Westport Fuel Systems: A Share Sale With the Buyer Hidden

In the Westport FCPA case, Westport Fuel Systems agreed to pay $4,046,000 to settle allegations that a discounted joint-venture share sale benefited a Chinese official in exchange for business and a larger dividend. The Securities and Exchange Commission alleged that the company then hid the buyer’s identity in its books and public filings. If you worked on the ownership transfer, the bank receipt or the board papers, you would have seen different pieces of the same deal.

Westport designed and manufactured clean fuel systems from its headquarters in Vancouver, Canada, and listed its shares on Nasdaq and the Toronto Stock Exchange. The Securities and Exchange Commission announced the settlement on September 27, 2019, alleging Foreign Corrupt Practices Act violations by both the company and its former chief executive. Among the foreign bribery settlements we follow, Westport shows how a share sale can carry the alleged bribe. The Commission’s FCPA Unit conducted the investigation with assistance from the British Columbia Securities Commission.

What Was the Westport FCPA Case About?

The Westport FCPA case concerned an alleged exchange of discounted ownership for an official’s influence over a Chinese joint venture. Westport held its stake through a Hong Kong subsidiary. The venture’s largest shareholder was a Chinese state-owned entity, and the official held a senior position there.

According to the Securities and Exchange Commission’s order, the proposed share transfer began as a step toward taking the venture public in China. The venture’s manager told Westport that Chinese law required the state-owned shareholder to hold a majority interest before a public offering. The order alleged that this explanation was false, and that the planned restructuring would give a 9% stake to a private equity fund in which the official had a financial interest.

Westport’s Asia Pacific general manager reported that interest to senior management during the negotiations. According to the order, his emails identified the official’s personal benefit as the reason for bringing in the fund. The company wanted something in return: a long-term agreement to sell components to the venture. The order quotes the negotiating position acknowledged by Westport’s then chief operating officer, who later became chief executive:

In the Commission’s account, the contemplated public offering never happened, but the shares went to the fund. An insider familiar with the joint venture’s ownership and approvals could explain whose commercial interests the restructuring actually served.

The Dividend Made the Deal More Attractive

The order alleged that Westport’s need for cash helped push it toward a lower valuation for the share transfer. Falling oil prices had made gasoline-powered engines more attractive and reduced demand for Westport’s alternative fuel products. The order describes the other side of the negotiation in the Asia Pacific general manager’s March 2015 report: he had been told that the official sought a low valuation to “make quick and big money” outside Chinese regulators’ scrutiny.

The negotiations tied the ownership change to both future sales and cash already held by the venture. According to the order, the parties agreed on a $70 million valuation for the venture and a cash dividend of 30% of undistributed profits, larger than the venture agreement provided. The chief executive signed the share-transfer agreements on August 20, 2016, the same day the venture entered the supply agreement and authorized the dividend.

The order described approximately $500,000 in engine-component purchases that eventually followed under the supply agreement, against approximately $3.5 million in dividend proceeds. The dividend reached Westport’s Vancouver bank account in October 2016 through a U.S. correspondent bank. The cash dividend dwarfed the component sales and approached the company’s entire settlement obligation.

The official’s alleged benefit sat in the discount offered to a fund in which he held an interest. Westport’s expected benefit sat in the venture’s purchasing and dividend decisions. We see an ownership negotiation in which the identity of the buyer and the influence behind the purchase mattered as much as the price.

The Company and Former Chief Executive Had Separate Obligations

The settlement assigned different payment obligations to Westport and its former chief executive. The Commission’s settlement announcement put the corporate amount at $2,546,000 in repayment of gains and interest, with a $1.5 million civil penalty. The former chief executive separately agreed to a $120,000 civil penalty.

The allegations against the executive followed her decisions inside the company. According to the order, she negotiated the transaction while chief operating officer and signed the transfer agreements after becoming chief executive. The Commission also alleged that she concealed information from the board, bypassed accounting controls and signed a false certification about disclosures to the outside auditors.

The order credited Westport with revising policies to require checks on transactions involving foreign officials and with requiring business partners to agree to follow anti-bribery laws. Those changes addressed the same approval and accounting failures that an employee working on the deal could have recognized.

What the Books and Controls Concealed

The Securities and Exchange Commission’s books-and-records and internal-controls allegations followed the share sale from the boardroom into the ledger. The alleged bribery was the discounted transfer for an official’s influence. The accounting allegations concerned how Westport concealed the fund’s role and how its checks failed to expose that concealment.

The Sentence Removed From the Board Letter

The order alleged that the future chief executive deleted a sentence from a draft letter prepared for the board. That sentence would have disclosed the official’s financial interest in the private equity fund. When the board later authorized management to complete the negotiations, she had not disclosed either that interest or the requested discount.

The draft and the approved transaction therefore told different stories, according to the order. A board approval can look reassuring when read alone. The earlier version can show what the people approving the deal were never told.

The Bank Named One Buyer, the Ledger Another

The order traced approximately $3 million from the fund’s bank in China to Westport’s bank in Vancouver through a U.S. correspondent bank. The Commission alleged that Westport kept the bank records in its files but recorded the counterparty as a different entity connected to the state-owned shareholder. Its accounting controls required comparison of source documents with journal entries, yet the buyer’s identity did not match.

The alleged substitution then appeared in Westport’s Form 6-K and in the financial statements accompanying its Form 40-F annual report. The order said Westport failed to follow its process for reconciling those disclosures with source documents. It also alleged that, in a certification accompanying the annual report, the chief executive falsely stated that significant control deficiencies had been disclosed to the outside auditors.

Westport allegedly kept the bank record naming the fund while telling investors that someone else had bought the shares. The source document was already on hand. In its own files. A finance insider could recognize the mismatch without having attended the negotiations in China.

The Policy Covered Vendors but Missed the Share Sale

Westport’s code prohibited bribes, including payments made indirectly through third parties. But the order alleged that its due-diligence requirements covered third parties providing goods or services while leaving a gap for transactions with entities in which foreign officials might have a financial interest. Contract clauses addressed vendors without requiring the same protection for a share transfer of this kind.

That gap mattered because the alleged benefit traveled through an ownership transaction. Procurement checks could examine the company’s suppliers while the fund acquiring its shares escaped the same scrutiny. The question for an insider is who knew about the official’s interest and what happened to that information before approval.

Fresenius Medical Care: Shares for Patient Referrals

Fresenius Medical Care provides a useful comparison because its Turkish joint ventures allegedly put equity into the hands of publicly employed doctors. The Securities and Exchange Commission’s order concerning Fresenius described shares exchanged for business from the doctors’ public employers, with some shares held in other people’s names. Ownership records alone could therefore miss the person receiving the benefit.

The Journal of Forensic and Investigative Accounting examined those arrangements in its 2022 study Fresenius Medical Care: A Case Study on the FCPA. In its account of the company’s criminal non-prosecution agreement, the study describes publicly employed Turkish doctors agreeing to direct patients to Fresenius clinics. It states:

The study also describes internal presentations and emails connecting equity arrangements to patient growth. In both accounts, ownership carried the alleged benefit. In Westport’s alleged arrangement, the fund paid for discounted shares, and the expected return for Westport was influence over the venture’s sales agreement and dividend.

RAE Systems: Bribery Warnings That Changed Nothing

RAE Systems supplies another China joint-venture comparison. The Securities and Exchange Commission alleged in its complaint that a technical-services agreement funded payments to employees of a state-owned enterprise and that later allegations of continuing bribery did not produce an investigation into the broader problem. The complaint described the unchanged payment practice:

RAE’s alleged failure concerned cash advances after warnings. Westport’s concerned an official’s interest disclosed in negotiation emails, omitted from board information and obscured in the accounting. In both accounts, the useful evidence connects what management learned with the transaction it subsequently allowed.

What an Insider Can Connect

The Westport allegations make the evidence inside the business unusually concrete. Negotiation emails explained the requested discount, a draft letter disclosed the official’s interest, bank records named the buyer, and the ledger named someone else. Ownership, approval and accounting records each exposed a different part of the alleged exchange.

You may know the share agreement without having seen the bank transfer, or the accounting entry without knowing why the board approved the sale. We connect that knowledge to the people directing the transaction and the commercial benefit they sought.

The SEC whistleblower program can pay eligible whistleblowers 10% to 30% of qualifying amounts collected when their information leads to successful enforcement. The False Claims Act has a separate reward program. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We work with you to identify which program fits the conduct you saw.

You Know Who Was Behind the Deal

If you know why shares went to an official’s fund, or why the books named a different buyer, speak to one of our Whistleblower Experts about the deal you saw. We build your strongest case around your knowledge and bring in foreign bribery whistleblower lawyers who understand ownership transfers and the accounting used to conceal them. We stay beside you from that first conversation through the pursuit of your case.