COMPREHENSIVE COMPLIANCE DISLOSURES
The Securities and Exchange Commission (SEC) is urging China-based companies to provide more comprehensive disclosures regarding their compliance with the Uyghur Forced Labor Prevention Act (UFLPA) and reporting on the Chinese government’s involvement in their operations. Recently, a sample letter was shared on the SEC’s official website, highlighting this initiative.
“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. These impacts may include material compliance risks or material supply chain disruptions that companies may face if conducting operations in, or relying on counterparties conducting operations in, the Xinjiang Uyghur Autonomous Region. ”
Division of Finance, Securities and Exchange Commission
UFLPAÂ
The SEC’s Division of Corporation Finance has been issuing comments to China-based companies, emphasizing the need to strengthen their compliance with disclosure requirements under federal securities laws. The division maintains the opinion that companies should offer more prominent, specific, and customized disclosures related to China-specific matters. Such disclosures are crucial for investors to possess the essential information required for making informed investment and voting decisions.
Specifically, the SEC advises China-based companies to assess their UFLPA disclosures and provide investors with tailored information regarding the significant impacts of this legislation on their business operations. These impacts may include compliance risks or disruptions within the supply chain that companies may encounter when conducting operations in the Xinjiang Uyghur Autonomous Region or relying on counterparties operating in that region. Additionally, the SEC seeks details regarding any substantial impact resulting from intervention or control exercised by the Chinese government on these companies’ operations or the value of their securities.
XINJIANG
The SEC uses a hypothetical scenario in their sample letter, to demonstrate SEC prompts that China-based companies operating in Xinjiang or relying on Xinjiang-based counterparties should follow to clarify the influence of the UFLPA on their business segments, products, lines of service, projects, or operations. The sample SEC letter serves as a reminder that, according to federal securities rules, the term “control” refers to the possession, whether direct or indirect, of the power to inform or influence the management and policies of an entity, be it through the ownership of voting securities, contractual agreements, or any other means.
By adhering to these disclosure guidelines and engaging with the SEC, companies operating in China can foster transparency, build investor confidence, and navigate the changing landscape of regulatory compliance effectively.
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