On September 27, 2019, the U.S. Securities and Exchange Commission (SEC) announced that Vancouver-based Westport Fuel Systems Inc. (Westport) and its former CEO had agreed to pay over US$4.1 million to settle foreign corruption charges. The charges related to Westport's former CEO orchestrating a scheme to transfer shares to a third party entity affiliated with a Chinese government official.
Although Westport had foreign corruption risk-mitigation provisions in its Code of Conduct (Code), in its settlement order the SEC found that those provisions were not broad enough on their face to apply to the specific type of business transaction at issue. In the wake of this settlement, Canadian companies at risk of foreign corruption violations should carefully review their compliance policies to ensure that provisions related to foreign corruption are worded broadly enough to apply to all potential corporate transactions that might pose some risk.
Westport is a Canadian clean fuel technology company interlisted on the Toronto Stock Exchange and NASDAQ. From July 2013 to July 2016, Nancy Gougarty was Westport's COO, and from July 2016 to January 2019 she was its CEO. In the settlement order, the SEC alleged that Westport (acting through Gougarty) paid a bribe to a Chinese government official in 2016 to obtain a sales contract and a cash payment.
Westport had been involved in a joint venture (JV) in China whose largest shareholder was a Chinese state-owned enterprise (SOE). In March 2013, a senior government official at the SOE proposed that the JV conduct an initial public offering (IPO). The JV's manager falsely represented to Westport that, to undertake the IPO in accordance with Chinese law, Westport would have to transfer some of its shares in the JV to a Chinese private equity (PE) fund.
A manager at Westport involved in the negotiations of the share transfer later learned that the transfer was instead motivated by a financial interest that the senior government official had in the Chinese PE fund. The manager also learned that the government official was seeking a low valuation for the shares to "make quick and big money" out of view of Chinese regulators.
The SEC alleged that, after learning of this information from the manager, Gougarty failed to disclose it to the Board. Instead, Gougarty worked to conceal it from the Board by deleting a sentence in a draft letter to the Board prepared by the manager that would have alerted the...