A US judge on Wednesday ruled that the Chinese arms of global accounting firms should be barred from providing audits for US-traded companies in a dispute that may force major corporations such as oil giant PetroChina and search engine Baidu to withdraw from US stock exchanges.
The dispute highlights the clash between Washington’s heightened anti-fraud efforts and Beijing’s official secrecy, despite its desire to profit from broader links with the global economy.
An administrative law judge for the US Securities & Exchange Commission said Chinese firms affiliated with the “Big Four” accounting companies — Pricewaterhouse Coopers, Deloitte Touche Tohmatsu, KPMG and Ernst & Young — acted improperly when they withheld documents from fraud investigators that the firms said Chinese law barred them from releasing.
Judge Cameron Elliot recommended the firms be suspended for six months from providing audits that US-traded companies must submit to remain on US exchanges. Elliott recommended a censure for the Chinese arm of a smaller firm, BDO, which he said has withdrawn from such auditing.
The “Big Four” said in a statement that they would appeal. If the penalty is upheld, it might leave dozens of Chinese firms with no way to provide the audits required to trade their shares on US exchanges.
Beijing has resisted expanding access to corporate records as a violation of its sovereignty.
The wholesale departure of Chinese companies from US stock markets would be a setback to closer financial ties between the world’s two biggest economies.
US-traded Chinese companies include industry leaders such as PetroChina, Baidu and Internet portals Sina and Sohu. They could shift their shares to Hong Kong or other markets where Americans could still buy them.
However, their withdrawal from US markets would leave small investors fewer options to profit from China’s rapid growth.
Elliott ruled that the Chinese firms “did not act in good faith” when they provided audits to US-traded companies, but knew they would likely be barred from cooperating with investigators.
The judge rejected their argument that barring them from providing audits would hurt companies and investors.
The four firms indicated they could continue working with Chinese clients, pending the appeal.
“In the meantime, the firms can and will continue to serve all their clients without interruption,” the statement said. “The firms are heartened by the significant progress on information sharing between the Chinese and US regulators over the past year, which the firms have worked hard to support.”
The dispute arose after the commission asked for “work papers,” corporate documents used by auditors to prepare financial reports, for nine US-traded Chinese companies suspected of fraud.
In his ruling, Elliott said that a smaller firm, New Jersey-based Patrizio & Zhao, handed over work papers “without complaint.”
Other governments, including the 27-nation EU also have resisted US pressure for more access to corporate records, but most reached compromises with Washington that have often involved joint audits by US and local regulators.
Chinese companies have raised billions of dollars by selling shares to US investors since the late 1990s. Many were private companies that could not raise money on Chinese exchanges, which were created to finance state industry.
More recently, Beijing has encouraged companies to sell shares on China’s exchanges to help develop its financial markets and give Chinese better investment choices.
In a separate dispute, Washington and Beijing are wrangling over whether an accounting oversight panel created by a 2002 anti-fraud law can inspect Chinese auditors of US-traded companies.
The two sides announced a deal in May last year giving the US panel access to audit documents, but the panel’s chairman said it did not replace the need to inspect auditors, suggesting that the dispute was not settled.
‘IN A DIFFERENT PLACE’: The envoy first visited Shanghai, where he attended a Chinese basketball playoff match, and is to meet top officials in Beijing tomorrow US Secretary of State Antony Blinken yesterday arrived in China on his second visit in a year as the US ramps up pressure on its rival over its support for Russia while also seeking to manage tensions with Beijing. The US diplomat tomorrow is to meet China’s top brass in Beijing, where he is also expected to plead for restraint as Taiwan inaugurates president-elect William Lai (賴清德), and to raise US concerns on Chinese trade practices. However, Blinken is also seeking to stabilize ties, with tensions between the world’s two largest economies easing since his previous visit in June last year. At the
Nearly half of China’s major cities are suffering “moderate to severe” levels of subsidence, putting millions of people at risk of flooding, especially as sea levels rise, according to a study of nationwide satellite data released yesterday. The authors of the paper, published by the journal Science, found that 45 percent of China’s urban land was sinking faster than 3mm per year, with 16 percent at more than 10mm per year, driven not only by declining water tables, but also the sheer weight of the built environment. With China’s urban population already in excess of 900 million people, “even a small portion
UNSETTLING IMAGES: The scene took place in front of TV crews covering the Trump trial, with a CNN anchor calling it an ‘emotional and unbelievably disturbing moment’ A man who doused himself in an accelerant and set himself on fire outside the courthouse where former US president Donald Trump is on trial has died, police said yesterday. The New York City Police Department (NYPD) said the man was declared dead by staff at an area hospital. The man was in Collect Pond Park at about 1:30pm on Friday when he took out pamphlets espousing conspiracy theories, tossed them around, then doused himself in an accelerant and set himself on fire, officials and witnesses said. A large number of police officers were nearby when it happened. Some officers and bystanders rushed
Beijing is continuing to commit genocide and crimes against humanity against Uyghurs and other Muslim minorities in its western Xinjiang province, U.S. Secretary of State Antony Blinken said in a report published on Monday, ahead of his planned visit to China this week. The State Department’s annual human rights report, which documents abuses recorded all over the world during the previous calendar year, repeated language from previous years on the treatment of Muslims in Xinjiang, but the publication raises the issue ahead of delicate talks, including on the war in Ukraine and global trade, between the top U.S. diplomat and Chinese