Alcoa to pay $85 million to settle racketeering suit

October 9, 2012: 11:21 AM ET

Exclusive: The aluminum giant is set to announce a deal with Alba, a state-owned Bahraini smelter that brought civil racketeering and fraud claims against Alcoa.

alcoa

By James Bandler

FORTUNE -- After years of fighting one of the most unusual civil claims brought by a foreign company in a U.S. court, Alcoa Inc. has finally capitulated.

Without admitting any wrongdoing, the metals giant has agreed pay $85 million in cash to settle a civil racketeering and fraud suit filed by a state-owned aluminum smelting facility in Bahrain, according to two people briefed on the details of the deal.

Other terms of the deal, which calls for a renewal of business between the two companies, remain shrouded by a confidentiality agreement. The deal calls for Alcoa (AA) to resume shipments of alumina, the key precursor in aluminum production, to the Bahraini smelter. For the Bahrainis the deal represents a victory. The new contract they signed with Alcoa, which they are likely to claim is extremely favorable, adding up to some $350 million or more in rebates and other concessions, according to people familiar with the deal. But Alcoa is likely to maintain that even with these concessions it will still make a profit on the deal.

However expensive, the settlement marks the beginning of the end of a long legal nightmare for Alcoa that  began in early 2008. That's when Aluminium Bahrain, or Alba, sued Alcoa in federal court in Pittsburgh, PA.

Alba alleged that the American company had orchestrated a 15-year-long scheme to corrupt senior Alba officials and others in the Bahraini government to secure favorable contracts.

The civil claim attracted the attention of the U.S. Department of Justice and the SEC, which launched their own investigations. Alcoa suffered a major setback late last year when a federal judge rejected Alcoa's motion to dismiss Alba's case.

The case has pitted two of the country's top trial lawyers against each other. Spearheading Alcoa's civil defense has been Evan Chesler, presiding partner at Cravath, Swaine & Moore. Akin Gump Strauss Hauer & Feld's Mark MacDougall, a former federal prosecutor, has represented Alba. The federal probes are ongoing.

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