On July 17, 2023, the U.S. Securities and Exchange Commission (“SEC”) urged Chinese companies to disclose certain business links they may have to Uyghurs and other Muslim minorities. The companies may face compliance risk and supply chain disruptions if they operate in the Xinjiang region of China or do business with companies that operate in the area known for its Uyghur population, the SEC said in new guidance. The Uyghur Forced Labor Prevention Act (“UFLPA”), which President Biden signed into law in 2021, blocks imports from the region unless a company can prove the products were made without forced labor. “In light of the UFLPA, companies should evaluate their disclosures with a view towards providing investors with tailored disclosure about the material impacts of the provisions of this statute on their business,” the SEC’s Division of Corporation Finance said in its guidance.
- The SEC also is seeking “more specific and prominent disclosure” about risks related to the role of China’s government in Chinese companies’ operations, according to the guidance.
- The agency reiterated companies may have disclosure obligations under the Holding Foreign Companies Accountable Act, which bars Chinese firms from US stock exchanges if the Public Company Accounting Oversight Board is unable to inspect them.
The guidance included a sample comment letter to a fictional company explaining how to improve its disclosures. The sample comment letter follows a similar 2021 missive to Chinese companies about their disclosures.
