The House of Representatives joined the Senate in passing the Holding Foreign Companies Accountable Act (S.945), which would require a "foreign issuer" (as defined in SEA Rule 3b-4), subject to periodic reporting under the Securities Exchange Act, to disclose if its registered public accounting firm is located in a foreign jurisdiction that prevents the Public Company Accounting Oversight Board (the "PCAOB") from conducting audit inspections.
Under the bill, if the issuer has three consecutive "non-inspection years," the issuer's securities may not be traded on a national securities exchange or "through any other method that is within the jurisdiction of the Commission to regulate, including 'over-the-counter' trading of securities." The bill is now awaiting an expected signature by the President. (The term "inspection year" refers to the authority of the PCAOB to inspect public accounting firms. See, e.g., PCAOB Rules regarding Inspections - in particular, Rule 4003(b).)
Under the process established by the bill, the SEC is required to determine those SEC-registered issuers that engage an accounting firm located in a foreign jurisdiction that the PCAOB is not able to inspect. The SEC is then required to obtain from each such registered issuer "documentation that establishes the covered issuer is not owned or controlled by a governmental entity in the foreign jurisdiction" of the relevant accounting firm.
The bill sets out additional disclosure requirements for foreign issuers preparing an audit report during a non-inspection year, including:
There are several provisions in the bill that are China-specific. Specifically, covered issuers may be required to disclose:
OFAC designated the China National Electronic Import-Export Company to the Specially Designated Nationals and Blocked Persons List for the company's role in undermining Venezuelan democracy.
SEC and Public Company Accounting Oversight Board officials decried the continuing limitations on the PCAOB's ability to inspect the audit work and practices of PCAOB-registered audit firms in China.
The SEC Division of Corporation Finance identified risks associated with China-based issuers and highlighted related disclosure considerations.
In a new Executive Order, President Donald J. Trump prohibited U.S. persons, including financial institutions, from engaging in transactions in the securities of Chinese companies that supply or otherwise support China's military, intelligence and security services.
The President's Working Group on Financial Markets made several recommendations to the SEC addressing the Public Company Accounting Oversight Board's lack of access to auditors of Chinese companies listed in the United States.
President Trump issued two separate Executive Orders to "address the threat" created by the U.S. operations of two social media applications, TikTok and WeChat. In addition, OFAC designated Hong Kong Chief Executive Carrie Lam, among other officials, to its Specially Designated Nationals and Blocked Persons List.
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