The U.S. Senate today joined the effort to ensure that the Chinese Communist Party (CCP) is no longer able to enjoy preferential treatment in our capital markets – to the detriment of American investors, the U.S. financial ecosystem and our national security and human rights priorities.
The vehicle for the Senate’s action was legislation sponsored by Banking Committee’s Sens. John Kennedy (R-LA) and Chris Van Hollen (D-MD). It was unanimously adopted.
The Senate’s action comes on the heels of a series of initiatives and statements by President Trump, his senior subordinates and NASDAQ aimed at preventing initially military personnel and civilian federal government employees, past and present, and now other American investors from having their savings invested in non-transparent CCP companies that refuse to allow audits that conform to U.S. Public Company Accounting Oversight Board (PCAOB) standards and/or disclose material risks. These actions included:
- Trump’s intervention last week to block the Federal Retirement Thrift Investment Board (FRTIB) from investing in Chinese companies, some of which enable the CCP to oppress its own people and threaten ours.
- A joint letter from on May 11th from the National Economic Council Chair Lawrence Kudlow and National Security Advisor Robert O’Brien conveying the President’s direction to Labor Secretary Eugene Scalia warning that, “The Chinese Government’s intentional thwarting of U.S. investor protections should raise serious concerns about the reliability of financial information from Chinese companies and demonstrate the significant risks to investors in [such] companies….”
- A letter from Sec. Scalia conveying the White House guidance to the FRTIB, noting that, “In their letter, Messrs. Kudlow and O’Brien document risks to investors resulting from inadequate investor disclosures and protections under Chinese law….” (Emphasis added.) In subsequent press appearances, Mr. Kudlow amplified these points.
- An op.ed. article published in the Wall Street Journal on May 8 that was authored by former SEC Chairman Arthur Levitt and the former Director of the SEC’s Office of International Affairs, Michael Mann, espoused a return to a past policy of the Commission: “If you want to play in our markets, you must first play by our rules.”
- An open letter sent on May 17 to SEC Chairman Jay Clayton and PCAOB Chairman William Duhnke by fifty-one former senior U.S. government officials, influential financial sector figures, China experts, religious leaders and other patriots called on them to ensure “that the risks associated with investing in Chinese Communist Party-tied securities registered with the SEC and listed on U.S. capital markets are as transparent and disclosed as are those of the registered securities of American corporations.”
The signatories also declared that “the PCAOB must immediately give the required notice to cancel the bilateral Memorandum of Understanding signed on May 7, 2013 by the PCAOB and the China Security Regulatory Commission.” And,
- A com article by John Solomon that revealed that in the seven years since that MoU was signed, “Chinese cooperation has not been sufficient for the PCAOB to obtain timely access to relevant documents and testimony necessary to carry out our mission.”
- NASDAQ delisted one of the most egregious Chinese fraudsters, Luckin Coffee, and announced tighter listing standards for companies in areas that have “secrecy laws, blocking statutes, national security laws, or other laws or regulations restricting access to information by regulators of U.S. listed companies.”
In a statement issued following the Senate’s now-uncommon exhibition of bipartisan unanimity on a major public policy matter, Sen. Kennedy said: “The SEC works hard to protect American investors from being swindled by American companies. It’s asinine that we’re giving Chinese companies the opportunity to exploit hardworking Americans—people who put their retirement and college savings in our exchanges—because we don’t insist on examining their books. There are plenty of markets all over the world open to cheaters, but America can’t afford to be one of them. China is on a glidepath to dominance and is cheating at every turn. I hope my colleagues in the House will immediately send this bill to the president’s desk so we can protect Americans and their savings.”
Sen. Van Hollen added: “As we continue to experience the economic fallout and volatility caused by the COVID-19 pandemic, the need to protect Main Street investors is all the more important. For too long, Chinese companies have disregarded U.S. reporting standards, misleading our investors. Publicly listed companies should all be held to the same standards, and this bill makes commonsense changes to level the playing field and give investors the transparency they need to make informed decisions. I’m proud that we were able to pass it today with overwhelming bipartisan support, and I urge our House colleagues to act quickly.”
Whether the House of Representatives will follow the Senate’s lead, let alone do so quickly, remains, of course, to be seen. (Readers are encouraged to sign a petition to President Trump and legislators urging such action.)
Either way, the PCAOB should give the required 30-days notice that the United States is terminating the 2013 Memorandum of Understanding – thus ensuring that the object and purpose of the Kennedy-Van Hollen bill is fulfilled and the prudent SEC policy that preceded the negotiation of that ill-advised MoU is restored, namely, in the words of Messrs. Levitt and Mann: “If you want to play in our markets, you must first play by our rules.”