Canadian Fuel Technology Company and Former CEO Settle SEC FCPA Case
Westport Fuel Systems, a Canadian clean fuel technology company, and its former CEO, Nancy Gougarty, agreed to settle FCPA charges with the SEC for $4.1 million and $120k, respectively.
Starting in 2016, Westport, through Gougarty and others, engaged in a scheme to bribe a Chinese foreign government official to obtain business and a cash dividend from Westport’s joint venture in China. Westport’s largest joint venture partner was a state-owned enterprise (“SOE”). The Foreign Official held a senior position at the state-owned enterprise.
At the request of the SOE, Westport transferred at a low price a portion of Westport’s shares in the joint venture to a Chinese private equity fund in which the Foreign Official held a financial interest. In exchange for this low-price sale of equity, the Foreign Official used his influence to cause the joint venture to authorize an increased dividend payment of $3.5 million to Westport and to execute a framework supply agreement between the joint venture and Westport.
The facts surrounding the violation are fairly complex. In March 2013, the SOE proposed taking the joint venture public through an IPO. The joint venture manager falsely represented to Westport that Chinese law required the SOE to have a majority interest in the joint venture to qualify for the IPO. The manager of the joint venture advised Westport that a preliminary step in the IPO would involve restructuring the joint venture so that a portion of the shares held by Westport and a privately held conglomerate would have to be transferred to the SOE and a Chines private equity fund in which the Foreign Official held a financial interest. Although the shares were transferred at a low price, the IPO never took place.
Eventually Westport and Gougarty learned that the transfer to private equity interest was intended to personally benefit the Foreign Official and that Chinese law did not require such a transfer for an IPOP (which never occurred). The Foreign Official’s personal interest was a central focus of Westport’s negotiation strategy. Gougarty recommended alternatives to an IPO that included seeking a supply agreement in exchange for the low-priced shares.
The negotiations progressed slowly over the share transfer price. Eventually the sale of Westport’s low price stock was reached in exchange for a supply agreement and the payment of a 30 percent dividend to all the shareholders, including Westport.
In June 2015, Westport’s board authorized the closing of the transaction. Gogarty did not disclose to the board any of the issues relating to the payment of low-value shares to benefit a Foreign Official. In fact, Gougarty specifically deleted a sentence from a letter to the board that described the payment to the Foreign Official.
Westport falsely reported to the SEC the identities of the parties to the transaction and omitted any reference to the Chinese private equity fund. Gougarty circumvented Westport’s internal accounting controls and signing a false certification concerning the sufficiency of those controls.
The SEC cited the fact that Westport’s Code of Conduct omitted any reference to due diligence for when engaging in a transaction with a third party in which a government official may have a financial interest.
During the investigation, Westport enhanced its anti-corruption and compliance policies and training programs, and its disclosure policies and controls. Westport enhanced its anti-bribery and anti-corruption controls by adopting revised policies that create specific controls for transactions involving foreign government officials and entities, mandate due diligence for such transactions and require Westport’s business partner to agree to abide by anti-bribery laws.