SAFE from PRC Investments Act

I 118TH CONGRESS 1ST SESSION H. R. 499 To amend the Securities Exchange Act of 1934 to require certain additional annual disclosures by public companies and exchange-traded funds invest- ing in companies with ties to the People’s Republic of China, and for other purposes. IN THE HOUSE OF REPRESENTATIVES JANUARY 25, 2023 Mr. FALLON (for himself, Mr. ELLZEY, Mr. JACKSON of Texas, and Mr. AMODEI) introduced the following bill; which was referred to the Com- mittee on Financial Services A BILL To amend the Securities Exchange Act of 1934 to require certain additional annual disclosures by public companies and exchange-traded funds investing in companies with ties to the People’s Republic of China, 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 ‘‘Securing American 4 Families and Enterprises from People’s Republic of China 5 Investments Act’’ or the ‘‘SAFE from PRC Investments 6 Act’’. 7 VerDate Sep 11 2014 03:45 Mar 09, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H499.IH H499 pbinns on DSKJLVW7X2PROD with $$_JOB 2 •HR 499 IH SEC. 2. ADDITIONAL DISCLOSURES TO PROTECT AMERICAN 1 INVESTORS AND BUSINESSES. 2 Section 13 of the Securities Exchange Act of 1934 3 (15 U.S.C. 78m) is amended by adding at the end the 4 following: 5 ‘‘(s) ADDITIONAL DISCLOSURES TO PROTECT AMER- 6 ICAN INVESTORS AND BUSINESSES.— 7 ‘‘(1) IN GENERAL.—Each covered issuer that is 8 required to file an annual report under section 13(a) 9 or 15(d) shall disclose in that report the following: 10 ‘‘(A) Whether a senior official of the 11 national- or provincial-level governments of the 12 People’s Republic of China (‘PRC’) sits on the 13 board of directors of the issuer or any sub- 14 sidiary of the issuer. 15 ‘‘(B) Whether executive-level employees, 16 senior directors, and board members of the 17 issuer are members of the Communist Party of 18 China. 19 ‘‘(C) Whether executive-level employees, 20 senior directors, and board members of the 21 issuer have immediate family members that are 22 senior officials of the Communist Party of 23 China or the Government of the People’s Re- 24 public of China. 25 VerDate Sep 11 2014 03:45 Mar 09, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H499.IH H499 pbinns on DSKJLVW7X2PROD with $$_JOB 3 •HR 499 IH ‘‘(D) Whether the issuer has a party 1 branch or committee as part of the issuer’s cor- 2 porate structure. 3 ‘‘(E) With respect to the operations of the 4 issuer located in the PRC— 5 ‘‘(i) the amount of cash held; 6 ‘‘(ii) any limits imposed by the Com- 7 munist Party of China or the Government 8 of the People’s Republic of China on the 9 ability to take such cash out of the coun- 10 try; and 11 ‘‘(iii) disclosure of investments, assets 12 and liabilities, technology licensed or trans- 13 ferred, and financing or debt obligations 14 involving PRC operations or from a PRC 15 entity. 16 ‘‘(F) The number of times executive-level 17 employees of the issuer interact with senior offi- 18 cials of the Communist Party of China and the 19 costs of those meetings and any transfer of 20 goods, money, or services between issuer’s em- 21 ployees. 22 ‘‘(G) The amount the issuer has expended 23 on operations in the People’s Republic of China, 24 both in total and for the prior fiscal year. 25 VerDate Sep 11 2014 03:45 Mar 09, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H499.IH H499 pbinns on DSKJLVW7X2PROD with $$_JOB 4 •HR 499 IH ‘‘(H) The amount the issuer has expended 1 on operations in the United States, both in 2 total and for the prior fiscal year. 3 ‘‘(I) The amount (both in total and for the 4 prior fiscal year) that the issuer has spent on 5 lobbying in the United States, including— 6 ‘‘(i) whether the issuer or any sub- 7 sidiary of the issuer has reported any sums 8 under the Foreign Agents Registration Act 9 of 1938; and 10 ‘‘(ii) whether the issuer or any sub- 11 sidiary of the issuer has reported any sums 12 under the Lobbying Disclosure Act of 13 1995. 14 ‘‘(J) Whether the Public Company Ac- 15 counting Oversight Board is unable to inspect 16 or investigate a registered public accounting 17 firm retained by the issuer to prepare an audit 18 report on the financial statement of the issuer. 19 ‘‘(K) The amount of taxes and other fees 20 the issuer paid to the Government of the Peo- 21 ple’s Republic of China on an annual basis. 22 ‘‘(L) With respect to customer data— 23 ‘‘(i) who has access to such data; 24 VerDate Sep 11 2014 03:45 Mar 09, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H499.IH H499 pbinns on DSKJLVW7X2PROD with $$_JOB 5 •HR 499 IH ‘‘(ii) disclosure of instances when in- 1 formation is requested, arrangements that 2 may allow passive or continuous access, ef- 3 forts to protect such data, instances of 4 cyber-attack, corporate or personnel dis- 5 putes that involve potential breaches, and 6 notification of other breaches; and 7 ‘‘(iii) whether such data is stored in 8 the United States and, if not, the country 9 or territory in which such data is stored. 10 ‘‘(M) For each subsidiary of the issuer lo- 11 cated in the PRC, the information described 12 under subparagraphs (A) through (L) with re- 13 spect to such subsidiary. 14 ‘‘(N) If the issuer or any subsidiary of the 15 issuer located in the PRC produces goods or 16 services that are part of a military-civil fusion 17 strategy, whether the issuer has consulted with 18 the People’s Liberation Army or the Ministry of 19 State Security with regard to industrial policy. 20 ‘‘(2) DEFINITIONS.—In this subsection: 21 ‘‘(A) COMMUNIST PARTY OF CHINA.—The 22 term ‘Communist Party of China’ means the 23 ruling party of the People’s Republic of China, 24 including— 25 VerDate Sep 11 2014 03:45 Mar 09, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H499.IH H499 pbinns on DSKJLVW7X2PROD with $$_JOB 6 •HR 499 IH ‘‘(i) party bodies at the national and 1 sub-national level; and 2 ‘‘(ii) any agency or instrumentality of 3 the Communist Party of China. 4 ‘‘(B) COVERED ISSUER.—The term ‘cov- 5 ered issuer’ means an issuer— 6 ‘‘(i) that is— 7 ‘‘(I) headquartered in the PRC 8 (including the Hong Kong and Macau 9 Special Administrative Regions); 10 ‘‘(II) a branch or subsidiary of 11 an issuer headquartered in the PRC; 12 or 13 ‘‘(III) a variable interest entity 14 or other type of firm structured 15 through a series of contracts or over- 16 lapping personnel— 17 ‘‘(aa) that are tied to core 18 operations in the PRC; or 19 ‘‘(bb) controlled and owned 20 by an issuer headquartered in the 21 PRC; or 22 ‘‘(ii) that— 23 ‘‘(I) is domiciled in a tax haven 24 jurisdiction or self-governing terri- 25 VerDate Sep 11 2014 03:45 Mar 09, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H499.IH H499 pbinns on DSKJLVW7X2PROD with $$_JOB 7 •HR 499 IH tories, including the Cayman Islands, 1 British Virgin Islands, Bermuda, the 2 Netherlands, Switzerland, Luxem- 3 bourg, Singapore, the United Arab 4 Emirates, the Bahamas, Cyprus, or 5 Mauritius; and 6 ‘‘(II) has the majority of the 7 issuer’s business operations taking 8 place or the majority of the issuer’s 9 revenue generated in mainland China. 10 ‘‘(C) GOVERNMENT OF THE PEOPLE’S RE- 11 PUBLIC OF CHINA.—The term ‘Government of 12 the People’s Republic of China’ means any of 13 the following: 14 ‘‘(i) Any national or sub-national gov- 15 ernmental unit of the People’s Republic of 16 China. 17 ‘‘(ii) Any national or sub-national leg- 18 islature of the People’s Republic of China. 19 ‘‘(iii) Any national or sub-national 20 People’s Political Consultative Conference 21 of the People’s Republic of China. 22 ‘‘(iv) Any national or sub-national ju- 23 dicial or prosecutorial body of the People’s 24 Republic of China. 25 VerDate Sep 11 2014 03:45 Mar 09, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H499.IH H499 pbinns on DSKJLVW7X2PROD with $$_JOB 8 •HR 499 IH ‘‘(v) Any national or sub-national su- 1 pervision commission of the People’s Re- 2 public of China. 3 ‘‘(vi) Any agency or instrumentality of 4 the People’s Republic of China. 5 ‘‘(D) IMMEDIATE FAMILY MEMBER.—The 6 term ‘immediate family member’ shall include a 7 spouse, domestic partner, mother, father, aunt, 8 uncle, sibling, or child. 9 ‘‘(E) MILITARY-CIVIL FUSION STRAT- 10 EGY.—The term ‘military-civil fusion strategy’ 11 means the strategy of the Communist Party of 12 China aiming to mobilize non-military resources 13 and expertise for military application, includ- 14 ing— 15 ‘‘(i) the development of technology, 16 improvements in logistics, and other uses 17 by the People’s Liberation Army; and 18 ‘‘(ii) firms which develop and acquire 19 advanced dual-use technology for military 20 purposes. 21 ‘‘(F) PRC.—The term ‘PRC’ means the 22 People’s Republic of China. 23 ‘‘(G) SENIOR OFFICIAL.—The term ‘senior 24 official’, when used in connection with the Gov- 25 VerDate Sep 11 2014 03:45 Mar 09, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H499.IH H499 pbinns on DSKJLVW7X2PROD with $$_JOB 9 •HR 499 IH ernment of the People’s Republic of China or 1 the Communist Party of China, means— 2 ‘‘(i) an official with the rank of a dep- 3 uty at the provincial or ministerial level 4 (shengbu ji fu zhi) or higher; or 5 ‘‘(ii) a chief at the bureau level (tingju 6 ji zheng zhi) or higher. 7 ‘‘(H) VARIABLE INTEREST ENTITY.—The 8 term ‘variable interest entity’ means an entity 9 where an investor has a controlling interest that 10 is not based on holding the majority of voting 11 rights.’’. 12 SEC. 3. DISCLOSURES BY EXCHANGE TRADED FUNDS IN- 13 VESTING IN CHINESE COMPANIES. 14 Section 13 of the Securities Exchange Act of 1934 15 (15 U.S.C. 78m), as amended by section 2, is further 16 amended by adding at the end the following: 17 ‘‘(t) DISCLOSURES BY EXCHANGE TRADED FUNDS 18 INVESTING IN CHINESE COMPANIES.— 19 ‘‘(1) IN GENERAL.—Each exchange traded fund 20 required to file an annual report under section 13(a) 21 or 15(d) shall, if the fund invested in the securities 22 of any PRC company during the reporting period, 23 include in such report the following, with respect to 24 each such PRC company: 25 VerDate Sep 11 2014 03:45 Mar 09, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H499.IH H499 pbinns on DSKJLVW7X2PROD with $$_JOB 10 •HR 499 IH ‘‘(A) Who owns the company, including 1 whether the company is owned by the Govern- 2 ment of the People’s Republic of China or a 3 PRC state-controlled entity. 4 ‘‘(B) Whether the company operates a 5 Communist Party of China branch or com- 6 mittee within the company’s corporate struc- 7 ture. 8 ‘‘(C) Whether the company has any con- 9 tractual agreements with the Government of the 10 People’s Republic of China or the Communist 11 Party of China or any agency or instrumen- 12 tality of either. 13 ‘‘(D) Whether the company has partici- 14 pated in the PRC’s industrial policies or has 15 military or public security contracts. 16 ‘‘(E) Whether any funding, direction, or 17 other forms of control over the company are ex- 18 ercised by the Government of the People’s Re- 19 public of China or the Communist Party of 20 China. 21 ‘‘(F) Whether executive-level employees 22 and board members of the company have imme- 23 diate family members who are senior officials of 24 the Communist Party of China or the Govern- 25 VerDate Sep 11 2014 03:45 Mar 09, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H499.IH H499 pbinns on DSKJLVW7X2PROD with $$_JOB 11 •HR 499 IH ment of the People’s Republic of China or are 1 themselves senior officials of the Communist 2 Party of China or the Government of the Peo- 3 ple’s Republic of China. 4 ‘‘(G) Whether the company is part of (in- 5 cluding by reason of being a branch or sub- 6 sidiary) or tied to (through a series of contracts 7 or parallel corporate incorporations) firms or 8 individuals sanctioned, restricted, or identified 9 as tied to the People’s Liberation Army by the 10 United States Government, including under— 11 ‘‘(i) the Military End User List main- 12 tained by the Bureau of Industry and Se- 13 curity of the Department of Commerce; 14 ‘‘(ii) the Non-SDN Chinese Military- 15 Industrial Complex Companies List; 16 ‘‘(iii) the Unverified List maintained 17 by the Secretary of Commerce; 18 ‘‘(iv) the List maintained by the Fed- 19 eral Communications Commission of equip- 20 ment and services covered by section 2 of 21 the Secure and Trusted Communications 22 Networks Act of 2019 (47 U.S.C. 1601); 23 VerDate Sep 11 2014 03:45 Mar 09, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H499.IH H499 pbinns on DSKJLVW7X2PROD with $$_JOB 12 •HR 499 IH ‘‘(v) the Uyghur Forced Labor Pre- 1 vention Act Entity List maintained by the 2 Department of Homeland Security; 3 ‘‘(vi) the list of covered issuers subject 4 to a prohibition under section 104 of the 5 Sarbanes-Oxley Act of 2002 (15 U.S.C. 6 7214) maintained by the Securities and 7 Exchange Commission; and 8 ‘‘(vii) the Withhold Release Orders 9 and Findings List maintained by the Com- 10 missioner of U.S. Customs and Border 11 Protection. 12 ‘‘(H) The types of products and services 13 offered by the company. 14 ‘‘(I) Whether the company has a contract 15 with the United States Department of Defense. 16 ‘‘(J) Whether the company produces a 17 product or service that is used in the produc- 18 tion of aircraft, spacecraft, semiconductor chips 19 and equipment, batteries or battery compo- 20 nents, facial recognition technology, artificial 21 intelligence, telecommunications technology, en- 22 ergy production equipment, advanced medical 23 devices, or pharmaceuticals or any such prod- 24 VerDate Sep 11 2014 03:45 Mar 09, 2023 Jkt 039200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H499.IH H499 pbinns on DSKJLVW7X2PROD with $$_JOB 13 •HR 499 IH ucts related to the national technology and in- 1 dustrial base in the United States. 2 ‘‘(K) Whether the company produces goods 3 that would violate U.S. environmental law or 4 U.S. civil liberties law if the goods were pro- 5 duced or used in the United States. 6 ‘‘(L) Any business activities conducted by 7 the company— 8 ‘‘(i) with a privately held firm involved 9 in China’s industrial, technology, and mili- 10 tary modernization efforts based in the 11 People’s Republic of China; or 12 ‘‘(ii) with a Chinese state-controlled 13 entity. 14 ‘‘(M) Whether the company has ever had 15 an audit of the same type and quality as typi- 16 cally used by an issuer of publicly traded securi- 17 ties. 18 ‘‘(2) DEFINITIONS.—In this subsection: 19 ‘‘(A) EX [Text truncated for display. 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