WASHINGTON—The U.S. House of Representatives passed legislation on Wednesday that requires foreign companies trading on American exchanges to meet U.S. accounting standards, a move that would end preferential treatment given to China-based companies. The bill will now head to President Donald Trump’s desk to be signed into law.
The measure called the Holding Foreign Companies Accountable Act will block Chinese companies from the U.S. stock market if they refuse to be transparent and play by the same rules that U.S. businesses are held to.
Under the bill, foreign companies that fail to comply with the Public Company Accounting Oversight Board’s (PCAOB) audits for three consecutive years will be subject to delisting from U.S. exchanges. The rule also applies to companies whose shares are traded over-the-counter.
The bill also requires companies to disclose whether they are owned or subject to control by a foreign government, including China’s communist regime.
The bipartisan bill, introduced by Sens. John Kennedy (R-La.) and Chris Van Hollen (D-Md.), passed the U.S. Senate by unanimous consent on May 20. The bill was awaiting a vote in the House since then.
Kennedy applauded the House for joining the Senate in passing the bill with strong support.
“The current policy that allows Chinese firms to flout the rules that American companies follow is toxic,” Sen. John Kennedy (R-La.) told The Epoch Times in an email.
“It puts American families and workers at risk by jeopardizing their college and retirement savings. My colleagues on both sides of the aisle recognize that fact.”
The PCAOB has been unable to inspect audit firms based in China for more than a decade. Beijing has refused to allow audit inspections of China-based companies, citing local communist party laws related to data protection, privacy, confidentiality, or national security as reasons for non-compliance.
The bill will prevent dishonest companies like Luckin Coffee from taking advantage of U.S. capital markets. The shares of the Chinese coffeehouse chain crashed and were subsequently delisted from Nasdaq this year after the company’s long history of financial crimes was exposed in a report.
The scandal was a wake-up call for lawmakers, regulators, and investors about the risks China-based companies pose to U.S. capital markets.
“Millions of American families rely on modest investments to retire, send their kids to college, and weather financial emergencies,” Van Hollen said in a statement. “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. This bill rights that wrong, ensuring that all companies on the U.S. exchanges abide by the same rules.”
The PCAOB is unable to conduct audit inspections in China, Hong Kong, France, and Belgium. According to a PCAOB report published this summer, U.S. regulators were expecting to finalize cooperation agreements with France and Belgium that would permit inspections in these countries. However, in the case of China and Hong Kong, discussions with Chinese regulators have not led to any firm or final agreement.
A 2018 report by the Securities and Exchange Commission showed that there were 224 U.S.-listed companies located in countries where U.S. regulators face obstacles in inspecting auditors’ work.
“This may be the most significant piece of investor protection legislation passed in several years,” Brad Sherman (D-Calif.), chair of the House investor protection and capital markets subcommittee, said in a statement.
“The purpose is not to de-list any company but to persuade China to allow the audit oversight that U.S. investors need.”
From The Epoch Times