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updated 11/19/2013 12:57:26 PM ET 2013-11-19T17:57:26

LONDON (Reuters) - A former senior executive at the Bahraini aluminium smelter Alba, the fourth-largest in the world, told a London court on Tuesday there was a "parallel universe of corruption" at the top of the state-controlled firm during his time there.

South African Jeremy Nottingham, who was deputy chief executive at Alba from 1998 to 2004, was speaking as a prosecution witness in the bribery trial of British-Canadian businessman Victor Dahdaleh.

The trial involves allegations of corruption at senior levels of government and business in Bahrain, a sensitive issue at a time when the Sunni ruling dynasty's authority is being disputed by sporadic protests from within the Shi'ite majority.

Britain's Serious Fraud Office accuses Dahdaleh of having paid over $65 million in bribes to the former chairman and chief executive of Alba to secure contracts worth over $3 billion for foreign companies in which he had an interest.

Dahdaleh has pleaded not guilty to eight corruption charges related to events between 1998 and 2006. The sums involved make the case one of the largest international bribery trials seen in Britain in recent years.

Alba is not a party to the trial. An Alba spokesman declined to comment. The firm's current chairman, Mahmood Al-Kooheji, is scheduled to give evidence at the trial on Wednesday.

Nottingham told Southwark Crown Court that during his time at Alba, decisions to award major contracts were taken in private by the then chairman, Sheikh Isa Bin Ali Al Khalifa, a minister and member of the Bahraini royal family.

"I have now discovered there was a parallel universe of corruption going on under my nose," Nottingham said in the witness box.

"AN UNCOMFORTABLE TRUTH"

He said the process of awarding contracts involved secret payments to Sheikh Isa and he believed that what he described as "the gravy" was also flowing to the sheikh's patron, Prime Minister Sheikh Khalifa bin Salman al-Khalifa.

Reuters was unable to reach Sheikh Khalifa for comment.

Sheikh Isa is named as a co-conspirator and as a recipient of corrupt payments in the indictment against Dahdaleh, but cannot be compelled to come to court as Britain has no extradition treaty with Bahrain.

In a statement issued on his behalf by a Paris-based lawyer, the sheikh has denied "all allegations of corruption, bribery, impropriety and unlawful acts".

The Alba chief executive at the time, Australian national Bruce Hall, has pleaded guilty in London to a charge of conspiracy to corrupt and has given evidence against Dahdaleh.

The Serious Fraud Office says Sheikh Isa received about 39 million pounds ($63 million) in bribes from Dahdaleh, while Hall received about 3 million pounds.

Nottingham said Alba board meetings lacked substance and would merely rubber-stamp decisions that had already been made by Sheikh Isa during private meetings with government figures.

Nottingham described the corruption as "an uncomfortable truth" that the Bahrainis were embarrassed about, but which was the way that state-controlled businesses worked in Bahrain.

"We could not buck the system. The system was endemic," he said.

There is no suggestion of any wrongdoing by Nottingham.

The trial continues.

($1 = 0.6210 British pounds)

(Additional reporting by William Maclean in Dubai; editing by Ralph Boulton)

(c) Copyright Thomson Reuters 2013. Check for restrictions at: http://about.reuters.com/fulllegal.asp

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