China agrees to share data in US fraud probes
After a long stand-off with US authorities over fraud allegations, China’s securities watchdog has said it is preparing to provide US federal regulators with audit papers, signaling a breakthrough in a two-year dispute.
The US wants to investigate possible accounting fraud at dozens
of Chinese firms which are also publicly traded US companies.
After a high-profile struggle, the Chinese have finally signaled
leeway.
The China Securities Regulatory Commission (CSRC) is preparing to
disclose documents to the US Securities and Exchange Commission
(SEC) after the US pushed for more meticulous auditing work on
Chinese firms last year, the China Securities Journal (CSJ)
reported Tuesday, citing inside sources.
"The CSRC's move is a positive sign that Chinese authorities
are making efforts to create a more transparent market," Liu
Feng, a supervisor from the Financial Planning Standards Board
(China), told the Global Times on Tuesday.
"Chinese auditors are obligated to let investors in the US
know the real financial situation of their clients trading in the
country's market," Liu added.
The CSRC will transfer audit papers both to the SEC and the
Public Company Accounting Oversight Board (PCAOB), a CSRC
spokesman said, confirming the local media reports. Previously,
the PCAOB had been blocked from probes into China.
The companies that will turn over documents were not singled out
or identified, but the SEC charged China-based affiliates of the
‘Big Four’ auditing firms, Deloitte, Ernst & Young, KPMG, and
PwC of failing to provide accurate financial reports to investors
in December 2012.
US-based investment dollars could be driven away if the SEC
requests the suspension of affiliate agencies. However, the CSRS
spokesman doesn’t believe the US authorities will have the power
to impose such sanctions, because, after the papers are handed
over, there would be no legal basis for prosecution.
Chinese companies had been apprehensive to cooperate with the
SEC, and said they would not share official work documents
without the permission of the Chinese government.
China’s gesture demonstrates its eagerness to improve US
relations, and coincides with the two-day US-China talks in
Washington which start on Wednesday.
Ernst & Young will have to pay a $117 million fine to settle
a probe in Canada against the Chinese firm Sino-Forest for
alleged manipulation of financial information.
