On May 20, 2020, the U.S. Senate unanimously approved bipartisan legislation (the “bill”) that would amend Section 104 of the Sarbanes-Oxley Act of 2002. The bill would require that Chinese companies that have a class of securities listed or quoted on stock exchanges in the United States could be delisted by such exchanges for, among other things, a failure to comply with the audit requirements of the Public Company Accounting Oversight Board (“PCAOB”) for three consecutive years and a failure to certify that these companies are not owned or controlled by a foreign government.
Although the bill could be applied to any non-U.S. company seeking to raise money from U.S. investors, lawmakers have been vocal that their initiative to strengthen disclosure requirements based on U.S. securities laws is aimed principally at Chinese entities, given the concerns raised by the Securities and Exchange Commission (“SEC”) and the PCAOB regarding access to and oversight of auditors and the quality of financial reporting. We recently blogged about a joint statement to this effect made by SEC Chair Clayton and the SEC’s Chief Accountant, which echoed a consistent theme raised by US regulators.
The bill was passed amidst escalating tensions between the United States and China over trade tariffs, handling of the COVID-19 outbreak, cross-border investments and a perceived disregard of U.S. financial disclosure standards.
In order to move forward, legislation would still need to pass the U.S. House of Representatives. In prior posts, we have blogged about bipartisan legislation that was introduced with substantially the same intent.