Holding Foreign Companies Accountable Act
Floor Speech
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Mr. CLAY. Mr. Speaker, I move to suspend the rules and pass the bill (S. 945) 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, and for other purposes.
The Clerk read the title of the bill.
The text of the bill is as follows: S. 945
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE.
This Act may be cited as the ``Holding Foreign Companies Accountable Act''. SEC. 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).''. SEC. 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.
Mr. Speaker, I rise in support of S. 945, the Holding Foreign Companies Accountable Act, which would suspend the trading of securities of foreign issuers that retain accounting firms not subject to audit by the Public Company Accounting Oversight Board after 3 years of noncompliance, as well as require the issuer to disclose whether it is owned or controlled by a foreign government.
I would like to thank Senator Kennedy and Representative Sherman, who cosponsored the House version of S. 945, for working on this incredibly important and long-overdue piece of legislation.
The Enron and WorldCom financial reporting scandals wiped out billions of dollars from retirement accounts, eliminated tens of thousands of jobs, and defrauded investors hundreds of billions of dollars. To ensure U.S. investors, workers, retirees, and capital markets were never again exposed to this type of egregious fraud, Congress established the PCAOB through the Sarbanes-Oxley Act to protect investors by overseeing the audits of public companies and ensuring the preparation of informative, accurate, and independent corporate disclosures and audit reports by inspection.
As former PCAOB board member Steven Harris noted: ``The PCAOB was established because the accounting profession's framework of self- regulation had failed,'' and the creation of an independent auditor to inspect and verify corporate disclosures and audit work was necessary.
However, citing various foreign secrecy, privacy, and national security laws, many foreign issuers who enjoy the full benefits and privileges of trading on U.S. exchanges and access to U.S. public markets have openly flouted U.S. investor protections and prohibited the PCAOB from inspecting their corporate disclosures as well as the auditor's work.
According to a June 2020 PCAOB report, China alone had 202 public companies listed on U.S. exchanges representing $1.8 trillion in market capitalization that the PCAOB has been unable to fully and adequately inspect.
Make no mistake, the ability of foreign issuers to circumvent PCAOB inspection affirmatively allows foreign companies to exploit U.S. workers and retirees and comes at the direct expense of U.S. investors and the integrity of U.S. markets. To continue with business as usual reverts us back to the Enron and WorldCom status quo.
By suspending the trading of securities issued by foreign issuers who are not fully compliant with PCAOB audit inspections for 3 years, the Holding Foreign Companies Accountable Act will hold noncompliant foreign issuers accountable and help safeguard U.S. investors and the integrity of our markets.
We can no longer allow foreign issuers to exploit our system. I call on my colleagues on both sides of the aisle to stand with me in protecting American workers, retirees, and investors by supporting the bipartisan Holding Foreign Companies Accountable Act.
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Mr. CLAY. Mr. Speaker, it gives me great pleasure to yield such time as he may consume to the gentleman from California (Mr. Sherman), my 20-year friend and colleague.
Mr. Speaker, let me first thank my friend from Maryland, Senator Chris Van Hollen, for his cosponsorship of this legislation.
The Holding Foreign Companies Accountable Act would require the SEC to suspend the trading of securities at issue by foreign issuers who are not fully compliant with PCAOB audit inspection for 3 years, commencing upon the enactment of this bill, as well as require foreign issuers to disclose whether they are owned or controlled by a foreign government.
For too long, foreign issuers have circumvented important investor protections crafted by Congress to protect U.S. investors, retirees, workers, and U.S. capital markets. This commonsense bill does nothing more than ensure a level playing field by requiring foreign issuers to play by the same rules as everyone else.
Additionally, with passage of this bill, investors and markets can be assured that the legally required disclosures they are receiving pursuant to U.S. law from the company they are investing in have been thoroughly vetted by an independent entity whose mission is to protect investors and safeguard market integrity.
Maintaining the status quo would allow foreign issuers to continue to exploit U.S. retirees, workers, and investors, all while allowing them continued access to the greatest, most dynamic capital market system in the world.
I call on all my colleagues on both sides of the aisle to join me in supporting the bipartisan Holding Foreign Companies Accountable Act.
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