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What is the USA's "Holding Companies Accountable Act"

Publication: 
Editorial Staff
chiefofficersnet

US Act S.945 2020 - 16th Congress - Federal Law.

Official Summary

"This bill requires certain issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must make this certification if the Public Company Accounting Oversight Board is unable to audit specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the board. Furthermore, if the board is unable to inspect the issuer's public accounting firm for three consecutive years, the issuer's securities are banned from trade on a national exchange or through other methods.

Foreign issuers of securities that use such a firm to prepare an audit report must disclose for each non-inspection year

- the percentage of shares owned by governmental entities where the issuer is incorporated,
- whether these governmental entities have a controlling financial interest,
- information related to any board members who are officials of the Chinese Communist Party, and
- whether the articles of incorporation of the issuer contain any charter of the Chinese Communist Party. "

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"I would not turn my back on the Chinese Communist Party if they were 2 days dead." US Senator Kennedy, US Senate 20 May, 2020.

Sounds bad doesn't it? Sounds horribly inflammatory.

He also said " Every company in the world that goes public would like to list on U.S. stock exchanges."

Here's what it teaches us: first, set in context, his opinion is specifically said to be about the government of another country, not its people or, even, its businesses. It's rude and uncourtly but it's clear: " I am not talking about the people of China. The people of

China are good people; the Chinese Communist Party, not so much."

But what he presents as fact is a lie. It is not and cannot be true that "every" public company wants to be listed in New York, even if it's on a minor exchange.

Why point this out? It's because it would be very easy to edit his comments to give a slant that he did not mean and difficult (actually impossible) to edit his lie to be anything less than a lie.

Why care? It's because his was the only amendment made to the apparently Anti-China "Holding Foreign Companies Accountable Act. But his amendment makes it clear: it is simply that a number of Chinese companies listed in the US have audits conducted by auditors which are not subject to supervision by the US and the Act is designed to ensure that doesn't happen and although China is named, the Act applies to all foreign (i.e. not US domiciled) companies. It says, simply, if you are listed here, your auditors must be subject to inspection by our authorities.

Why now? The USA's Securities and Exchange Commission has approved a Rule by the Public Company Accounting Oversight Board (it really should be "supervision" but the use of the wrong word in this context has become endemic in governments and government- adjacent bodies in recent years) under which it will establish "a framework for determinations."

The SEC said, in a media release on 5th November, "The Securities and Exchange Commission today announced that it has approved the Public Company Accounting Oversight Board’s (PCAOB) Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act. Rule 6100 will establish a framework for the PCAOB’s determinations under the Holding Foreign Companies Accountable Act (HFCAA) that the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction.... The Sarbanes-Oxley Act of 2002, as amended, mandates that the PCAOB inspect registered public accounting firms in both the United States and in foreign jurisdictions and investigate potential statutory, rule, and professional standards violations committed by registered public accounting firms and their associated persons.... The Commission adopted interim final rules to implement its required rulemaking under the Act earlier this year. We remain on track to finalize those rules before the end of the year."

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