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Rubio Statement on SEC Proposed Plan to Ban Chinese Firms That Flout U.S. Laws From U.S. Exchanges

Statement

Date: Nov. 17, 2020
Location: Washington, DC

U.S. Senator Marco Rubio (R-FL) welcomed reports that the U.S. Securities and Exchange Commission (SEC) will move forward with a regulation that would delist and prohibit initial public offerings on U.S. exchanges for Chinese companies that are out of compliance with U.S. regulators. Yesterday, Rubio wrote to SEC Chairman Jay Clayton urging the agency to "make unfettered Public Company Accounting Oversight Board (PCAOB) access to the audits of firms listed on U.S. securities exchanges a condition for both initial and continued listing.

"Yesterday, I urged Chairman Clayton to protect U.S. investors by ensuring Chinese companies fully comply with American laws and regulations," Rubio said. "While I welcome the SEC's plan to move forward with this regulation, I look forward to reviewing the specifics to ensure this rule, especially the co-audit component, is airtight. Additionally, Congress must follow the SEC's lead and take action to enshrine this into law. Importantly, if this proposed rule is implemented, it would mark another strong data point for the direction of U.S. policy going forward that prioritizes the interests of American workers and mom and pop investors over the Chinese Communist Party and Wall Street."

The SEC's reported move closely resembles Rubio's Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (EQUITABLE) Act, bipartisan, bicameral legislation he introduced last year to ban Chinese and foreign firms that flout U.S. laws from U.S. exchanges. Rubio previewed the legislation in an op-ed in The Wall Street Journal. A one-pager of the legislation is available here. Key Rubio provisions were included in Senator John Kennedy's (R-LA) Holding Foreign Companies Accountable Act (S.945), which passed the Senate on May 20, 2020.

Earlier this year, Rubio urged members of President Trump's Working Group on Financial Markets to address China's exploitation of U.S. capital markets, including the lack of disclosure by Chinese firms listed on U.S. stock exchanges, the inclusion of Chinese stocks and bonds on securities indexes, and lack of recourse for American investors who have been defrauded by Chinese firms.

Last month, Rubio introduced the American Financial Markets Integrity and Security Act, which would prohibit malign Chinese companies -- including the parent, subsidiary, affiliate, or a controlling entity -- that are listed on the U.S. Department of Commerce Entity List or the U.S. Department of Defense list of Communist Chinese military companies from accessing U.S. capital markets. The legislation closely resembles an Executive Order by President Trump to prohibit U.S. investments in Chinese firms that are on the U.S. Department of Defense list of Communist Chinese military companies. A one-pager of the legislation is available here.

In May 2020, Rubio and Senator Jeanne Shaheen (D-NH) welcomed the announcement by the Federal Retirement Thrift Investment Board (FRTIB) that it would halt its short-sighted decision to invest billions of dollars from the Thrift Savings Plan (TSP) -- the retirement assets of federal government employees, including members of the U.S. Armed Forces -- in opaque Chinese firms engaged in human rights abuses and a wide range of military-related activities.

Rubio and Shaheen also led a group of lawmakers in introducing the bipartisan, bicameral Taxpayers and Savers Protection (TSP) Act, which would prevent the FRTIB from steering federal retirement savings to China. Specifically, the FRTIB plans to shift the TSP's International Fund Index to the MSCI All Country World ex-U.S. Investable Market Index that includes Chinese companies under U.S. sanctions and U.S. export bans.

Background:
In February 2020, the Securities and Exchange Commission (SEC) released a statement regarding the difficulties U.S. regulators face when auditing U.S.-listed companies based in China, and how over the past decade, U.S. investors, and the U.S. capital markets more generally, have become more exposed to companies with significant operations in emerging markets, including China, the largest emerging market economy.
In December 2018, the SEC and the Public Company Accounting Oversight Board (PCAOB) issued a joint warning to investors about the challenges American regulators face when attempting to conduct oversight of U.S.-listed companies whose operations are based in China and Hong Kong.
While the PCAOB regularly inspects audits of U.S.-listed firms at home and abroad, Beijing consistently and systemically challenges those efforts. For example, Chinese law requires that records remain in China, and the Communist Party routinely restricts access to typical accounting information on the grounds of national security and state secrecy.
The U.S.-China Economic and Security Review Commission identified 156 Chinese companies, including 11 state-owned-enterprises, that are listed on America's three largest exchanges with a combined market capitalization of $1.2 trillion.
In March 2018, the influential global index provider MSCI announced that it would quadruple its weighting of Chinese company shares in one of its key index products.


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