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New National Security Law and the Next Steps for Doing Business in Hong Kong
15 July 2020

Amid much publicity in Hong Kong and strong criticisms locally and from foreign countries, the standing committee of the NPC of the People’s Republic of China (“PRC”) passed on 30 June 2020 a new national security law for Hong Kong as Annex III of the Basic Law.  The new Law, gazetted on the same day and now applies in Hong Kong by way of promulgation, marks a turning point and is the most significant change to the Basic Law – one that imposes punishment including life imprisonment for offenders, possible expulsion for non-permanent residents and fines or suspension of operation or revocation of licence or permit for local companies in breach.

Objectives of the New Law

The new Law is the result of inter alia months of anti-government activities, social unrest, violence by rioters escalating to the level of terrorist activities.  It aims to safeguard national security, prevent, suppress, and impose punishment for the four offences of secession, subversion, organization and perpetration of terrorist activities, and collusion with a foreign country or with external elements to endanger national security in Hong Kong.

National security covers a wide range of activities including political, territorial and military security as well as financial, bio-chemical and cyber security (Articles 20 to 30 of the new Law).  It applies to any person if the offences are committed in Hong Kong; permanent resident, Hong Kong incorporated or unincorporated body or organization if offences are committed outside Hong Kong.  Article 38 also provides the “long-arm jurisdiction” which extends offences under the new Law to those committed from outside Hong Kong by a person who is not a permanent resident of Hong Kong.  Corporations with offices outside of Hong Kong should take note.

Some Highlights of the New Law

Each of the four new offences, namely secession, subversion, terrorism and collusion with foreign forces to endanger national security is widely-defined and is briefly explained below.

(1)    Secession is defined in Article 20 as “organizes, plans, commits or participates in acts of secession … whether or not by force or threat of force” is used.  The offence may be committed even without force or threat of force and there are concerned free speech and mere advocacy could constitute an offence.  Article 4 however provides the rights and freedoms, including the freedoms of speech, of the press, of publication, of association, of assembly, of procession and of demonstration, which are protected under the Basis Law and the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights.

Acts of secession refer to the secession of Hong Kong or any other part of China from the PRC, unlawfully altering the status of Hong Kong or any other part of China, or turning over Hong Kong or any other part of China to a foreign country (Article 20).

(2)  Subversion is defined in Article 22 as “organizes, plans, commits or participates in acts of subversion, whether by force or threat of force or other unlawful means”.  In this case, force or threat of force or unlawful means must be used.

Acts of subversion refer to overthrowing or undermining either the “basic system” of the PRC under its constitution, or the body of power of Hong Kong. These acts also refer to “seriously interfering in, disrupting or undermining” the lawful exercise of powers by the body of power of PRC or Hong Kong (Article 22(3)), or attacking or damaging the premises and facilities by which Hong Kong’s body of power exercise its functions (Article 22(4)).

(3)   Terrorism is defined in Article 24 as “organizes, plans, commits or participates in or threatens to commit” in acts that cause or intend to cause grave societal harm – with the aim of coercing the Chinese or Hong Kong governments, an international organization or the public.  Supporting terrorists or terrorist activities (Article 26) is widely drafted and covers any person providing “support, assistance or facility such as training, weapons, information, funds, supplies, labour, transport, technologies or venues to a terrorist organization or a terrorist, or for the commission of a terrorist activity; or (a person who) manufactures or illegally possesses substances such as explosive, poisonous or radioactive substances and pathogens of infectious diseases or uses other means to prepare for the commission of a terrorist activity”.  It is unclear whether the prosecution must prove that the accused knew that the person receiving such support or assistance is a terrorist under this Article.

(4)    Collusion with foreign forces covers stealing, spying, obtaining with payment or unlawfully providing state secrets or intelligence concerning national security for a foreign country, institution, organization or individual.  It also covers requesting, conspiring with or directly or indirectly receiving instructions, control, funding or other support from a foreign country, institution, organization or individual with a view to carrying out hostile actions against Hong Kong (Article 29(4)). There are concerns as to whether certain existing activities of academics, non-profit organizations and media organizations which were not unlawful in the past might now be outlawed by these provisions.

To incite, assist in, abets or provide pecuniary or other financial assistance or property for any of the above four offences all amount to an offence.

Impact on Businesses

Whilst it is still early days and implementation rules are still being made, much of doing business in Hong Kong remains unchanged for now.  It is still tax friendly at a two-tier tax structure of 8.25% (up to assessable profits of HK$2,000,000) and 16.5% (on any part of assessable profits over HK$2,000,000).  It remains a common law jurisdiction with legal and company rights unchanged. The fundamental principles of the rule of law have been re-stated in the new Law including the presumption of innocence, no double jeopardy and right to legal representation and a fair trial. It has no retrospective effect and should promote long term stability and good for businesses and investments in Hong Kong.

However, corporations in Hong Kong should consider taking steps to review their operations eg office hours, work from home arrangement etc in light of possible increase anti-new Law protests and also strengthen internal controls such as to discussions on political, social or even environmental issues using company platform.  There is a need to have policies in place if asked to cooperate with police in their investigations including disclosure of staff social media, phone records etc.  A throughout review of the Office Manual or Employment Contract would be helpful.

If you have any questions about the above eNews or business law generally, experienced lawyers in our Corporate & Commercial team will be happy to assist you.

P/S : As the official English version of the new National Security Law is still not available at the time of writing, the version used for the above eNews is the English version available on www.xinhuanet.com.

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