The SEC’s administrative court approved a settlement between the SEC and the Chinese affiliates of PwC, Ernst & Young, KPMG, BDO and Deloitte, fining each $500,000 for not having complied with an SEC disclosure order. In 2012, the SEC had issued a disclosure order against the firms after they refused to provide the SEC with papers relating to their audits of Chinese firms that were listed on US stock exchanges and which were being investigated for accounting fraud. The firms claimed that to produce the documents would require them to breach Chinese secrecy laws. An Administrative Law Judge held that, in failing to produce the documents to the SEC, the audit firms had wilfully violated section 106 of the Sarbanes-Oxley Act, which requires foreign public accounting firms to provide audit workpapers to the SEC on request. The judge rejected the argument that the failure to produce should be excused because the production would violate Chinese law. The firms were censured, and a six month practice ban was imposed. The firms appealed that decision, but ultimately settled the case.
In addition to the monetary sanctions described above, the settlement includes a provision that, in the future, the SEC will seek any such relevant documents from the Chinese Securities Regulatory Commission by notifying the regulator and the firms at the same time. The firms will then have to provide the requested documents within 90 days, explaining why any information is redacted or withheld if that is the case.