Hong Kong’s national security law: Foreign corporations

Corporate lawyers and consultants have revealed that foreign corporations operating in Hong Kong have been revisiting their strategies since the previous year in anticipation of the recently passed domestic national security law.

Despite assurances from the city and central authorities that the legislation, dictated by Article 23 of the Basic Law, would neither disrupt operations nor negatively impact the city’s business climate, some companies remain wary of inadvertent law breaches.

Several firms had already initiated additional internal audits before the public consultation period that began at the end of January, according to insiders familiar with foreign business operations in Hong Kong. James Ellender, Futurum Asia’s managing director for Asia-Pacific, stated that some of the firm’s largest clients had requested employee screenings and supplier due diligence checks since the third quarter of 2023.

There is a significant concern amongst foreign firms regarding the new provisions in the law regarding the theft of state secrets and external interference that endangers national security. A Hong Kong-based banking and restructuring lawyer disclosed that various firms have sought informal advice on compliance issues related to the new law. However, he also noted that most significant changes had already been implemented in the aftermath of the 2020 law.

The lawyer highlighted that multinational and accounting firms, including a minimum of three banking and telecommunication companies, had imposed additional measures following the enforcement of the 2020 law. These measures encompassed limitations on access to sensitive data by staff recruited in Hong Kong.

The new legislation, intended to complement the four-year-old Beijing law passed in response to Hong Kong’s 2019 social unrest, comprises 39 offences divided into five categories: treason; insurrection, incitement to mutiny and disaffection and acts with seditious intent; sabotage; external interference endangering national security; and theft of state secrets and espionage.

Article 23

John Lee, the Chief Executive, had already indicated during his 2022 election campaign that Article 23 legislation would be his administration’s priority. He set a deadline for the new law in February last year.

However, businesses remain unclear on how to handle confidential information under domestic legislation, and there are concerns over potential liability for unintentional national security breaches.

Albert Chen, a law professor at the University of Hong Kong and a former member of the Basic Law Committee, pointed out that Hong Kong’s domestic national security legislation shared a similar definition of state secrets with the mainland. However, he also emphasised that the city law employed narrower language and included a public interest defence not present in similar mainland legislation, reported Bangkok Post.

Ryan Mitchell, an associate professor of law at the Chinese University of Hong Kong suggested that concerns could arise from a perception that there was a porting over of the “restrictive mainland approach to protecting state secrets”.

Despite the similarities, Mitchell noted that due to Hong Kong’s common law legal system, the legislation’s aspects that resembled those of the relevant mainland laws would function rather distinctly.