Exhibit 10(m)

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

 

ADMINISTRATIVE PROCEEDING File No.             :   

In the Matter of

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ALCOA INC.,

 

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OFFER OF SETTLEMENT

 

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OF ALCOA INC.

Respondent.

 

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I.

Alcoa Inc. (“Alcoa” or “Respondent”), pursuant to Rule 240(a) of the Rules of
Practice of the Securities and Exchange Commission (“Commission”) [17 C.F.R. §
201.240(a)], submits this Offer of Settlement (“Offer”) in anticipation of
cease-and-desist proceedings to be instituted against it by the Commission,
pursuant to Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”).

II.

This Offer is submitted solely for the purpose of settling these proceedings,
with the express understanding that it will not be used in any way in these or
any other proceedings, unless the Offer is accepted by the Commission. If the
Offer is not accepted by the Commission, the Offer is withdrawn without
prejudice to Respondent and shall not become a part of the record in these or
any other proceedings, except for the waiver expressed in Section V with respect
to Rule 240(c)(5) of the Commission’s Rules of Practice [17 C.F.R. §
201.240(c)(5)].

III.

On the basis of the foregoing, the Respondent hereby:

A. Consents to the jurisdiction of the Commission over it and over the matters
set forth in the Order Instituting Cease-and-Desist Proceedings Pursuant to
Section 21C of the Securities Exchange Act of 1934, Making Findings, and
Imposing a Cease-and-Desist Order and Disgorgement (“Order”);

 

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B. Solely for the purpose of these proceedings and any other proceedings brought
by or on behalf of the Commission or in which the Commission is a party, prior
to a hearing pursuant to the Commission’s Rules of Practice, 17 C.F.R. § 201.100
et seq., consents to the entry of an Order by the Commission containing the
following findings1:

Summary

1. These proceedings arise from violations of the Foreign Corrupt Practices Act
of 1977 (the “FCPA”) [15 U.S.C. § 78dd] by Respondent Alcoa Inc. (“Alcoa”)
concerning alumina sales to Aluminium Bahrain B.S.C. (“Alba”), an aluminum
manufacturer owned primarily by the Kingdom of Bahrain.

2. Between 1989 and 2009, Alcoa of Australia (“AofA”) and Alcoa World Alumina
LLC (“AWA”) (collectively, the “AWAC Subsidiaries”) retained a consultant to act
as their middleman in connection with sales of alumina to Alba and knew or
consciously disregarded the fact that the relationship with the consultant was
designed to generate funds that facilitated corrupt payments to Bahraini
officials. The consultant was paid a commission on sales where he acted as an
agent and received a markup on sales where he acted as a purported distributor.
On sales where the consultant acted as a purported distributor, no legitimate
services were provided to justify the role of the consultant as a distributor.
The consultant used these funds to enrich himself and pay bribes to senior
government officials of Bahrain.

3. The commission payments to the consultant and the alumina sales to the
consultant made pursuant to the distribution agreements were improperly recorded
in Alcoa’s books and records as legitimate commissions or sales to a distributor
and did not accurately reflect the transactions. The false entries were
initially recorded by the AWAC Subsidiaries which were then consolidated into
Alcoa’s books and records. During the relevant period, Alcoa also lacked
sufficient internal controls to prevent and detect the improper payments.

Respondent

4. Alcoa is a corporation organized under the laws of the Commonwealth of
Pennsylvania. Until 2006, Alcoa’s principal place of business was in Pittsburgh,
Pennsylvania, in the Western District of Pennsylvania. In 2006, Alcoa moved its
principal place of business to New York, New York. Alcoa issues and maintains a
class of publicly traded securities registered pursuant to Section 12(b) of the
Securities Exchange Act of 1934, which are traded on the New York Stock
Exchange.

5. Alcoa is a global provider of primary aluminum and fabricated aluminum. Alcoa
is also a global provider of smelter grade alumina, the raw material that is
supplied to smelters to produce aluminum. Alcoa refines alumina from bauxite it
extracts from its global mining operations. Alcoa operates worldwide through
subsidiaries and affiliated entities in North America, Asia, Australia, Europe,
South America, Africa and the Caribbean.

 

1  The findings herein are made pursuant to Respondent’s Offer of Settlement and
are not binding on any other person or entity in this or any other proceeding.

 

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Other Relevant Entities and Persons

6. Alcoa World Alumina and Chemicals (“AWAC”) is an unincorporated global
bauxite mining and alumina refining enterprise formed in 1995 between Alcoa and
Alumina Limited (“Alumina”), the majority and minority owners of AWAC,
respectively. AWAC operates through a number of affiliated enterprise companies,
including AofA and AWA, with each enterprise company being owned by Alcoa and
Alumina in proportion to their respective ownership interests in the AWAC
enterprise. In matters of strategy and policy, the AWAC enterprise companies
receive direction and counsel from a “Strategic Council” that is chaired by
Alcoa. Alcoa controls the Strategic Council and as such the operations and
personnel of AWAC report to Alcoa personnel in New York.

7. Alcoa of Australia Limited (“AofA.”) is the AWAC enterprise company that owns
and operates AWAC’s bauxite mining and alumina refining assets in Australia.
AofA’s principal place of business was located in Melbourne, in the state of
Victoria, Australia, until 1996, and is now located in Perth, in the state of
Western Australia. AofA owns and operates mines in Western Australia that
extract bauxite, which AofA then processes into smelter grade alumina in
refineries it owns and operates. AofA sells the smelter grade alumina to
aluminum smelters it owns in the state of Victoria as well as to customers and
alumina traders around the world. AofA maintains bank accounts in the United
States. AofA’s books, records, and accounts are consolidated into Alcoa’s books
and records and reported by Alcoa in its financial statements.

8. Alcoa World Alumina LLC (“AWA”) is a Limited Liability Company formed under
Delaware law, which maintains its principal place of business in Pittsburgh,
Pennsylvania, in the Western District of Pennsylvania. AWA owns and operates
(either directly or indirectly) bauxite mining and alumina refining assets in
North America, Europe, South America, and the Caribbean. AWA is an AWAC
enterprise company. Beginning in or around 2000, executives at AWA’s offices in
Pittsburgh and Knoxville, Tennessee, assumed primary responsibility for all of
AWAC’s relationships with global alumina customers, including Alba. AWA
personnel responsible for these functions reported to Alcoa personnel in New
York.

9. Consultant A is an international middleman who resides in London and is a
citizen of Canada, Jordan, and the United Kingdom. Consultant A had close
contacts with certain members of Bahrain’s Royal Family, some of whom were
senior officials in the Government of Bahrain. Consultant A met with Alcoa
executives to discuss matters relating to the relationship with Alba. Consultant
A operates through many shell companies, including Alumet Ltd (“Alumet”) and AA
Alumina and Chemicals Ltd (“AAAC”).

10. Aluminium Bahrain B.S.C. (“Alba”) is an aluminum smelter operating in
Bahrain. At the relevant times, the state holding company of the Kingdom of
Bahrain, the Mumtalakat, which was controlled by the Bahrain Ministry of
Finance, held 77 percent of the shares of Alba. The Saudi Basic Industries
Corporation (“SABIC”), which is majority-owned and controlled by the government
of the Kingdom of Saudi Arabia, held a twenty percent

 

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minority stake in Alba, and three percent of Alba’s shares were held by a German
investment group. The majority of profits earned by Alba belonged to the
Mumtalakat, though part of the profit was permitted to be used by Alba for its
operations. The Bahrain Ministry of Finance had to approve any change in Alba’s
capital structure and had to be consulted on any major capital projects or
contracts material to Alba’s operations. Members of the Royal Family of Bahrain
and representatives of the government sat on the Board of Directors of Alba,
controlled its Board, and had primary authority in selecting its chief executive
officer and chief financial officer.

Facts

11. Alcoa’s global bauxite and alumina refining business (the “Alumina Segment”)
is part of the Global Primary Products group, one of Alcoa’s three business
lines. The Alumina Segment operationally consists of multiple subsidiaries.
During the relevant time period, the Alumina Segment reported to the global head
of the Global Primary Products group, who was an executive of Alcoa and reported
directly to Alcoa’s CEO.

12. Alcoa exercised control over the Alumina Segment, including the AWAC
Subsidiaries. Alcoa appointed the majority of seats on the AWAC Strategic
Council, and the head of Global Primary Products served as its chair. Alcoa and
AofA transferred personnel between them, including alumina sales staff; Alcoa
set the business and financial goals for AWAC and coordinated the legal, audit,
and compliance functions of AWAC; and the AWAC Subsidiaries’ employees managing
the Alba alumina business reported functionally to the global head of the
Alumina Segment. Alba was a significant alumina customer for Alcoa’s Alumina
Segment and during the relevant period, members of Alcoa senior management met
both with Alba officials and Consultant A to discuss matters related to the Alba
relationship, including a proposed joint venture between Alcoa and Alba. During
this time, Alcoa was aware that Consultant A was an agent and distributor with
respect to AofA’s sales of alumina to Alba and that terms of related contracts
were reviewed and approved by senior managers of Alcoa’s Alumina Segment in the
United States.

13. From at least 1989 to 2009, AofA. supplied alumina to Alba through a series
of multi-year contracts. During this period, Alba was one of Alcoa’s largest
alumina customers purchasing a total of nearly 19 million metric tons beginning
with an annual volume of 300,000 metric tons increasing to 1.6 million metric
tons.

14. Beginning in approximately 1989, AofA retained Consultant A to assist in
longterm contract negotiations with Alba and Bahraini government officials,
including the negotiation and execution of a new long-term alumina supply
agreement in 1990 (the “1990 Supply Agreement.”)

15. By 1996, Consultant A was playing a significant role in the relationship
between the AWAC Subsidiaries and Alba. Around this time, Alba complained to the
AWAC Subsidiaries that it was paying an above-market price for alumina. AofA
learned that Alba was seeking to increase its alumina supply requirements from
600,000 metric tons a year up to 970,000 metric tons a year, and that other
major global suppliers of alumina were seeking to capture these additional
requirements. The AWAC Subsidiaries’ sales team decided that, to “comply with
business norms in the Middle East[,]” the AWAC Subsidiaries would propose

 

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supplying some of Alba’s alumina through Alumet, which was one of Consultant A’s
shell companies, which would pay the “required commission.” An AofA manager
proposed using Consultant A as the intermediary because Consultant A was “well
versed in the normal ways of Middle East business” and “will keep the various
stakeholders in the Alba smelter happy.…”

16. Despite the red flags inherent in this arrangement, AofA’s in-house counsel
approved the arrangement without conducting any due diligence or otherwise
determining whether there was a legitimate business purpose for the use of a
third party intermediary.

17. The AWAC Subsidiaries’ sales managers traveled to London in August 1996 to
meet with Consultant A to discuss this proposal to route some of AofA’s alumina
through Consultant A’s company for resale to Alba. Upon their return to
Australia, an AWA manager told other members of the AWAC Subsidiaries sales team
that:

It feels like we subsidise the Sheiks and end up with a 5 year outcome that is
about $10-15/t lower than the average of the rest of our business.

18. In September 1996, the AWAC Subsidiaries’ sales managers traveled to London
to meet with Alba and Consultant A and agreed to an addendum to the 1990 Supply
Agreement (“1996 Addendum”). Under the 1990 Agreement, AofA was supplying
600,000 metric tons per year to Alba under a formula pricing structure (as
opposed to a “market”-based price). Under the 1996 Addendum, AofA agreed to
supply Alba with an additional 285,000 metric tons per year through one of
Consultant A’s shell companies using a “market”-based price that resulted in
pricing that was, at times, actually below market and allowed Consultant A to
mark up his sales of alumina to Alba.

19. Employees at AWA and AofA either knew or were willfully blind to the high
probability that Consultant A would use his commissions and markup to pay
bribes. For example, in an internal document memorializing the negotiations
surrounding the 1996 Addendum, a member of AofA’s alumina sales staff wrote:

The methodology of business in the Middle East is a complex web of interactions
that are necessarily difficult to understand to disguise the payment of
commissions. We have in the past maintained a position of paying our agent a 1%
commission on the basis of the agent work that he has done for us. We have also,
however, been asked by Alba to supply some cargoes through other intermediaries,
including our agent, on various occasions and we can only assume at the purpose
this serves.…Given that we want to supply the full tonnage going into the future
we need to fix on the best methodology for us given the commission requirements
and the contract structure.

20. The sales staff was concerned that the monies paid to Consultant A come from
Consultant A’s markup on sales to Alba, rather than through increased commission
payments. An AWA manager was concerned that the monies paid to Consultant A not
come at AofA’s expense and that the sales to Consultant A “protect our
position.”

21. In 2001, with the coming expiration of the 1990 Supply Agreement and 1996
Addendum, AWA approached Alba to extend and expand the alumina supply
relationship. Alba

 

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agreed to extend the existing supply relationship (“2001 Extension”). Following
the 2001 Extension, AofA stopped selling alumina directly to Alba; all AofA
alumina destined for Alba was instead routed through AAAC, which was one of
Consultant A’s shell companies.

22. In 2004, AofA entered into another distribution agreement with Consultant A
that involved the sale of up to 1.6 million metric tons of alumina to Alba every
year through AAAC, which was a shell company of Consultant A. This arrangement
lasted until approximately December 31, 2009.

23. The 2001 Extension and 2004 purported distributorship agreements facilitated
the corrupt payments by allowing Consultant A to impose an inflated markup on
his purported sales of alumina to Alba and used the markup from those sales to
enrich himself and pay bribes to senior government officials of Bahrain.

24. From 2002 to 2004, AWA caused Consultant A and AAAC, one of his shell
companies to receive in excess of $79 million in markups on alumina sales to
Alba. Consultant A also received a commission under the terms of the 2001
Extension. The 2001 Extension provided for a commission of 0.125% of all
payments made by Consultant A to AofA for alumina. From 2002 to 2004, AofA paid
Consultant A “commissions” of $493,509.

25. In 2002, Alcoa was attempting to negotiate a joint venture with Alba, in
which Alcoa would supply Alba with alumina from the AWAC system’s refineries,
and, in exchange, Alba would supply Alcoa with aluminum. Alcoa retained
Consultant A to act as a consultant and to privately lobby a Bahraini government
official on behalf of Alcoa, and Alcoa entered a consulting agreement with
Consultant A pursuant to which Consultant A would receive an $8 million “success
fee” based on limited specified negotiation “advice and assistance to Alcoa” if
the joint venture were successful.

26. As part of the negotiations, Alcoa proposed a joint venture structure that
contemplated supplying alumina to Alba through a distributor. On or about
March 26, 2003, an in-house attorney in Alcoa’s legal department raised
questions about the deal, and requested an explanation for the role of the
distributor. On or about March 27, 2003, AWA sales executive responded that
“[t]he Distributorship rol[e] is something the Bahrain Government wants” and
that Alcoa “shouldn’t get too involved with how the Distributor and the
Government interact. We are currently selling the alumina we supply to Alba
through a Distributor.”

27. On September 15, 2003, Alcoa and Alba agreed to a Memorandum of
Understanding (“MOU”) outlining an equity investment by Alcoa in Alba and
providing for alumina to be sold to the Government of Bahrain, as majority
shareholder of Alba, “directly or through an associated company of Alcoa
satisfactory to GoB [Government of Bahrain] and Alcoa.” The MOU was approved by
the same Bahraini government official on behalf of Alba that Consultant A had
been hired to lobby. Subsequently, the joint venture negotiations fell through,
and Consultant A was never paid the $8 million success fee.

28. By the summer of 2004, AofA was supplying approximately one million metric
tons of alumina annually to Alba, but Consultant A’s companies were invoicing
Alba for the shipments. Unlike a true distributorship, Consultant A’s companies
never took possession of the

 

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alumina, assisted with the shipping arrangements, or otherwise performed any
legitimate services for either the AWAC Subsidiaries or Alba. The only function
the shell companies provided was to invoice Alba for the shipments at a
significant markup.

29. Alba’s obligations under pre-existing supply arrangements with AofA were set
to expire at the end of 2004. In the summer of 2004, AWA sought to secure a new
long term alumina supply agreement with Alba. On or around August 5, 2004, Alcoa
management was advised by a former senior Alcoa executive who had a relationship
with Consultant A that if they attempted to negotiate a direct contractual
relationship between AofA and Alba, rather than negotiate a supply arrangement
through Consultant A and one of his companies, some or all of Alba’s business
could be lost to another alumina supplier.

30. On or about August 19, 2004, AWA management met with Consultant A at
Consultant A’s London Office to discuss using Consultant A’s companies “as
Alcoa’s exclusive distributor in the region.” On or about August 22, 2004, an
AWA executive negotiating with Consultant A sent an email documenting with more
specificity certain items that were discussed at the meeting. Among them, the
executive noted that “[w]e agreed to supply [Consultant A] with pricing
indications for supply to [AAAC, one of Consultant A’s shell companies] by 8/24
so he can have these for his meeting with [a Bahraini official]. We mentioned
pricing close to 14%.” The email also noted that “[a Bahraini official] is
holding on to publishing [Alba’s] alumina tender [to the market] until he has
further discussions with [Consultant A] on 8/29.” The pricing terms per metric
ton of alumina that the AWA executive quoted to Consultant A at the meeting in
London were less than the pricing terms for Alba that an AWA sales executive had
quoted to a Bahraini official approximately one month earlier.

31. On or around September 29, 2004, AWA facilitated Consultant A’s tendering a
bid to supply Alba up to 1.6 million metric tons of alumina for ten years
commencing in 2005. On or about October 8, 2004, the in-house attorney
responsible for supporting the alumina business suggested terminating the
consulting agreement that Alcoa had entered with Consultant A in connection with
the proposed joint venture, as “the terms of [Consultant A’s] current engagement
created a lot of anxiety in the organization.” However, an AWA executive decided
that the consultancy agreement should not be terminated until AofA had secured a
new long-term alumina supply agreement with Alba.

32. On or about November 1, 2004 a Bahraini official caused Alba to accept
Consultant A’s tender offer for a ten-year supply of alumina. On or about
December 31, 2004, AofA entered a sham ten-year distributorship agreement with
AAAC, one of Consultant A’s shell companies to purportedly supply annually up to
1.78 million metric tons of alumina for sale to Alba from 2005 to 2014 (the
“2005 Alba Supply Agreement”). It was actually AofA that would continue shipping
the alumina directly from its refineries in Western Australia to Alba.

33. On or about March 4, 2005, a representative of Consultant A sent another
Bahraini government official a final, unexecuted contract for the purported
supply agreement between Consultant A and Alba. On or about June 8, 2005, the
final agreement negotiated between Consultant A and Alba was signed by that
government official on behalf of Alba. The agreement’s effective date was
January 1, 2005, and its term was through December 31, 2014. The agreement
provided that Consultant A would supply Alba with 1.508 million metric tons of
alumina in 2005 and 1.6 million metric tons of alumina thereafter for each
remaining contract year. Alba was required to bear the cost of shipping and
insurance.

 

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34. For sales of alumina to Alba, Consultant A did not receive payment until
after Consultant A was bound to pay AofA. Given the discrepancy in the timing of
payment, Consultant A sought a line of credit from Alcoa to cover the cost of
alumina shipments to Alba until Alba remitted payment to Consultant A. Alcoa’s
policies and procedures required its customers to submit financial statements
for an extension of credit. Consultant A, however, refused to provide financial
statements to Alcoa’s credit department. Nevertheless, in or around December
2004, senior management of AWA invoked an override procedure that resulted in an
Alcoa executive approving a $23 million line of credit to Consultant A’s
companies.

35. Thereafter, in each of contract years 2005 through 2009, Alcoa continued to
grant overrides to extend increasing credit lines to Consultant A’s purported
distributorships. By 2007, Alcoa was extending a credit line of $58 million.
During this period, Alcoa granted Consultant A credit lines that were
significantly greater than those granted by Alcoa to any other third party. By
facilitating the extension of credit to Consultant A, AWA enabled the purported
distributorship scheme by allowing Consultant A to defer paying AofA for the
multi-million dollar shipments of alumina to Alba until Consultant A received
payment from Alba.

36. From 2005 through 2009, AWA caused Consultant A to receive in excess of $188
million on the markup of alumina sales to Alba. This money was transferred from
the initial accounts in which payment from Alba was received through various
bank accounts controlled by Consultant A, including accounts in the name of
shell companies.

37. The AWAC Subsidiaries knew or consciously disregarded the fact that
Consultant A was inserted into the Alba sales supply chain to generate funds to
pay bribes to Bahraini officials. Ultimately, these funds facilitated at least
$110 million in corrupt payments to Bahraini officials. The vast majority of
those funds were generated from the markup between the price Consultant A sold
to Alba and the price that AofA sold to Consultant A. Those funds were also
generated from the commissions that AofA paid to Consultant A.

38. The recipients of the corrupt payments included a senior Bahraini official,
members of the board of directors of Alba, and senior management of Alba.
Examples of the corrupt payments include:

 

  •   In August 2003, Consultant A’s shell companies made 2 payments totaling $7
million to accounts for the benefit of a Bahraini government official who
Consultant A had been retained to lobby. Two weeks later, Alcoa and Alba signed
an agreement in principle to have Alcoa participate in Alba’s plant expansion.

 

  •   In October 2004, Consultant A’s shell company paid $1 million to an
account for the benefit of that same government official. Shortly thereafter,
Alba agreed in principle to Alcoa’s offer for the 2005 Alba Supply Agreement.

 

  •   In or around the time of the execution of the final 2005 Alba Supply
Agreement, Consultant A-controlled companies paid another Bahraini government
official and/or his beneficiaries $41 million in three payments.

 

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Legal Standards and Violations

C. Under Section 21C(a) of the Exchange Act, the Commission may impose a
cease-and-desist order upon any person who is violating, has violated, or is
about to violate any provision of the Exchange Act or any rule or regulation
thereunder, and upon any other person that is, was, or would be a cause of the
violation, due to an act of omission the person knew or should have known would
contribute to such violation.

FCPA Violations

D. Under Section 30A(a) of the Exchange Act it is unlawful for any issuer,
officer, director, employee, or agent of such issuer or any stockholder thereof
acting on behalf of the issuer, to make use of the mails or any means or
instrumentality of interstate commerce corruptly in furtherance of an offer,
payment, promise to pay, or authorization of the payment of any money, or offer,
gift, promise to give, or authorization of the giving of anything of value to
any foreign official or any person, while knowing that all or a portion of such
money or thing of value will be offered, given, or promised, directly or
indirectly, to any foreign official for the purposes of (i) influencing any act
or decision of such foreign official in his official capacity, (ii) inducing
such foreign official to do or omit to do any act in violation of the lawful
duty of such official, or (iii) securing any improper advantage in order to
assist such issuer in obtaining or retaining business for or with, or directing
business to, any person. [15 U.S.C. § 78dd-1].

E. Additionally, under Section 30A(g) of the Exchange Act it is unlawful for any
issuer organized under the laws of the United States, or a State, territory,
possession, or commonwealth of the United States or for any United States person
that is an officer, director, employee, or agent of such issuer or a stockholder
thereof acting on behalf of such issuer, to corruptly do any act outside the
United States in furtherance of an offer, payment, promise to pay, or
authorization of the payment of any money, or offer, gift, promise to give, or
authorization of the giving of anything of value to any of the persons or
entities set forth in paragraphs (i), (ii), and (iii) of subsection (a) of this
section for the purposes set forth therein, irrespective of whether such issuer
or such officer, director, employee, agent, or stockholder makes use of the
mails or any means or instrumentality of interstate commerce in furtherance of
such offer, gift, payment, promise, or authorization.

 

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F. This Order contains no findings that an officer, director or employee of
Alcoa knowingly engaged in the bribe scheme. As described above, Alcoa violated
Section 30A of the Exchange Act by reason of its agents, including subsidiaries
AWA and AofA, indirectly paying bribes to foreign officials in Bahrain in order
to obtain or retain business. AWA, AofA, and their employees all acted as
“agents” of Alcoa during the relevant time, and were acting within the scope of
their authority when participating in the bribe scheme. As described above,
Alcoa exercised control over the Alumina Segment, including the AWAC
Subsidiaries. Alcoa appointed the majority of seats on the AWAC Strategic
Council, and the head of the Global Primary Products group served as its chair.
Alcoa and AofA transferred personnel between them, including alumina sales
staff; Alcoa set the business and financial goals for AWAC and coordinated the
legal, audit, and compliance functions of AWAC; and the AWAC Subsidiaries’
employees managing the Alba alumina business reported functionally to the global
head of the Alumina Segment. Alba was a significant alumina customer for Alcoa’s
Alumina Segment and during the relevant period, members of Alcoa senior
management met both with Alba officials and Consultant A to discuss matters
related to the Alba relationship, including a proposed joint venture between
Alcoa and Alba. During this time, Alcoa was aware that Consultant A was an agent
and distributor with respect to AofA’s sales of alumina to Alba and that terms
of related contracts were reviewed and approved by senior managers of Alcoa’s
Alumina Segment in the United States.

G. Under Section 13(b)(2)(A) of the Exchange Act issuers are required to make
and keep books, records, and accounts, which, in reasonable detail, accurately
and fairly reflect the transactions and disposition of the assets of the issuer.
[15 U.S.C. § 78m(b)(2)(A)].

H. Under Section 13(b)(2)(B) of the Exchange Act issuers are required to devise
and maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management’s general or specific authorization; (ii) transactions are recorded
as necessary (I) to permit preparation of financial statements in conformity
with generally accepted accounting principles or any other criteria applicable
to such statements, and (II) to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management’s general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. [15 U.S.C. § 78m(b)(2)(B)].

I. As described above, Alcoa violated Section 13(b)(2)(A) of the Exchange Act by
improperly recording the payments, to Consultant A, as agent commissions when
the true purpose of these payments was to make corrupt payments to Bahraini
officials. Alcoa violated Section 13(b)(2)(A) when Alcoa recorded the sales to
Consultant A as a distributor. The false entries were initially recorded by the
AWAC Subsidiaries which were then consolidated and reported by Alcoa in its
consolidated financial statements. Alcoa also violated Section 13(b)(2)(B) by
failing to devise and maintain sufficient accounting controls to detect and
prevent the making of improper payments to foreign officials.

 

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Alcoa’s Remedial Efforts

J. Alcoa made an initial voluntary disclosure of certain of these issues to the
Commission and Department of Justice in February 2008, and thereafter Alcoa’s
Board of Directors appointed a Special Committee of the Board of Directors to
oversee an internal investigation by independent counsel. Alcoa’s counsel
regularly reported on the results of the investigation and fully cooperated with
the staff of the Commission.

K. Alcoa also undertook extensive remedial actions including: a comprehensive
compliance review of anti-corruption policies and procedures, including its
relationship with intermediaries; enhancing its internal controls and compliance
functions; developing and implementing enhanced FCPA compliance procedures,
including the development and implementation of policies and procedures such as
the due diligence and contracting procedure for intermediaries; and conducting
comprehensive anti-corruption training throughout the organization.

Criminal Plea Agreement

Respondent’s subsidiary AWA has agreed, with the United States Department of
Justice, Criminal Division, Fraud Section, to plead guilty for criminal conduct
relating to certain of the findings in the Order.

IV.

On the basis of the foregoing, Respondent hereby consents to the entry of an
Order by the Commission that:

A. Pursuant to Section 21C of the Exchange Act, Respondent Alcoa cease and
desist from committing or causing any violations and any future violations of
Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act.

B. Respondent shall pay disgorgement of $175,000,000. A portion of Respondent’s
disgorgement obligation in the amount of $14,000,000 shall be deemed satisfied
by Respondent’s payment of $14,000,000 in forfeiture as part of Respondent’s
resolution with the United States Department of Justice (“DOJ”) filed in the
Western District of Pennsylvania. In the event that Respondent’s resolution with
DOJ requires a forfeiture payment less than $14,000,000, the Respondent
acknowledges that its disgorgement obligation will be credited up to the amount
of the payment required by Respondent’s resolution with DOJ, with the remaining
balance due and payable to the Securities and Exchange Commission within 14 days
of payment pursuant to Respondent’s resolution with DOJ. In light of the impact
of the disgorgement payment upon Respondent’s financial condition and its
potential to substantially jeopardize Alcoa’s ability to fund its sustaining and
improving capital expenditures, its ability to invest in research and
development, its ability to fund its pension obligations, and its ability to
maintain necessary cash reserves to fund its operations and meet its
liabilities, Respondent shall pay the disgorgement in five equal payments based
upon the following schedule:

 

Amount

   Date Due  

$32,200,000

     January     , 2014   

$32,200,000

     January     , 2015   

$32,200,000

     January     , 2016   

$32,200,000

     January     , 2017   

$32,200,000

     January     , 2018   

 

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If timely payment of disgorgement is not made, additional interest shall accrue
pursuant to SEC Rule of Practice 600. Payment must be made in one of the
following ways:

 

  (1) Respondent may transmit payment electronically to the Commission, which
will provide detailed ACH transfer/Fedwire instructions upon request;2

 

  (2) Respondent may make direct payment from a bank account via Pay.gov through
the SEC website at http://www.sec.gov/about/offices/ofm.htm; or

 

  (3) Respondent may pay by certified check, bank cashier’s check, or United
States postal money order, made payable to the Securities and Exchange
Commission and hand-delivered or mailed to:

 

 

Enterprise Services Center

Accounts Receivable Branch

HQ Bldg., Room 181, AMZ-341

6500 South MacArthur Boulevard

Oklahoma City, OK 73169

 

Payments by check or money order must be accompanied by a cover letter
identifying Alcoa Inc. as a Respondent in these proceedings, and the file number
of these proceedings; a copy of the cover letter and check or money order must
be sent to Charles Cain, Deputy Unit Chief, FCPA Unit, Division of Enforcement,
Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549.

V.

By submitting this Offer, Respondent hereby acknowledges its waiver of those
rights specified in Rules 240(c)(4) and (5) [17 C.F.R. §201.240(c)(4) and (5)]
of the Commission’s Rules of Practice. Respondent also hereby waives service of
the Order.

 

2  The minimum threshold for transmission of payment electronically is
$50,000.00 as of April 1, 2012. This threshold will be increased to $1,000,000
by December 31, 2012. For amounts below the threshold, respondents must make
payments pursuant to option (2) or (3) above.

 

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VI.

Respondent understands and agrees to comply with the Commission’s policy “not to
permit a defendant or respondent to consent to a judgment or order that imposes
a sanction while denying the allegations in the complaint or order for
proceedings” (17 C.F.R. §202.5(e)). In compliance with this policy, Respondent
agrees: (i) not to take any action or to make or permit to be made any public
statement denying, directly or indirectly, any finding in the Order or creating
the impression that the Order is without factual basis; and (ii) that upon the
filing of this Offer of Settlement, Respondent hereby withdraws any papers
previously filed in this proceeding to the extent that they deny, directly or
indirectly, any finding in the Order. If Respondent breaches this agreement, the
Division of Enforcement may petition the Commission to vacate the Order and
restore this proceeding to its active docket. Nothing in this provision affects
Respondent’s: (i) testimonial obligations; or (ii) right to take legal or
factual positions in litigation or other legal proceedings in which the
Commission is not a party.

VII.

Consistent with the provisions of 17 C.F.R. § 202.5(f), Respondent waives any
claim of Double Jeopardy based upon the settlement of this proceeding, including
the imposition of any remedy or civil penalty herein.

VIII.

Respondent hereby waives any rights under the Equal Access to Justice Act, the
Small Business Regulatory Enforcement Fairness Act of 1996, or any other
provision of law to seek from the United States, or any agency, or any official
of the United States acting in his or her official capacity, directly or
indirectly, reimbursement of attorney’s fees or other fees, expenses, or costs
expended by Respondent to defend against this action. For these purposes,
Respondent agrees that Respondent is not the prevailing party in this action
since the parties have reached a good faith settlement.

IX.

Respondent states that it has read and understands the foregoing Offer, that
this Offer is made voluntarily, and that no promises, offers, threats, or
inducements of any kind or nature whatsoever have been made by the Commission or
any member, officer, employee, agent, or representative of the Commission in
consideration of this Offer or otherwise to induce it to submit to this Offer.

 

27th Day of December  

/s/ Audrey Strauss, Executive V.P., CLO & Corporate Secretary

  Alcoa Inc.

 

STATE OF NEW YORK    }          }    SS:    COUNTY OF NEW YORK    }      

 

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The foregoing instrument was acknowledged before me this 27 day of December
2013, by Audrey Strauss, who ü is personally known to me or      who has
produced a United States passport as identification and who did take an oath.

 

/s/ Melissa Ortiz

Notary Public     State of New York     Commission Number   :   01OR5077631
Commission Expiration   :   May 12, 2015

 

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ALCOA INC. CERTIFICATE OF CORPORATE RESOLUTIONS

I, Audrey Strauss, do hereby certify that I am the duly elected, qualified and
acting Executive Vice President. Chief Legal Officer and Secretary of Alcoa Inc.
(“Alcoa”), a Pennsylvania corporation, and that the following is a complete and
accurate copy of resolutions adopted by the Board of Directors of Alcoa at a
meeting held on December 6, 2013 at which a quorum was present:

RESOLVED, that the Board of Directors of the Company, after thorough
consideration of all relevant issues, including considering the costs and
benefits of settlement, and considering the advice and conclusions of outside
legal counsel and management, and upon the recommendation of the Special
Committee comprising the Senior Advisors to the Board, deems it advisable and in
the best interests of the Company and its relevant constituencies for the Board
of Directors to approve the key terms of the proposed settlement with the
Securities and Exchange Commission relating to its investigation of the claims
made by Aluminium Bahrain B.S.C. (the “Proposed SEC Settlement”) that have been
reviewed with the Board at this meeting, which include, among other things, a
requirement to pay a disgorgement amount of up to $161 million payable in five
equal annual installments over four years, and such key terms of the Proposed
SEC Settlement be and they hereby are approved substantially as presented at
this meeting; and

FURTHER RESOLVED, that the proper officers of the Company and counsel for the
Company are each hereby authorized and directed to take such actions as are
necessary to effect the Proposed SEC Settlement and to execute and deliver all
agreements, instruments and documents and to take such other and further actions
which in the opinion of any of them may be necessary or desirable to achieve the
purposes of or to consummate the Proposed SEC Settlement, the taking of any such
action or the execution and delivery of any such agreements, instruments or
documents to be conclusive evidence of the authority to take, execute or deliver
the same.

I further certify that the aforesaid resolutions have not been amended or
revoked in any respect and remain in full force and effect.

IN WITNESS WHEREOF, I have executed this Certificate as a sealed instrument this
27th day of December, 2013.

 

By:  

/s/ Audrey Strauss

  Audrey Strauss  

Executive Vice President, Chief Legal

Officer and Secretary

  Alcoa Inc.

 

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STATE OF NEW YORK    }          }    SS:    COUNTY OF NEW YORK    }      

The foregoing instrument was acknowledged before me this day of December 27,
2013, by Audrey Strauss, who ü is personally known to me or      who has
produced a United States passport as identification and who did take an oath.

 

/s/ Melissa Ortiz

Notary Public     State of New York     Commission Number   :   01OR5077631
Commission Expiration   :   May 12, 2015

 

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