U.S. regulators probing potential fraud by China-based companies increased pressure on their auditors by formally accusing affiliates of Big Four firms of withholding documents from investigators.
Deloitte Touche Tohmatsu CPA Ltd., Ernst & Young Hua Ming LLP, KPMG Huazhen and PricewaterhouseCoopers Zhong Tian CPAs Ltd. have refused to cooperate with accounting investigations into nine companies whose securities are publicly traded in the U.S., the Securities and Exchange Commission said in anadministrative order yesterday. BDO China Dahua Co. was also named by the SEC in the action.
Refused to cooperate eh?
Sounds like two or more people conspiring to obstruct in a corrupt manner? Why I think we have a name for that, right?
“I don’t think there’s a resolution in sight,” Gillis, also an adviser to the U.S. Public Company Accounting Oversight Board, said from Beijing. “China is hypersensitive to the idea of foreigners operating within its borders and enforcing foreign law. The next step is likely to be the PCAOB trying to deregister accounting firms it can’t inspect. It’s eventually all leading to the de-listing of Chinese firms in the U.S.”
Good. The vast majority of these firms are frauds in some form or fashion anyway. Sino-Forest is just one example.
The cockroaches are circling however, and do not intend to die without being stepped on:
“Simply swinging the hammer of enforcement, while effective at garnering headlines, will likely not be enough to achieve the SEC’s goal,” McGovern, a former SEC enforcement attorney, said. “As capital flows from the U.S. to China at an increasing rate the pressure will grow on the SEC to find a way to forge compromise. The path to compromise may mean that the SEC has to recognize China’s sovereign interest in protecting certain industries or companies.”
Blow it out your butt McGovern.
What some other nation allows is up to them. If you take your money overseas and lose it because the firm in question (or exchange!) doesn’t meet US standards, that’s your problem.
But if you want to business here in the United States, including listing your stock here on our exchanges, then you follow our rules!
This is the same argument I’ve made for years on banks. Foreign banks break our laws all the time and our “regulators” look the other way. They argue that our money-launder laws “shouldn’t” apply to their operations, but the fact of the matter is that as a sovereign nation we have the right to demand of any company that it comply with our laws as a condition of operation in our nation.
This is no different, and de-certifying the affiliates is the right thing for the US Government to do.