* Serious Fraud Office calls off Dahdaleh prosecution
* Trial collapse is serious setback for demoralised agency
* Case addressed alleged high-profile corruption in Bahrain
* Judge expresses concern over conduct of case
By Estelle Shirbon
LONDON, Dec 10 (Reuters) - One of Britain's biggestcorruption trials in years came to an abrupt halt on Tuesdaywhen the Serious Fraud Office (SFO) called off the prosecutionof businessman Victor Dahdaleh in a further setback for itsalready tarnished reputation.
The SFO had accused Dahdaleh of paying some $67 million inbribes to former managers of Aluminium Bahrain (Alba),including a member of Bahrain's royal family, between 1998 and2006 in return for a cut of contracts worth over $3 billion.
The case involved allegations of corruption at senior levelsof government and business in Bahrain, a sensitive issue at atime of political unrest in the secretive Gulf kingdom.
But the SFO's lead counsel told a London court there was nolonger a realistic prospect of conviction after two U.S. lawyerswho had played a crucial role in the case refused to testify incourt and a key witness changed his evidence.
The sudden collapse of Dahdaleh's trial, which began on Nov.5 and had been expected to run into 2014, followed costlyblunders by the SFO in other high-profile cases that had piledpressure on the agency to deliver notable convictions.
"I have taken matters up to the highest level at the SeriousFraud Office and consulted the attorney general," said SFOcounsel Philip Shears as he announced the SFO's decision. Theattorney general is the British government's legal adviser.
Judge Nicholas Loraine-Smith instructed the jury to return'not guilty' verdicts on all eight counts before dischargingthem.
"Cases like this rock people's confidence to the core," saidlegislator Emily Thornberry, the opposition Labour Party's"shadow attorney general" or spokeswoman on judicial affairs.
"I am a critical friend and I want the Serious Fraud Officeto do well. But you have to tell the truth to friends. This is amess and they know it and they should have been able to see itcoming and it's very disappointing," she told Reuters.
Judge Loraine-Smith said he had asked the SFO to reconsiderits position on Thursday after becoming concerned about evidencegiven earlier that day by SFO case officer Sasi-Kanth Mallela.
Mallela had told the court that the agency had delegated itsinvestigative duties in Bahrain to Alba's lawyers from the U.S.firm Akin Gump. The American lawyers had provided documents andwitnesses to the SFO from the Alba side.
The judge said these lawyers, acting for Alba, were alsoDahdaleh's opponents in a "hotly contested" U.S. civil lawsuit,raising questions about the SFO's reliance on them for evidenceto use against Dahdaleh in the British criminal trial.
"The defence have raised issues questioning Akin Gump's rolein the provision of assistance to the SFO, both as to what theirmotives may have been in the dissemination of material andassistance as to witnesses," Shears told the court.
"Their refusal to attend creates a situation where the trialprocess cannot remedy the position and we accept unfairness nowexists for the defence," he said, adding that SFO Director DavidGreen had personally called the chair of Akin Gump to try andsecure their attendance, to no avail.
Several telephone messages and emails from Reuters seekingcomment from Akin Gump were not answered.
Shears said the other main reason for the SFO's decision wasthat Bruce Hall, a former CEO of Alba who had pleaded guilty toa conspiracy to corrupt with Dahdaleh, changed his evidence incourt from what he had said in his witness statement.
Outside court, Dahdaleh's lawyer, Neil O'May of Norton RoseFulbright, told reporters it was an emotional day for the70-year-old businessman, who was "overwhelmed and relieved".
"He is concerned, and wishes those who have a supervisoryrole, within the SFO and outside, to consider how it was thatpart of the investigation was outsourced to a firm of Americanlawyers who refused to attend court to give a full account oftheir involvement," O'May said.
Dahdaleh admitted making payments to Alba managers butpleaded 'not guilty', citing "principal's consent", a defenceavailable under Britain's Prevention of Corruption Act 1906.
In essence, his defence was that the payments were known ofand approved by those in authority at Alba and in the Bahrainigovernment, and were part of Bahraini custom and practice.
Dahdaleh was charged under that law because the allegedoffences pre-dated the Bribery Act 2010, under which the"principal's consent" defence is no longer available.
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