Members of Congress have found something to agree on: regulating China-based companies. The House has passed the “Holding Foreign Companies Accountable Act,” which would amend the Sarbanes-Oxley Act to prohibit listing on U.S. exchanges of foreign companies for which the PCAOB has been unable to inspect audit work papers. The Senate previously approved this legislation, and the President is expected to sign the bill into law. This is separate from the SEC proposal on the same topic that is expected before year-end.
Under the bill, the SEC would be required to identify companies that have registered public accounting firms that are located in foreign jurisdictions and for which the PCAOB is unable to inspect work papers. If the Commission determines that a company has 3 consecutive non-inspection years, it must prohibit the securities from being traded on a national securities exchange or over-the-counter. Companies must also submit documentation to show they aren’t owned or controlled by a governmental entity and disclose information about relationships to the Chinese Communist Party.
A CNBC article notes that Americans might miss out on some pretty significant investment opportunities if this law comes to fruition, and that foreign countries like China might welcome the chance to build up their own exchanges. One of the bill’s Senate sponsors even notes in a press release that 224 U.S.-listed companies are located in countries where there are obstacles to PCAOB inspections, and these companies have a combined market capitalization of more than $1.8 trillion. Maybe that’s why the bill gives a three-year lead-time for compliance and opportunities for correction and relisting. In addition, the co-audit solution that is expected to be included in the SEC’s proposal might help the Commission find a way to balance investor protection with investment opportunities.
-Liz Dunshee, TheCorporateCounsel.net December 14, 2020
