Jurisdiction - China
China – US SEC Imposes Sanctions Against State-Based Accounting Firms.

27 February, 2015


The US Securities and Exchange Commission (SEC) has imposed sanctions on four China-based accounting firms that refused to turn over documents that were required for fraud investigations. 

Deloitte Touche Tohmatsu, Ernst & Young Hua Ming, KPMG Huazhen and PricewaterhouseCoopers Zhong Tian have agreed to pay USD 500k (GBP 325k) and to issue an admission that they did not hand over the documents to the authorities until proceedings were instituted against them, the SEC said in a statement.


Under the settlement the SEC censures the firms and requires them to perform specific steps to satisfy requests for similar materials over the next four years.


In January 2014 an administrative law judge said that the four companies had wilfully refused to provide the SEC with workpapers and documents relating to their work for nine China-based companies with securities registered in the US.


In doing so, the firms violated the Sarbanes-Oxley Act, a US federal law that aims to make companies more financially transparent. Under the Act, foreign accounting firms must provide workpapers to the SEC on request.


All four firms then produced the documents as requested.


If future documents fail to meet the criteria specified in the settlement, the SEC can impose a range of measures including a six-month bar on any one firm’s audit work, new proceedings against a firm, or renewal of the current proceedings against all four firms.


“As we repeatedly have stated throughout this litigation, obtaining an audit firm’s workpapers is critical to enforcement staff’s ability adequately to protect investors from the dangers of accounting fraud,” said Andrew Ceresney, director of the SEC’s enforcement division, in the SEC’s statement. “This settlement recognises the SEC’s substantial recent progress in obtaining those documents from registered firms in China. The settlement also holds four of the firms accountable for previously violating US rules, and makes clear that should production of documents cease, the SEC can restart the administrative proceeding.”


Proceedings against a fifth firm, Dahua, are underway, the SEC said. 


Pinsent Masons


For further information, please contact:


John Salmon, Partner, Pinsent Masons

[email protected]


Jason Collins, Partner, Pinsent Masons

[email protected]


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