Holding Foreign Companies Accountable Act
Great Seal of the United States
Long titleAn Act to amend the Sarbanes-Oxley Act of 2002 to require certain issuers to disclose to the Securities and Exchange Commission information regarding foreign jurisdictions that prevent the Public Company Accounting Oversight Board from performing inspections under that Act, and for other purposes.
Enacted bythe 116th United States Congress
Legislative history

The Holding Foreign Companies Accountable Act is a 2020 law that requires companies publicly listed on stock exchanges in the United States to disclose to the United States Securities and Exchange Commission information on foreign jurisdictions that prevent the Public Company Accounting Oversight Board (PCAOB) from conducting inspections. Under the law, such companies will be banned from trading and delisted from exchanges if the PCAOB is not able to audit specified reports for three consecutive years.[1] The bill requires such companies to declare they are not owned or controlled by Chinese government.[2]

Background

In 2019, a similar bill titled the EQUITABLE Act was introduced by Senator Marco Rubio (R-FL) in the United States Senate over concerns certain foreign companies were non-compliant with oversight and audit rules on American stock exchanges. This was in response to the lack of compliance and transparency among Chinese companies listed on US exchanges, thereby increasing the risk of defrauding investors.[3]

The consideration of the Holding Foreign Companies Accountable Act in Congress coincided with the high-profile financial scandal involving Chinese coffee chain Luckin Coffee, which fired both its CEO and COO in May 2020 for accounting fraud concerning the intentional fabrication of around $310 million in sales in 2019. This subsequently resulted in Luckin's shares plunging by around 80%.[4] Luckin also received a delisting notice from the Nasdaq stock exchange on May 19, 2020.[5] On June 26, it was confirmed that Luckin would be delisted from the Nasdaq and Luckin's stock saw its last day of trading.[6]

Legislative history

On May 20, 2020, the bill passed the United States Senate by unanimous consent.[7] On December 2, 2020, the bill passed the United States House of Representatives by unanimous voice vote.[8] The bill was signed into law by President Donald Trump on December 18, 2020.[9]

Implications

As required by the bill, the SEC started publishing in March 2022 a provisional list of foreign issuers that the PCAOB is unable to audit.[10] Days later on 2 April, China Securities Regulatory Commission announced a proposed removal to a requirement that on-site inspections of Chinese companies with foreign listings can only be conducted by Chinese regulatory agencies.[11]

References

  1. ↑ Thomas Franck (21 May 2020). "Bill to delist Chinese stocks moving at 'warp speed' as a crackdown gains bipartisan support". CNBC. Retrieved 13 June 2020.
  2. ↑ Chris Matthews (20 May 2020). "Senate passes bill that could delist Chinese companies from U.S. stock exchanges". MarketWatch. Retrieved 13 June 2020.
  3. ↑ Robertson, Benjamin (June 6, 2019). "Latest U.S. Salvo Against Chinese Firms Could Benefit Hong Kong". Bloomberg News. Archived from the original on July 2, 2019. Retrieved September 24, 2019.
  4. ↑ Dan Primack (12 May 2020). "Luckin Coffee fires CEO and COO for fraud". Axios. Retrieved 15 June 2020.
  5. ↑ Dan Primack (20 May 2020). "Luckin Coffee faces Nasdaq delisting following alleged fraud". Axios. Retrieved 15 June 2020.
  6. ↑ Tonya Garcia (26 June 2020). "Luckin Coffee to be delisted from the Nasdaq". MarketWatch. Retrieved 27 June 2020.
  7. ↑ Matthews, Chris. "Senate passes bill that could delist Chinese companies from U.S. stock exchanges". MarketWatch. Retrieved 2020-12-03.
  8. ↑ Zengerle, Patricia (2020-12-03). "Chinese firms on U.S. exchanges threatened by bill headed to Trump's desk". Reuters. Retrieved 2020-12-03.
  9. ↑ "Trump signs bill that could kick Chinese firms off U.S. stock exchanges". Reuters. 2020-12-18. Retrieved 2020-12-19.
  10. ↑ "Holding Foreign Companies Accountable Act". U.S. Securities and Exchange Commission. 2022-03-30. Retrieved 2022-04-04.
  11. ↑ "关于就《关于加强境内企业境外发行证券和上市相关保密和档案管理工作的规定》公开征求意见的通知" (in Chinese). China Securities Regulatory Commission. 2022-04-02. Retrieved 2022-04-04.
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