19 May 2020 Coalition Asks Feds to Act Against Risky Chinese Investment

Building on steps already taken by the Trump Administration to remove federal and military pension plans from the risks inherent in being invested in state-controlled Chinese companies, the National Center has signed onto a coalition letter asking for such restrictions to be applied more broadly to protect American capital markets.

In a letter to U.S. Securities and Exchange Commission (SEC) Chairman Jay Clayton and Public Company Accounting Oversight Board (PCAOB) Chairman William D. Duhnke III that was coordinated by the Committee on the Present Danger: China, over 50 former members of Congress, former government officials, public policy leaders, financial experts and others write:

We welcome the President’s decision and strongly second the concerns he has rightly expressed about the lack of transparency, PCAOB covered audits and material risk disclosure by Chinese companies in our capital markets. The Chinese Communist Party’s claims that corporate financials and other such data are “state secrets” only raise further questions about the advisability of giving its corporations a pass on conforming to the same statutory and regulatory standards that registered American companies are required to meet. Put simply, Chinese companies are today receiving preferential treatment over their American corporate counterparts on your watch.

With this in mind, and the ongoing threat inherent in Chinese law that creates risk for American investors through inadequate disclosure and protective measures, the coalition advises:

It is unconscionable that Chinese entities that have already raised over a trillion dollars from U.S. investors have their securities (stocks, bonds, etc.) registered with the Securities and Exchange Commission, but have been given a “pass” from compliance with the statutes, regulations and accounting standards required of SEC-registered American corporations.

We believe 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…

To do otherwise risks real reputational harm to our capital markets, which have long been and must remain the gold-standard for the financial world.

Even though there have been several scandals involving state-run Chinese companies that have cost billions in lost investments, Chinese companies involved in U.S. exchanges are still not in compliance with U.S. securities law. Chinese authorities maintain this risk by blocking audit oversight, investigative authority and enforcement actions. The Memorandum of Understanding mentioned in the letter can be cancelled by the federal government at any time with 30 days notice.

The letter advises Clayton and Duhnke:

It is up to you both to enforce these requirements and genuinely protect American investors, as well as our national security and fundamental values, by ensuring 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.

Justin Danhof, Esq., the National Center’s general counsel and director of the Free Enterprise Project (FEP), signed the letter. Joining him on the letter are former members of Congress Diane Black (TN), Dave Brat (VA), Lt. Colonel Allen West (FL) and Frank Wolf (VA). Other signatories to the letter included Committee on the Present Danger: China Chairman Brian Kennedy and Vice Chairman Frank J. Gaffney (a former acting assistant secretary of defense), Vice Admiral John Poindexter (former national security advisor), Stephen K. Bannon (former White House strategist) and Tidal McCoy (former acting secretary of the U.S. Air Force).

Earlier this year, FEP raised the issue of the inherent problems of Chinese representation in the Thrift Savings Plan at the shareholder meeting of MSCI. FEP asked CEO Henry A. Fernandez to consider “divesting… indexes of Chinese state-involved entities in order to maintain the Thrift Savings Plan [TSP] as a vast and vital client.” Fernandez refused to comment on specific client business, but said companies or countries could ask for MSCI to create new China-free indexes. Shortly after that, the Trump Administration decoupled Chinese investment from the TSP.

This coalition letter was referenced by Fox News Channel host Maria Bartiromo this past weekend on her “Sunday Morning Futures” program at around 22 minutes into the segment, during an interview with Senator John Kennedy (LA).