign Corrupt Practices Act and mail and wire fraud statutes. Therefore, the DOJ said, it wanted to conduct a criminal investigation into Alcoa and its executives. But it couldn't do that if discovery in the civil suit was steaming ahead. Alcoa, meanwhile, denied all wrongdoing, and neither it nor Alba opposed the government's request. So for nearly a year now, the blockbuster lawsuit has been completely dormant.

Why did the government need to stop the discovery? Why couldn't the DOJ investigate Alba's allegations while the parties continued their battle in civil court? The Justice Department answered those questions in its memo arguing for the stay. The court, as we said, granted the government's request, and the stay remains in effect. Here's some of what the DOJ had to say about the handling of witnesses:

[W]itnesses identified through such civil discovery could be intimidated. See, e.g., Campbell, 307 F.2d at 487. This is of particular concern in FCPA investigations, in which witnesses often reside overseas, where legal protections for witnesses may not be readily available. Thus, commencement of full civil discovery in this case could substantively harm the interests of the United States in investigating and prosecuting the criminal case. De Vita v. Sills, 422 F.2d 1172, 1181 (3d Cir. 1970) (recognizing policy of "preventing defendants in criminal cases from using civil process to obtain information from the government's file which would in the criminal case be privileged.")

Compelling information from potential grand jury and trial witnesses by requiring them to sit for depositions, answer interrogatories or answer requests for admission in the civil action would impede the United States' ability to investigate these matters relating to Alcoa's alleged conduct. In an investigation such as this, numerous witnesses are interviewed whose statements would never be revealed to potential subjects and targets prior to indictment, but for the existence of the civil action. In sum, for all these reasons, the proposed stay is necessary to avoid prejudice to the government's criminal investigation and any potential prosecution.

The public is "an unnamed party in every lawsuit." United States v. Reaves, 636 F.Supp. 1575, 1578 (E.D. Ky. 1986) Here, the Complaint alleges that the defendants arranged for Alcoa, a public corporation, through its affiliates and agents, to make payments in violation of the anti-bribery provisions of the FCPA, among other crimes. The proposed stay enables the government to investigate these charges without potential prejudice to its investigation resulting from civil discovery . . . This would thus enable the government to vindicate the paramount public interest in the enforcement of federal criminal laws and resolution of the federal criminal investigation, should the government's investigation reveal evidence that federal criminal laws were violated. Further, disposition of the criminal action could potentially result in more effective vindication of the public's interest than disposition through a private civil action, particularly given the importance of the government's FCPA enforcement program. . . . Under these circumstances, the public interest is best served by the proposed stay.

No word yet from the government about the status of its almost year-old criminal investigation. Alba and Alcoa have also been quiet about the civil suit and whether they might settle their differences out of court.

Download Alba's complaint here.

Download the government's memo in support of the stay here.
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