Alba's Suit Against Alcoa Reopened

The Wall Street Journal's Joe Palazzolo reported Friday that Aluminum Bahrain BSC's civil suit against Alcoa has been reopened, and that Alcoa will ask that it be dismissed.

Alba, as state-owned Aluminum Bahrain BSC is known, filed the suit in 2008 in federal court in Alcoa's hometown, Pittsburgh. The suit accused Alcoa of a 15-year conspiracy of overcharging, fraud, and bribery. The suit alleged that more than $2 billion in Alba's payments under raw-material supply contracts passed from Bahrain to tiny companies in Singapore, Switzerland and the Isle of Guernsey, and that some of the money was then used to bribe Bahraini officials involved in granting the contracts.

Alba's federal lawsuit was based not on the FCPA but on common law fraud and RICO -- the Racketeer Influenced & Corrupt Organizations Act found at 18 U.S.C. §§1961-68. Private parties have no right of action under the FCPA; only the DOJ and SEC can enforce it.

Three weeks after Alba filed the suit, the judged stayed it at the request of the DOJ. Prosecutors said the United States had a "direct and substantial interest" in Alba's allegations and that the civil suit could threaten the DOJ's criminal investigation.

At the time, a spokesperson for Alcoa said, "We will cooperate fully with the DOJ and believe this will help bring this matter to a speedy conclusion."

The DOJ said it was investigating whether Alcoa, its executives, and agents "have engaged in conduct with respect to their commercial relationship with Alba in alleged violation of various criminal laws, including the FCPA, and the mail and wire fraud statutes. . . . The Alba complaint alleges numerous facts which, if true, could be relevant to the government's criminal investigation and a potential criminal trial."

Bahrain's own investigation, according to 2008 reports, centered on Sheikh Isa bin Ali al-Khalifa, the country's former minister of petroleum and chairman of Alba, and on Jordan-born Canadian businessman Victor Dahdaleh, who acted as Alcoa's agent in Bahrain.

Last month, Dahdaleh, who lives in London, was arrested there and charged under U.K. law for bribing officials at Alba. The alleged payments were made in 2001 to 2005, the Serious Fraud Office said, in connection with contracts between Alcoa and Alba for supplies of alumina shipped to Bahrain from Australia.

According to the Wall Street Journal, Alcoa asked for the civil suit in the U.S. to be reopened so that it can make a motion to dismiss it.

The Alba Files

Checking on loose ends is a year-end thing around here. Falling into that category is the two-year old civil suit against Alcoa by Aluminium Bahrain BSC. Alba, as it's known, is majority-owned by the government of Bahrain.

To refresh: in 2008, Alba sued Alcoa Inc., its long-time raw materials supplier, for corruption and fraud. The suit in federal court in Pittsburg alleged that over a 15-year period Alba was overcharged $2 billion (yes, two billion). 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.

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." Strong stuff.

Just weeks after Alba sued Alcoa, the U.S. 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 and that's where the story stops, at least for now.

The civil case is classified in the court records as "terminated." That doesn't mean the suit is dead, however. Just dormant until the stay is lifted.

How's the DOJ's criminal investigation into Alcoa and the individuals going? No word from the feds or the company on that one.

Alba launched another big civil suit a year later, this time in Houston against Japanese trading company Sojitz Corp. and its U.S. subsidiary. Alba asked for $31 million in damages, claiming 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.

The Justice Department intervened in that case too, again saying discovery could interfere with the government's own investigation into potential criminal wrongdoing, including possible violations of the Foreign Corrupt Practices Act. And again, no word from Uncle Sam or Sojitz about the criminal investigation.

The civil suit still shows up in court records as active, but all proceedings are stayed. Nothing has happened for a year.

Alba didn't oppose the DOJ's requests for stays in either the Alcoa or Sojitz suits.

We assume the government is still investigating both companies and some of their people. Otherwise, the stays would have been lifted and the civil cases would be steaming along. So let's put the Alcoa and Sojitz criminal investigations on our watch list for 2011.

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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.

Private Suit Alleges China Bribes

A civil complaint filed last month in Indiana state court alleges that Allison Transmission executives paid bribes in China to win work there. 

Stephen Lowe, an American working for Allison in Shanghai, said he witnessed cash payments, gifts of jewelry, and lavish parties for customers. Allison's main business in China is selling bus transmissions to government-owned companies.

Lowe alleges that soon after he objected to the practices and told another employee his American expatriate boss was "corrupt," he was fired. He's suing under an Indiana state law that protects whistleblowers.

There's no private right of action under the FCPA. Only the DOJ and SEC can enforce it. State court suits alleging behavior that might violate the FCPA were recognized by the DOJ as a possibility. The Lay Person's Guide to the FCPA notes that "[c]onduct that violates the antibribery provisions of the FCPA may also give rise to a private cause of action for treble damages under the Racketeer Influenced and Corrupt Organizations Act (RICO), or to actions under other federal or state laws."

But examples of state laws being used for FCPA-related civil suits are rare. In one case from 2003, the  plaintiff brought a claim under California's Unfair Competition Law that alleged potential FCPA violations. See Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134. The court allowed the suit based on the bribery allegations but said California law wouldn't let the private plaintiff recover any money damages -- just injunctive relief or restitution.

Indiana's whistleblower protection law allows for reinstatement, double the amount of back pay that's owed, interest, and attorney's fees.

A few days after Lowe was fired, according to an account in the Indianaoplis Business Journal, he sent a letter to his former boss saying “you want to terminate me because I told you about one employee’s FCPA violations in China. You want to protect this employee and yourself.”

Lowe hired a Washington, D.C. labor-law firm to bring his suit in Indiana state court. The Indianapolis Business Journal said Lowe's lawyer wouldn't "say whether he lodged a complaint with the Justice Department. The federal agency would not confirm nor deny an investigation."

Allison, the paper said, hasn't yet filed an answer to the complaint. “We’re looking into the allegations but we can’t comment on the specifics of pending litigation,” a spokesperson said.

Whatever happens, Lowe won't be in line for a whistleblower bounty under the new SEC rules. Allison Transmission isn't a public company and doesn't file any reports with the SEC. It's apparently still owned by private equity firms Carlyle Group and Onex Corporation, which bought the company from GM in 2007 for $5.6 billion.

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Our thanks to a reader in D.C. for sending us a link to the story.

News From The Neighborhood

Kevin LaCroix, left, who writes the D&O Diary, had a fascinating post last week about follow-on civil litigation brought by investors against companies that have been the target of an FCPA enforcement action.

He cited a November 1, 2010 Reuters story reporting that "since the beginning of 2010 alone, plaintiffs’ lawyers have filed 24 shareholder suits against companies that have disclosed FCPA investigations.  . . .[T]hough some cases have been dismissed, plaintiffs generally have been successful in these cases. Of the 37 cases in the preceding four years, 26 resulted in settlements."

Imagine that. Plaintiffs are prevailing in 70% of their FCPA-related cases even though there's no private right of action under the FCPA. Private litigants seeking relief have to resort to other claims -- such as violations of Sections 10(b) and 20 of the Securities Act, common law fraud, aiding and abetting common law fraud, and negligent misrepresentation. 

For the record: We're not in favor of any type of private litigation under the FCPA until the courts or Congress fix respondeat superior.

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Ask not what your country can do for you . . . .  We were always a fan of Theodore Sorensen, a lawyer best known as President Kennedy's speech writer.

Sorensen died on October 31. Mike Koehler, left, marked his passing with a post on the FCPA Professor that began this way:

Buried deep in the thousands of pages of FCPA legislative history, one will find a July 1976 article Sorensen, a lawyer who spent a substantial portion of his career with Paul Weiss, authored for Foreign Affairs titled "Improper Payments Abroad: Perspective and Proposals" (abstract available here).

Thanks, Prof Koehler, for teaching us something new about Ted Sorensen and FCPA history.

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A better mousetrap. Legal news aggregator lawgents.com, which we talked about last week, now lists more than 90 feeds, making it the internet's largest law-related news and blog aggregator. "Legal news, fast" is the site's motto, and that's right. We're completely hooked. Readers can access us and all our neighbors there.

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 The SEC's expansive enforcement. A post on Friday by Ashby Jones on the WSJ's lawblog about Panalpina's settlement noted that the company isn't an "issuer." It was charged by the SEC as "an agent and with aiding and abetting violations by its customers who are U.S. issuers." No doubt lots of ink and pixels will be spilled in coming days and months to explore that one.

Our question: If the DOJ and SEC are packaging settlements jointly, can a defendant challenge SEC jurisdiction and still settle with the DOJ? Or does fighting against one destroy settlement hopes with the other?

Finally, our thanks to Joe Palazzolo at the WSJ's corruption currents for referring to this space as "a resource for anyone with an interest in U.S. anti-corruption efforts." His post was about our latest top ten list.

Panalpina, Shell Near FCPA Settlements, Paper Says

The Wall Street Journal is reporting that Swiss logistics giant Panalpina and its customer Shell are close to settlement of FCPA charges with the DOJ and SEC. The paper said Panalpina may pay about $85 million in penalties and Shell about $30 million.

In April this year, Panalpina said had reserved an amount now equivalent to about $130 million for an expected FCPA settlement with the DOJ and SEC, and for a separate antitrust resolution. It said then the settlements should happen "in the near future."

Two weeks ago, Panalpina announced the settlement with the DOJ of violations of the antitrust laws. The company pleaded guilty to three counts of conspiring to violate the Sherman Act, and paid a fine of about $12 million. 

The corruption investigation of Panaplina dates back to at least February 2007. The DOJ noted then in connection with Vetco's FCPA settlement that bribes in Nigeria "were paid through a major international freight forwarding and customs clearance company to employees of the Nigerian Customs Service . . .”

In the following months, about a dozen leading oil and gas-related companies received letters from the DOJ and SEC asking them to "detail their relationship with Panalpina . . . ." Shell, Schlumberger, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., Noble Corp. and Pride International were among those involved.

In July 2007, Panalpina disclosed that some customers of its U.S. subsidiary had “been requested by U.S. authorities to produce documents related to the provision of its services to Nigeria . . . ." It said the federal investigation also related to Kazakhstan and Saudi Arabia for some customers.

In its Annual Report for the year ended December 31, 2007, Royal Dutch Shell plc included an FCPA disclosure related to Panalpina. Shell said,

In July 2007, Shell’s U.S. subsidiary, Shell Oil, was contacted by the U.S. Department of Justice regarding Shell’s use of the freight forwarding firm Panalpina, Inc and potential violations of the U.S. Foreign Corrupt Practices Act (FCPA) as a result of such use. Shell has started an internal investigation and is cooperating with the U.S. Department of Justice and the United States Securities and Exchange Commission investigations. While these investigations are ongoing, Shell may face fines and additional costs.

In October 2007, Schlumberger said it was under investigation because of Panalpina's freight-forwarding and customs clearance practices. Last week, the Wall Street Journal reported that the DOJ is investigating potential bribery in Yemen by Schlumberger Ltd. The story didn't say whether the Yemen investigation was connected with Schlumberger's earlier disclosure about Panalpina.

In July this year, Tidewater Inc. said in its annual report that it expected a settlement soon with the SEC and possibly the DOJ. It said its SEC settlement would require a total payment of about $11.4 million, consisting of $8.4 million in disgorgement and prejudgment interest, and a contingent civil penalty of $3 million. The disgorgement would be payable right away, while the contingent civil penalty would be due within 18 months, but only to the extent Tidewater has not paid a penalty to the DOJ for the same FCPA offenses.

Compliance concerns forced Panalpina in August 2008 to withdraw completely from the Nigerian domestic market. It had suspended local logistics and freight forwarding services there in September 2007 for all oil and gas-related customers. It said in 2008 it was cooperating with the DOJ and SEC in an FCPA investigation.

In July 2009, an investment fund that owns about 5% of Panalpina World Transport (Holding) Ltd. filed a federal civil suit in Texas against the company, some current and former officers and directors, and its owner before its 2005 IPO in Switzerland.

The fund sued to recover damages caused by Panalpina's withdrawal from Nigeria. There's no private right of action under the FCPA. Private litigants have to resort to other claims. In its case against Panalpina, the investment fund alleged violations of Sections 10(b) and 20 of the Securities Act, common law fraud, aiding and abetting common law fraud, and negligent misrepresentation.

The company operates through 500 branches in 80 countries with about 14,000 employees worldwide. It serves the rest of the world through local partners.

Panalpina Welttransport (Holding) AG (also known as Panalpina World Transport Holding Ltd.) trades on various European exchanges, and in the U.S. OTC pink sheets under the symbol PLWTF.PK.