Apr.05, 2010

U.S. and U.K. prosecutors are investigating a prominent Canadian businessman for criminal money laundering and bribery as part of a two-year investigation centering on Alcoa Inc., the metals giant, according to people familiar with the matter.

The prosecutors have unearthed new documents that they believe show the involvement of Victor Dahdaleh, a longtime agent of Alcoa who helped negotiate contracts with companies in the Middle East and elsewhere, according to the people familiar with the matter.

No charges have been filed against Mr. Dahdaleh, a Canadian citizen in his 60s who lives in London. His lawyer declined comment.

Since 2008, U.S. prosecutors have been investigating whether Pittsburgh-based Alcoa was involved in bribing government officials in the Persian Gulf state of Bahrain in exchange for business in possible violation of the 1977 U.S. Foreign Corrupt Practices Act, according to people familiar with the matter. Prosecutors are looking at Alcoa's relationship with Aluminum Bahrain BSC, a Bahrain government-owned manufacturing company also known as Alba, these people said. Alba has one of the world's largest aluminum smelters and bought raw materials from Alcoa.

Representatives of Alcoa and Alba said they are cooperating with authorities. A spokeswoman for the U.S. Justice Department and a spokesman for the U.K.'s Serious Fraud Office declined to comment.

Prosecutors now have private financial records that they believe show that from 2001 to 2005, a company controlled by Mr. Dahdaleh made several million dollars in payments to the personal bank account of a former Alba senior executive, according to the people familiar with the matter.

Prosecutors in Washington and London, who are sharing information, also have a witness who claims that the payments were bribes, these people said. They are investigating whether employees of Alcoa were aware of the payments, the people said.

U.K. authorities executed a search of Mr. Dahdaleh's London residence near Belgrave Square late last year in connection with the investigation, the people added.

The Alcoa investigation is among the most high-profile matters involving the Foreign Corrupt Practices Act, which makes it a crime for U.S. companies or companies with U.S. subsidiaries to pay kickbacks abroad.

U.S. authorities have significantly increased enforcement efforts in recent years and worked on some investigations with prosecutors in the U.K., which has a similar antibribery law. In February, the British defense company BAE Systems PLC reached settlements totaling almost $500 million with both governments after admitting it paid bribes to win contracts.

Bahrain in recent years has cracked down on corrupt officials as part of an effort to attract foreign investment. The country has charged two former Alba employees with accepting bribes from other companies. The employees have pleaded not guilty, and their case is pending.

The criminal investigation involving Alcoa was triggered by a 2008 private civil lawsuit filed by Alba in the U.S. The suit, which sought monetary damages, accused Alcoa and Mr. Dahdaleh of conspiring to overcharge Alba for its purchase of thousands of tons of alumina, which is used to make aluminum. At the time, a spokesman for Mr. Dahdaleh said he would be "vigorously contesting" the charges. An Alcoa spokesman said the company would "vigorously defend" itself.

The overpayments totaled hundreds of millions of dollars over 15 years, Alba alleged. In exchange for the overpayments, Alcoa and Mr. Dahdaleh allegedly paid kickbacks to at least one senior official at Alba, according to the lawsuit.

A federal judge halted the suit pending the outcome of the Justice Department's criminal investigation.

Mr. Dahdaleh has links to prominent U.K. Labor Party politicians and former President Bill Clinton, according to public records. He has supported groups affiliated with the U.K. Labor Party financially and has ties to Peter Mandelson, currently the U.K. secretary of state for business, according to the records.

Until 2008, Mr. Dahdaleh was president of a group that promotes business ties between the U.K. and Canada, according to the group's Web site. In a 2006 speech to the group, Mr. Mandelson referred to Mr. Dahdaleh as a friend and called him "a business dynamo, a public spirited figure, and a big hearted personality all rolled into one," according to the site.

A spokesman for Mr. Mandelson said: "These words should not be overinterpreted. Peter Mandelson is generally gracious toward the host, sponsor or chairman of whatever event he had been invited to address."

Mr. Dahdaleh also was a trustee of the William J. Clinton Presidential Foundation and a member of its largest program, the Clinton Global Initiative, the foundation has said. He donated between $1 million and $5 million to the foundation, according to foundation records. Spokesmen for Mr. Clinton didn't respond to requests for comment.