Holding Foreign Companies Accountable Act

I 116TH CONGRESS 2D SESSION H. R. 7000 To amend the Sarbanes-Oxley Act of 2002 to require certain issuers to disclose to the Securities and Exchange Commission information regard- ing foreign jurisdictions that prevent the Public Company Accounting Oversight Board from performing inspections under that Act, and for other purposes. IN THE HOUSE OF REPRESENTATIVES MAY 22, 2020 Mr. SHERMAN introduced the following bill; which was referred to the Committee on Financial Services A BILL To amend the Sarbanes-Oxley Act of 2002 to require certain issuers to disclose to the Securities and Exchange Com- mission information regarding foreign jurisdictions that prevent the Public Company Accounting Oversight Board from performing inspections under that Act, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Holding Foreign Com- 4 panies Accountable Act’’. 5 VerDate Sep 11 2014 00:00 Jun 17, 2020 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H7000.IH H7000 pamtmann on DSKBC07HB2PROD with BILLS 2 •HR 7000 IH SEC. 2. DISCLOSURE REQUIREMENT. 1 Section 104 of the Sarbanes-Oxley Act of 2002 (15 2 U.S.C. 7214) is amended by adding at the end the fol- 3 lowing: 4 ‘‘(i) DISCLOSURE REGARDING FOREIGN JURISDIC- 5 TIONS THAT PREVENT INSPECTIONS.— 6 ‘‘(1) DEFINITIONS.—In this subsection— 7 ‘‘(A) the term ‘covered issuer’ means an 8 issuer that is required to file reports under sec- 9 tion 13 or 15(d) of the Securities Exchange Act 10 of 1934 (15 U.S.C. 78m, 78o(d)); and 11 ‘‘(B) the term ‘non-inspection year’ means, 12 with respect to a covered issuer, a year— 13 ‘‘(i) during which the Commission 14 identifies the covered issuer under para- 15 graph (2)(A) with respect to every report 16 described in subparagraph (A) filed by the 17 covered issuer during that year; and 18 ‘‘(ii) that begins after the date of en- 19 actment of this subsection. 20 ‘‘(2) DISCLOSURE TO COMMISSION.—The Com- 21 mission shall— 22 ‘‘(A) identify each covered issuer that, with 23 respect to the preparation of the audit report 24 on the financial statement of the covered issuer 25 that is included in a report described in para- 26 VerDate Sep 11 2014 00:00 Jun 17, 2020 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H7000.IH H7000 pamtmann on DSKBC07HB2PROD with BILLS 3 •HR 7000 IH graph (1)(A) filed by the covered issuer, retains 1 a registered public accounting firm that has a 2 branch or office that— 3 ‘‘(i) is located in a foreign jurisdic- 4 tion; and 5 ‘‘(ii) the Board is unable to inspect or 6 investigate completely because of a position 7 taken by an authority in the foreign juris- 8 diction described in clause (i), as deter- 9 mined by the Board; and 10 ‘‘(B) require each covered issuer identified 11 under subparagraph (A) to, in accordance with 12 the rules issued by the Commission under para- 13 graph (4), submit to the Commission docu- 14 mentation that establishes that the covered 15 issuer is not owned or controlled by a govern- 16 mental entity in the foreign jurisdiction de- 17 scribed in subparagraph (A)(i). 18 ‘‘(3) TRADING PROHIBITION AFTER 3 YEARS OF 19 NON-INSPECTIONS.— 20 ‘‘(A) IN GENERAL.—If the Commission de- 21 termines that a covered issuer has 3 consecutive 22 non-inspection years, the Commission shall pro- 23 hibit the securities of the covered issuer from 24 being traded— 25 VerDate Sep 11 2014 00:00 Jun 17, 2020 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H7000.IH H7000 pamtmann on DSKBC07HB2PROD with BILLS 4 •HR 7000 IH ‘‘(i) on a national securities exchange; 1 or 2 ‘‘(ii) through any other method that is 3 within the jurisdiction of the Commission 4 to regulate, including through the method 5 of trading that is commonly referred to as 6 the ‘over-the-counter’ trading of securities. 7 ‘‘(B) REMOVAL OF INITIAL PROHIBI- 8 TION.—If, after the Commission imposes a pro- 9 hibition on a covered issuer under subpara- 10 graph (A), the covered issuer certifies to the 11 Commission that the covered issuer has re- 12 tained a registered public accounting firm that 13 the Board has inspected under this section to 14 the satisfaction of the Commission, the Com- 15 mission shall end that prohibition. 16 ‘‘(C) RECURRENCE OF NON-INSPECTION 17 YEARS.—If, after the Commission ends a prohi- 18 bition under subparagraph (B) or (D) with re- 19 spect to a covered issuer, the Commission deter- 20 mines that the covered issuer has a non-inspec- 21 tion year, the Commission shall prohibit the se- 22 curities of the covered issuer from being trad- 23 ed— 24 VerDate Sep 11 2014 00:00 Jun 17, 2020 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H7000.IH H7000 pamtmann on DSKBC07HB2PROD with BILLS 5 •HR 7000 IH ‘‘(i) on a national securities exchange; 1 or 2 ‘‘(ii) through any other method that is 3 within the jurisdiction of the Commission 4 to regulate, including through the method 5 of trading that is commonly referred to as 6 the ‘over-the-counter’ trading of securities. 7 ‘‘(D) REMOVAL OF SUBSEQUENT PROHIBI- 8 TION.—If, after the end of the 5-year period be- 9 ginning on the date on which the Commission 10 imposes a prohibition on a covered issuer under 11 subparagraph (C), the covered issuer certifies to 12 the Commission that the covered issuer will re- 13 tain a registered public accounting firm that 14 the Board is able to inspect under this section, 15 the Commission shall end that prohibition. 16 ‘‘(4) RULES.—Not later than 90 days after the 17 date of enactment of this subsection, the Commis- 18 sion shall issue rules that establish the manner and 19 form in which a covered issuer shall make a submis- 20 sion required under paragraph (2)(B).’’. 21 SEC. 3. ADDITIONAL DISCLOSURE. 22 (a) DEFINITIONS.—In this section— 23 VerDate Sep 11 2014 00:00 Jun 17, 2020 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H7000.IH H7000 pamtmann on DSKBC07HB2PROD with BILLS 6 •HR 7000 IH (1) the term ‘‘audit report’’ has the meaning 1 given the term in section 2(a) of the Sarbanes-Oxley 2 Act of 2002 (15 U.S.C. 7201(a)); 3 (2) the term ‘‘Commission’’ means the Securi- 4 ties and Exchange Commission; 5 (3) the term ‘‘covered form’’— 6 (A) means— 7 (i) the form described in section 8 249.310 of title 17, Code of Federal Regu- 9 lations, or any successor regulation; and 10 (ii) the form described in section 11 249.220f of title 17, Code of Federal Reg- 12 ulations, or any successor regulation; and 13 (B) includes a form that— 14 (i) is the equivalent of, or substan- 15 tially similar to, the form described in 16 clause (i) or (ii) of subparagraph (A); and 17 (ii) a foreign issuer files with the 18 Commission under the Securities Exchange 19 Act of 1934 (15 U.S.C. 78a et seq.) or 20 rules issued under that Act; 21 (4) the terms ‘‘covered issuer’’ and ‘‘non-inspec- 22 tion year’’ have the meanings given the terms in 23 subsection (i)(1) of section 104 of the Sarbanes- 24 VerDate Sep 11 2014 00:00 Jun 17, 2020 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H7000.IH H7000 pamtmann on DSKBC07HB2PROD with BILLS 7 •HR 7000 IH Oxley Act of 2002 (15 U.S.C. 7214), as added by 1 section 2 of this Act; and 2 (5) the term ‘‘foreign issuer’’ has the meaning 3 given the term in section 240.3b–4 of title 17, Code 4 of Federal Regulations, or any successor regulation. 5 (b) REQUIREMENT.—Each covered issuer that is a 6 foreign issuer and for which, during a non-inspection year 7 with respect to the covered issuer, a registered public ac- 8 counting firm described in subsection (i)(2)(A) of section 9 104 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7214), 10 as added by section 2 of this Act, has prepared an audit 11 report shall disclose in each covered form filed by that 12 issuer that covers such a non-inspection year— 13 (1) that, during the period covered by the cov- 14 ered form, such a registered public accounting firm 15 has prepared an audit report for the issuer; 16 (2) the percentage of the shares of the issuer 17 owned by governmental entities in the foreign juris- 18 diction in which the issuer is incorporated or other- 19 wise organized; 20 (3) whether governmental entities in the appli- 21 cable foreign jurisdiction with respect to that reg- 22 istered public accounting firm have a controlling fi- 23 nancial interest with respect to the issuer; 24 VerDate Sep 11 2014 00:00 Jun 17, 2020 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H7000.IH H7000 pamtmann on DSKBC07HB2PROD with BILLS 8 •HR 7000 IH (4) the name of each official of the Chinese 1 Communist Party who is a member of the board of 2 directors of— 3 (A) the issuer; or 4 (B) the operating entity with respect to the 5 issuer; and 6 (5) whether the articles of incorporation of the 7 issuer (or equivalent organizing document) contains 8 any charter of the Chinese Communist Party, in- 9 cluding the text of any such charter. 10 Æ VerDate Sep 11 2014 00:00 Jun 17, 2020 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6301 E:\BILLS\H7000.IH H7000 pamtmann on DSKBC07HB2PROD with BILLS