Holding Foreign Companies Accountable Act

Bill: 116-hr-7000
Sponsor: full_name: Rep. Sherman, Brad [D-CA-30]
Introduced: 2020-05-22
Policy area: Finance and Financial Sector
Subjects: Accounting and auditing

Administrative law and regulatory procedures

Asia

China

Corporate finance and management

Foreign and international corporations

Government information and archives

Securities

Securities and Exchange Commission (SEC)
Latest action: action_date: 2020-05-22
text: Referred to the House Committee on Financial Services.

Summaries:
action_date: 2020-05-22
action_desc: Introduced in House
text: <p><b>Holding Foreign Companies Accountable Act </b></p> <p>This bill requires certain issuers of securities to establish that&nbsp;they are&nbsp;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. </p> <p>Foreign issuers of securities&nbsp;that use&nbsp;such a firm to prepare an audit report must disclose&nbsp;for each&nbsp;non-inspection year</p> <ul> <li>the percentage of shares owned by governmental entities where the issuer is incorporated, </li> <li>whether these governmental entities have a controlling financial interest, </li> <li>information related to any board members who are officials of the Chinese Communist Party, and </li> <li>whether the articles of incorporation of the issuer contain&nbsp;any charter of the Chinese Communist Party. </li></ul>

tv_txt: I 116th CONGRESS 2d Session H. R. 7000 IN THE HOUSE OF REPRESENTATIVES May 22, 2020 Mr. Sherman introduced the following bill; which was referred to the Committee on Financial Services A BILL To amend the Sarbanes-Oxley Act of 2002 to require certain issuers to disclose to the Securities and Exchange Commission information regarding foreign jurisdictions that prevent the Public Company Accounting Oversight Board from performing inspections under that Act, and for other purposes.

1. Short title This Act may be cited as the Holding Foreign Companies Accountable Act . 2. Disclosure requirement Section 104 of the Sarbanes-Oxley Act of 2002 ( 15 U.S.C. 7214 ) is amended by adding at the end the following: (i) Disclosure regarding foreign jurisdictions that prevent inspections (1) Definitions In this subsection— (A) the term covered issuer means an issuer that is required to file reports under section 13 or 15(d) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78m , 78o(d)); and (B) the term non-inspection year means, with respect to a covered issuer, a year— (i) during which the Commission identifies the covered issuer under paragraph (2)(A) with respect to every report described in subparagraph (A) filed by the covered issuer during that year; and (ii) that begins after the date of enactment of this subsection. (2) Disclosure to Commission The Commission shall— (A) identify each covered issuer that, with respect to the preparation of the audit report on the financial statement of the covered issuer that is included in a report described in paragraph (1)(A) filed by the covered issuer, retains a registered public accounting firm that has a branch or office that— (i) is located in a foreign jurisdiction; and (ii) the Board is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction described in clause (i), as determined by the Board; and (B) require each covered issuer identified under subparagraph (A) to, in accordance with the rules issued by the Commission under paragraph (4), submit to the Commission documentation that establishes that the covered issuer is not owned or controlled by a governmental entity in the foreign jurisdiction described in subparagraph (A)(i). (3) Trading prohibition after 3 years of non-inspections (A) In general If the Commission determines that a covered issuer has 3 consecutive non-inspection years, the Commission shall prohibit the securities of the covered issuer from being traded— (i) on a national securities exchange; or (ii) through any other method that is within the jurisdiction of the Commission to regulate, including through the method of trading that is commonly referred to as the over-the-counter trading of securities. (B) Removal of initial prohibition If, after the Commission imposes a prohibition on a covered issuer under subparagraph (A), the covered issuer certifies to the Commission that the covered issuer has retained a registered public accounting firm that the Board has inspected under this section to the satisfaction of the Commission, the Commission shall end that prohibition. (C) Recurrence of non-inspection years If, after the Commission ends a prohibition under subparagraph (B) or (D) with respect to a covered issuer, the Commission determines that the covered issuer has a non-inspection year, the Commission shall prohibit the securities of the covered issuer from being traded— (i) on a national securities exchange; or (ii) through any other method that is within the jurisdiction of the Commission to regulate, including through the method of trading that is commonly referred to as the over-the-counter trading of securities. (D) Removal of subsequent prohibition If, after the end of the 5-year period beginning on the date on which the Commission imposes a prohibition on a covered issuer under subparagraph (C), the covered issuer certifies to the Commission that the covered issuer will retain a registered public accounting firm that the Board is able to inspect under this section, the Commission shall end that prohibition. (4) Rules Not later than 90 days after the date of enactment of this subsection, the Commission shall issue rules that establish the manner and form in which a covered issuer shall make a submission required under paragraph (2)(B). . 3. Additional disclosure (a) Definitions In this section— (1) the term audit report has the meaning given the term in section 2(a) of the Sarbanes-Oxley Act of 2002 ( 15 U.S.C. 7201(a) ); (2) the term Commission means the Securities and Exchange Commission; (3) the term covered form — (A) means— (i) the form described in section 249.310 of title 17, Code of Federal Regulations, or any successor regulation; and (ii) the form described in section 249.220f of title 17, Code of Federal Regulations, or any successor regulation; and (B) includes a form that— (i) is the equivalent of, or substantially similar to, the form described in clause (i) or (ii) of subparagraph (A); and (ii) a foreign issuer files with the Commission under the Securities Exchange Act of 1934 ( 15 U.S.C. 78a et seq.) or rules issued under that Act; (4) the terms covered issuer and non-inspection year have the meanings given the terms in subsection (i)(1) of section 104 of the Sarbanes-Oxley Act of 2002 ( 15 U.S.C. 7214 ), as added by section 2 of this Act; and (5) the term foreign issuer has the meaning given the term in section 240.3b–4 of title 17, Code of Federal Regulations, or any successor regulation. (b) Requirement Each covered issuer that is a foreign issuer and for which, during a non-inspection year with respect to the covered issuer, a registered public accounting firm described in subsection (i)(2)(A) of section 104 of the Sarbanes-Oxley Act of 2002 ( 15 U.S.C. 7214 ), as added by section 2 of this Act, has prepared an audit report shall disclose in each covered form filed by that issuer that covers such a non-inspection year— (1) that, during the period covered by the covered form, such a registered public accounting firm has prepared an audit report for the issuer; (2) the percentage of the shares of the issuer owned by governmental entities in the foreign jurisdiction in which the issuer is incorporated or otherwise organized; (3) whether governmental entities in the applicable foreign jurisdiction with respect to that registered public accounting firm have a controlling financial interest with respect to the issuer; (4) the name of each official of the Chinese Communist Party who is a member of the board of directors of— (A) the issuer; or (B) the operating entity with respect to the issuer; and (5) whether the articles of incorporation of the issuer (or equivalent organizing document) contains any charter of the Chinese Communist Party, including the text of any such charter.