The House of Representatives has passed a new bill designed to prevent fraudulent foreign companies listed on US stock markets from escaping scrutiny by the Securities and Exchange Commission (SEC).
The bipartisan Holding Foreign Companies Accountable Act will prohibit foreign firms from listing any of their securities on US exchanges if they fail to comply with the Public Company Accounting Oversight Board’s (PCAOB) audits for three years in a row.
The PCAOB’s role is to establish whether the information presented by listed firms is accurate, independent and trustworthy.
The law will also require public companies to disclose whether they’re owned or controlled by a foreign government.
It’s therefore not hard to see where the bill is primarily aimed. Beijing currently refuses to allow PCAOB audits of homegrown companies despite having been in negotiations with US authorities for over a decade. Vague national security concerns are often cited as an obstacle to progress.
This lack of scrutiny resulted in US investors in Chinese firm Luckin Coffee losing significant sums after the Starbucks rival was found to have fabricated sales by hundreds of millions of dollars.
The bill, sponsored by US senators Chris Van Hollen and John Kennedy, was presented as a way to protect ordinary US investors and their families.
“Millions of American families rely on modest investments to retire, send their kids to college and weather financial emergencies. but many have been cheated out of their money after investing in seemingly legitimate Chinese companies that are not held to the same standards as other publicly listed companies,” argued Van Hollen.
“This bill rights that wrong, ensuring that all companies on US exchanges abide by the same rules. I’ve been proud to work with senator Kennedy on this bipartisan legislation, and I’m glad to see it pass the House with such strong support. I urge the President to sign this bill into law immediately.”
The bill will not only target Chinese firms, although their number has surged significantly on US exchanges in recent years as they seek to raise capital abroad.
According to the SEC, 224 US-listed companies are located in countries where there are obstacles to PCAOB inspections, with a combined market capitalization of more than $1.8tn.