Courtesy of Pam Martens
Shanghai’s Bull Statue on Its Bund Waterfront (left); Bull Statue in Lower Manhattan (right)
For the past 19 years, China has been stonewalling U.S. regulators over access to the work papers of auditors of publicly traded companies that are based in China but listed on U.S. stock exchanges. China takes the position that these audit work papers hold state secrets and it prohibits audit firms from releasing the documents directly to U.S. regulators, effectively gutting U.S. law.
Finally, last December, Congress addressed the long brewing problem. Both houses of Congress unanimously passed legislation called the Holding Foreign Companies Accountable Act. The legislation requires that the Securities and Exchange Commission (SEC) identify companies that are listed in the U.S. which the Public Company Accounting Oversight Board (PCAOB) cannot “inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction.”
The legislation also requires the listed companies to provide documentation showing that they are not owned or controlled by a governmental entity. It also requires that the SEC prohibit the trading of the company’s stock in the U.S. if its audits cannot be inspected for three consecutive years.
Unfortunately, according to the U.S.-China Economics and Security Review Commission (USCC), an independent U.S. government agency, the horse left the barn a long time ago. The USCC reports that as of May 5 of this year, “there were 248 Chinese companies listed on these U.S. exchanges with a total market capitalization of $2.1 trillion.” Those exchanges are the NASDAQ, New York Stock Exchange, and NYSE American (formerly the American Stock Exchange).
The USCC also reports that among the 248 Chinese companies listed on exchanges in the U.S. are eight companies that are “national-level Chinese state-owned enterprises.” State-owned companies in China are controlled by the Chinese Communist Party (CCP). (That Americans are unwittingly raising capital to fund state-owned or state-controlled companies in China is nothing short of breathtaking.)
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