The Holding Foreign Companies Accountable Act (S. 945) has passed the Senate, and is expected to ratchet up pressure on foreign securities listed on US exchanges to prove that they are free of state ownership or interference.
The act will require identification of extent of the foreign government’s holding in the US securities in question. The text of the Act contains a specific provision to ensure that issuers report the names of officials of the Chinese Communist Party who are members of the board of directors of the issuer or the relevant operating entity.
The bill will require “certain issuers of securities to establish that they are not owned or controlled by a foreign government”, according to its Congressional description.
“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.”
The Trump administration has been pushing for tighter oversight of Chinese companies on US exchanges, arguing that they are protected by Chinese laws preventing the results of audit conducted within China being transferred overseas.
The stock price of Alibaba, the largest Chinese company on US exchanges was little changed in response to the news, and at $214 is not too far south of its 52-week high of $231, equating to a market capitalisation of over half a trillion dollars.