WASHINGTON — The Coalition for a Prosperous America (CPA) urged U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler to prohibit inclusion of certain Chinese companies in indices, Exchange-Traded Funds (ETFs), and other index funds provided by American index providers and asset managers. In the letter to Chairman Gensler, CPA outlined how four of the largest BlackRock iShares ETFs are currently holding the securities of eight Chinese companies that have been placed on the U.S. Department of Commerce’s Entity List for egregious human rights abuses, as well as three Chinese companies that are on the U.S. Department of the Treasury’s Non-SDN Chinese Military Industrial Complex Companies (CMIC) List for their involvement in China’s military and surveillance sectors.
Read CPA’s full letter to Chairman Gensler here.
Last year, CPA wrote to BlackRock CEO Larry Fink urging him to stop aiding and abetting human rights abuses and national security risks associated by including Chinese companies in BlackRock’s iShares ETFs. BlackRock, which is the world’s largest asset manager, surprisingly recommended last year that investors triple their allocations in Chinese assets.
CPA’s letter to Chairman Gensler outlines the failure of index providers like BlackRock to conduct due diligence into whether their financial products expose American retail and institutional investors “to a wide range of publicly traded Chinese companies that are involved in activities that are contrary to U.S. national and economic security interests and fundamental human rights.”
“The criteria used by index providers to evaluate companies listed in their products fails to consider material risks posed by U.S. national security threats, inclusion of companies subject to various official sanctions regimes, geopolitical and governmental factors of foreign-domiciled companies, and human rights violations – among others,” the letter states. “These gaps in oversight and due diligence are afflicting index funds held by scores of millions of unwitting American retail investors – often through their pension funds – and elevating the material risks in a manner inconsistent with their proper fiduciary duty. Meanwhile, American retail investors are helping fund Chinese companies that are officially recognized as actively undermining U.S. security interests, our nation’s fundamental values, and American companies and workers.”
Last July, CPA urged Chairman Gensler to ensure the SEC swiftly implements the Holding Foreign Companies Accountable Act, which protects U.S. investors by prohibiting securities of a Chinese and other foreign companies from being listed on any of the U.S. securities exchanges if the company has failed to comply with the Public Company Accounting and Oversight Board’s (PCAOB) audits for three consecutive years.
“We strongly urge the SEC to prohibit index providers from including the securities of Chinese companies (particularly non-regulated “A-share” enterprises) in their benchmarks that are not fully compliant with U.S. securities laws and which have been identified by any U.S. government agency as contributing to China’s military modernization or egregious human rights abuses,” the letter continues. “The SEC must require that A-shares be covered with the same regulatory requirements of all other U.S. issuers – and not continue to be given the preferential treatment granted to them by the May, 2013 bilateral MOU concluded with the Obama administration. Indeed, index providers should be immediately required to disclose all national security- and human rights-related risks associated with their constituent companies to investors as well as in their environmental, social and governance reporting procedures.”
Read CPA’s full letter to Chairman Gensler here.
