On 28 May 2020, the draft decision concerning the Hong Kong national security law was passed at the 13^th National People’s Congress of the People’s Republic of China. The implementation of national security law will have impacts on individuals and corporations in Hong Kong to various extents. This article aims to discuss the basics of China’s National Security Law and some court cases relevant to the potential risks for businesses. 

China’s National Security Law

The current National Security Law of China was implemented in 2015. It is noteworthy that “national security” in China covers not only matters expressly within the National Security Law but has a wider scope. It generally encompasses areas such as political security, homeland security, military security, economic security, social security, science and technology security, Internet security, cultural security, resources security, public health security, nuclear security, security of overseas interests of the state and so forth. In addition to the National Security Law, statutory laws related to national security also include the Intelligence Law, the Anti-terrorism Law, the Law on Administration of Activities of Overseas Non-governmental Organisations in China, the Nuclear Safety Law, the Internet Security Law, the Counterespionage Law, the State Secrets Law, the Anti-Secession Law, the National Defence Law, the Martial Law, the Criminal Law, etc.

Major scope of the Hong Kong national security law

The draft decision on the Hong Kong national security legislation mainly aims to (1) prevent any forces from utilising Hong Kong for their activities to split, subvert, infiltrate, and sabotage the unity and sovereignty of China; (2) oppose any collusion with any foreign forces  or any form of intervention in the affairs of the HKSAR by any foreign countries and foreign forces; and (3) require the development of national security education in Hong Kong.

The Hong Kong National Security Law to be implemented would be different from the legislation previously proposed under Article 23 of the Hong Kong Basic Law (“BL23”). It is a piece of legislation formally authorized by the Standing Committee of the National People’s Congress. Upon enactment, it would be promulgated by way of inclusion in Annex III of the Hong Kong Basic Law. Therefore, its legal status would not be the same as the law proposed to be passed by the Legislative Council of Hong Kong under BL23. The Hong Kong National Security Law would be a piece of national law, whereas the legislation proposed under BL23 would be a piece of local law of the HKSAR. Just like the Hong Kong Basic Law which, being the supreme law of Hong Kong, prevails over other local laws, the Hong Kong National Security Law would also have the same legal status as an annex to the Basic Law.

Cases on China’s National Security Law

In view of the aforesaid draft and precedents of the implementation of the National Security Law in China, management personnel of corporations are advised to take note of the following areas: (1) prevention of any act of involving treason, secession, sedition or subversion against the Central People’s Government; (2) prevention of any political activities involving any foreign political bodies and prohibition of any Hong Kong political bodies from establishing ties with foreign political bodies; and (3) prevention of any act of divulge of state secrets. The following court cases in China shed light on the above areas of national security in respect of which the management personnel should perform their duty of care in the course of conducting economic activities.

(1)  Details, nature and objects of the activities undertaken by companies

In (2019) 藏05刑初10號, the defendant was prosecuted by the Shannan People’s Procuratorate of Tibet Autonomous Region for donating RMB500 in the name of his deceased mother through another person, Ci, to the 14^th Dalai Lama to pray for blessings in or around June 2017. Ci subsequently sent a receipt to the defendant by MMS. The receipt was held by the Administration of Press, Publication, Radio, Film and Television of Tibet as a prohibited item which threatened unity of the state, the integrity of national sovereignty and territory and also disrupted social order and undermined social stability. According to the prosecution, the defendant donated to Dalai Lama in the name of praying for blessing, despite knowing that the group of Dalai Lama had been carrying on activities endangering national security, which violated Article 107 of the Criminal Law of China. As the facts were clear and there was reliable and sufficient evidence, the defendant shall be held liable for funding criminal activities that endanger national security. As such, the defendant was found guilty of funding activities which endanger national security and sentenced to a fixed-term imprisonment of one year and eight months and deprivation of political rights for two years.

(2)  Handling of sensitive corporate information and

discharging duties of care and confidentiality

In another precedent (2017) 蘇06刑終45號, in the first half of 2015, the defendants, namely He, Wang, Yuan and Chen, procured candidates to take part in the Licensing Examination for State-recognized First Grade Architects to be held in September 2015. With a view to obtaining advantage, they intended to help the candidates pass the examination by dishonest means. One of the defendants, He, enrolled the candidates through Nantong Baisheng Education Consultancy Company Limited (“Baisheng Education”) and liaised with other defendants via QQ groups, and informed such defendants to tell the candidates that they could pass the examination by dishonest means. The candidates procured by the defendants enrolled in the examination through Baisheng Education in cities such as Haozhou, Anhui Province. He procured more than 100 candidates to take part in the examination in the manner aforesaid.

The public security authority seized a large number of cheating equipment, electronic devices used by persons involved in the cheating as well as other evidence and documentary proof. Various photos of exam papers and files and notes containing answers were found in the mobile phones and computers of the defendants. These items were found by the Personnel Testing Center of Jiangsu Province and the National Administration of State Secrets Protection of Jiangsu Province as consistent with the relevant examination subjects, and such questions and answers were classified as top state secrets before the commencement of the examination.

He was in serious breach of the law and was sentenced to a fixed-term imprisonment of three years and six months. Other defendants were sentenced to imprisonment of various length and penalties of various amounts.

(3)  Customers of unusual status and adherence to proper procedures

In (2014) 九刑初字第415號, a defendant, Sun, thrice bought cheating equipment for the National College Entrance Examination (“NCEE”) from another defendant, Chang, at a price of RMB14,000 in Changchun City between May and June 2014. Before the commencement of the NCEE in June 2014, Sun reached 13 NCEE candidates by such means as distribution of name cards in Jiutai City to sell the cheating equipment to them and receive payment accordingly. The Material Evidence Identification Technology Center of the Jilin Public Security Department held that seized items number 1, 2-6 and 13 (7 sets of equipment in total) were specialised equipment for eavesdropping. The unlawful profits of RMB6,000 and RMB1,250 respectively made by Sun and Chang were recovered by the Changchun Public Security Bureau.

Sun and Chang were both found guilty of unlawful sales of specialised wiretapping apparatus and sentenced to a fixed-term imprisonment of one year suspended for two years.

(4)  Foreign national security-related cases in recent years

involving senior management due to business activities

As international tension continues to rise, there is a global trend of extended scope of national security imposed by countries. In particular, the following two cases have become topics of much discussion:

1. In 2017, Patrick Ho Chi-ping, former Secretary for Home Affairs of Hong Kong and Secretary General of China Energy Fund Committee, was arrested in the U.S. and charged with, among others, violating the Foreign Corrupt Practices Act and money laundering, which together could put him in jail for more than 80 years.
2. In December 2018, Meng Wanzhou was arrested in Canada. According to media reports, the arrest was likely due to Huawei’s alleged violation of the U.S. national security rules on export control by selling “sensitive technology” to Iran and making a fraudulent presentation to such dealings.

Concerns for the implementation of
national security law in Hong Kong

In Hong Kong, some critics suggested that the national security law could scare away foreign investments and result in a brain drain in the long term, criticizing that the move would erode Hong Kong’s existing core values of freedom and democracy. Some also suggested that if foreign corporations intend to invest in Hong Kong, they should be prepared to follow the rules of Mainland China, believing that the implementation of national security law would reduce uncertainties for Hong Kong instead. Some local scholars were worried that the national security law would effectively allow cross-jurisdictional law enforcement by mainland authorities. Even if the Hong Kong courts hold that the national security law is contrary to human rights, the Central Government may also overrule the judgement of Hong Kong courts by means of “interpretation”. The independence of Hong Kong’s judicial system would thus be jeopardized. In fact, as provided for in Article 19 of the Basic Law, the courts of Hong Kong shall have no jurisdiction over acts of state such as defence and foreign affairs (see Democratic Republic of Congo & Ors v FG Hemisphere Associates CFA 2011).

We will keep a close watch on the implementation of the legislation and provide professional legal advice including due diligence exercise related to national security and anti-money laundering and anti-corruption review, to corporate clients accordingly, thereby enabling your management personnel to effectively control the related management responsibilities and risks. If you would like to learn more about our services in this aspect, please feel free to contact us.

Recommendations

In view of the implementation of the Hong Kong National Security Law, corporate clients are advised to take relevant precautions to ensure the lawful operation of your business, safeguard corporate interests and minimize the risks for management personnel of being held personally liable.