Under the bill, foreign companies that fail to comply with the Public Company Accounting Oversight Board’s (PCAOB) audits for three consecutive years will be subject to delisting from U.S. exchanges. The rule also applies to companies whose shares are traded over-the-counter.
The measure impacts Chinese companies such as Alibaba Group Holding Ltd. (NYSE: Baba), JD.com Inc. (Nasdaq:JD), and China Mobile Ltd. (NYSE: CHL).
The bill also requires companies to disclose whether they’re owned or subject to control by a foreign government, including China’s communist regime.
The bipartisan bill, introduced by Sens. John Kennedy (R-La.) and Chris Van Hollen (D-Md.), passed the U.S. Senate by unanimous consent on May 20. The bill had awaited a vote in the House since then.
Kennedy applauded the House for joining the Senate in passing the bill with strong support.
“The current policy that allows Chinese firms to flout the rules that American companies follow is toxic,” Kennedy told The Epoch Times in an email.
“It puts American families and workers at risk by jeopardizing their college and retirement savings. My colleagues on both sides of the aisle recognize that fact.”
The PCAOB has been unable to inspect audit firms based in China for more than a decade. Beijing has refused to allow audit inspections of China-based companies, citing local Communist Party laws related to data protection, privacy, confidentiality, or national security as reasons for noncompliance.
The scandal was a wake-up call for lawmakers, regulators, and investors about the risks Chinese companies pose to U.S. capital markets.
“Millions of American families rely on modest investments to retire, send their kids to college, and weather financial emergencies,” Van Hollen said in a statement. “But many have been cheated out of their money after investing in seemingly-legitimate Chinese companies that are not held to the same standards as other publicly listed companies. This bill rights that wrong, ensuring that all companies on the U.S. exchanges abide by the same rules.”
“This may be the most significant piece of investor protection legislation passed in several years,” Rep. Brad Sherman (D-Calif.), chair of the House investor protection and capital markets subcommittee, said in a statement.
“The purpose is not to de-list any company but to persuade China to allow the audit oversight that U.S. investors need.”
Roger W. Robinson Jr., chairman of the Prague Security Studies Institute, a nonprofit public policy organization, welcomed the bill but raised concerns about the long implementation period.
“Although the unanimous congressional action on this bill is of true historic importance, the three-year implementation period represents a breathtaking, ill-advised concession to Wall Street and Beijing,” he told The Epoch Times.
“One can be reasonably assured that ‘workarounds’ are already being formulated by detractors to dilute, if not eviscerate, this otherwise valuable investor protection measure.”
Robinson is also former chairman of the Congressional US–China Economic and Security Review Commission.
The bill also doesn’t cover hundreds of Chinese companies that aren’t listed on American exchanges but are embedded in Exchange-Traded Funds (ETFs) and other passive investment funds benchmarked against indexes, which is a loophole, according to Robinson.
Many of these companies are involved in the Chinese communist regime’s military and espionage apparatuses and implicated in its human rights abuses.