The U.S. House of Representatives recently approved the Holding Foreign Companies Accountable Act (the “Act”), which is identical to the bill that the U.S. Senate has passed in May 2020. The Act is expected to be signed into law by President Trump by the end of this month.
The Act provides that the U.S. Securities and Exchange Commission (the “SEC”) will prohibit the securities of foreign companies from being listed or traded on any U.S. securities exchanges if the auditor of the company’s financial statement cannot be inspected by the Public Company Accounting Oversight Board (the “PCAOB”) for three consecutive years, beginning in 2021. Each year in which the PCAOB could not inspect such auditor is referred to as a “non-inspection” year. The Act also directs the SEC to prohibit the trading of such securities in the U.S. by any other method, including over-the-counter trading.
The Act provides a cure provision. If following the prohibition by the SEC, the company certifies to the SEC that the company has retained a registered public accounting firm subject to the PCAOB’s inspection as the company’s auditor, the SEC will no longer prohibit the company from listing on any U.S. securities exchange and prohibit the trading of the securities of the company in the U.S by any other method.
However, after the SEC ends a prohibition, if the SEC determines that the company has a non-inspection year, the prohibition will be reinstituted, and the company would not be permitted to list on any U.S. securities exchange for five years or trade its securities through any other method. This 5-year prohibition might also be cured by the method to cure initial prohibition – retaining a registered public accounting firm subject to the PCAOB’s inspection. But if there is a non-inspection year after the 5-year prohibition has been ended, the prohibition will be reinstituted again by the SEC.