The Holding Foreign Companies Accountable Act is a 2020 law that requires companies publicly listed on stock exchanges in the

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to disclose to the

United States Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...

information on foreign jurisdictions that prevent the

Public Company Accounting Oversight Board The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation created by the Sarbanes–Oxley Act of 2002 to oversee the audits of public companies and other issuers in order to protect the interests of investors and further t ...

(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. The bill requires such companies to declare they are not owned or controlled by Chinese government.

Background

In 2019, a similar bill titled the EQUITABLE Act was introduced by Senator

Marco Rubio Marco Antonio Rubio (born May 28, 1971) is an American politician and lawyer serving as the senior United States senator from Florida, a seat he has held since 2011. A member of the Republican Party, he served as Speaker of the Florida Hous ...

( R- FL) in the

United States Senate The United States Senate is the upper chamber of the United States Congress, with the House of Representatives being the lower chamber. Together they compose the national bicameral legislature of the United States. The composition and pow ...

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. The consideration of the Holding Foreign Companies Accountable Act in Congress coincided with the high-profile financial scandal involving Chinese coffee chain

Luckin Coffee Luckin Coffee Inc. () is a Chinese coffee company and coffeehouse chain. It was founded in Beijing in 2017. , it managed 5,671 kiosks. The company operates shops, stores, and kiosks that offer coffee, tea, and food. Customers need to download ...

, which fired both its CEO and COO in May 2020 for

accounting fraud Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "language ...

concerning the intentional fabrication of around $310 million in sales in 2019. This subsequently resulted in Luckin's shares plunging by around 80%. Luckin also received a delisting notice from the

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stock exchange on May 19, 2020. On June 26, it was confirmed that Luckin would be delisted from the Nasdaq and Luckin's stock saw its last day of trading.

Legislative history

On May 20, 2020, the bill passed the United States Senate by unanimous consent. On December 2, 2020, the bill passed the

United States House of Representatives The United States House of Representatives, often referred to as the House of Representatives, the U.S. House, or simply the House, is the Lower house, lower chamber of the United States Congress, with the United States Senate, Senate being ...

by unanimous voice vote. The bill was signed into law by President

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on December 18, 2020.

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. Days later on 2 April,

China Securities Regulatory Commission The China Securities Regulatory Commission (CSRC) is a government ministry of the State Council of the People's Republic of China (PRC). It is the main regulator of the securities industry in China. History China's first Securities Law was ...

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.

References

{{reflist

External links

S. 945 Senate bill text
United States federal financial legislation Acts of the 116th United States Congress United States federal securities legislation China–United States relations