Bloomberg BNA Securities Regulation & Law Report: The Impact of Chinese State Secrecy Laws on Foreign-Listed Companies


Foreign listed China-based companies and multinationals with significant operations in China should take note of the conflict involving the audit work papers underlying the financial statements of Chinabased companies listed overseas and China’s State Secrecy Laws. As a result of the Chinese units of the Big Four accounting firms refusing to provide audit work papers for fear of violating China’s State Secrecy Laws, a U.S. Securities and Exchange Commission (‘‘SEC’’) administrative law judge issued an order suspending the Chinese units of the Big Four accounting firms from auditing U.S.-traded companies for six months on Jan. 23, 2014. On May 23, 2014, a Hong Kong Court of First Instance rejected Ernst & Young’s argument that China’s State Secrecy Laws prevented it from handing over information to the Hong Kong’s Securities and Futures Commission (‘‘SFC’’) and ordered that they do so. Both of these judgments are being appealed. The resolution of this question of regulatory access to China-based entities that tap the U.S. or HK capital markets will have an impact on the numerous Chinabased public companies listed in the U.S. and the HK markets and global multi-nationals that have significant operations in China.

Excerpted from Bloomberg BNA Securities Regulation and Law Report, November 12, 2014. View the full article.

Reproduced with permission from Securities Regulation & Law Report, 46 SRLR 2172, 11/10/14. Copyright 2014 by The Bureau of National Affairs, Inc. (800-372-1033)

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