Alibaba, the e-commerce giant that completed a record-setting IPO in the United States in 2014 and reached a peak value of more than $800 billion in 2020, is one of hundreds of China-based firms whose listing in the United States—rather than in China— makes their controlling insiders essentially law-proof: the non-Chinese corporate and securities laws governing these firms are unenforceable because the firms’ insiders, records, and assets are in China. The fact that a foreign firm can minimize legal constraints by listing in the United States rather than in its home country casts doubt on the claim that foreign firms list in the United States to bond insiders to its tough securities law. Indeed, for China-based firms, listing in the United States but not in China insulates insiders from any securities law. Ironically, U.S. securities law not only allows these firms to list in the United States, but also allows them to disclose less than domestic firms. This uneven treatment favors foreign entrepreneurs and likely harms U.S. investors. Recent U.S. efforts to address the risks posed by China-based firms leave the fundamental problem of lawproof insiders unsolved. We suggest ways to better protect investors and, more generally, argue that enforceability is key to corporate governance.

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