23 July 2020
This is the first in a series of five briefings in which we will take a closer look at Hong Kong's National Security Law (NSL) and its implications for individuals and organisations operating in Hong Kong or otherwise dealing or interfacing with businesses based in the jurisdiction.
While it will likely take many months, if not years, to understand how the NSL will be implemented and assess its full impact, our briefings will seek to analyse the NSL from a business perspective, identifying potential factors for consideration by in-house legal and compliance teams.
This first briefing examines the four substantive criminal offences set out in the NSL and highlights some of the key enforcement considerations. |
Criminal offences under the National Security Law |
Chapter III of the NSL (Offences and Penalties) sets out four distinct categories of offence, namely: 1. Secession (Articles 20-21) 2. Subversion (Articles 22-23) 3. Terrorist Activities (Articles 24-28) 4. Collusion with a Foreign Country or with External Elements to Endanger National Security (Articles 29-30) For most businesses, the risk of being directly implicated in activities constituting offences under the first three categories listed above (Secession, Subversion and Terrorist Activities) is probably very low. However, the NSL provides specific offences for any person who incites or provides assistance, financial or otherwise, to others in committing offences of secession, subversion or terrorist activities. Knowing the customers and business partners you are dealing with – always an important issue from a general compliance perspective – will likewise be of paramount importance in managing risk under the NSL. The fourth category of offences – relating to collusion with foreign or external parties in a manner that endangers national security – is the category most likely to cause angst for international businesses. Under the NSL, it is an offence to conspire with, or receive "instructions, control, funding or other kinds of support" from "a foreign country, or an institution, organisation or individual outside the mainland” to impose "sanctions or a blockade" or engage in other hostile activities against the Hong Kong SAR or the PRC. On its face, it appears this provision has the potential to implicate a business taking steps to comply with a foreign sanctions regime, effectively placing the organisation between a rock and a hard place. The dilemma would be similar to that posed by the EU blocking statute which prohibits EU citizens and companies under EU jurisdiction from complying with US sanctions against Cuba and Iran. If multiple sanctions regimes or similar statutes were in play, this could complicate the situation further. Our next briefing in this series will look more closely at the question of sanctions and potential implications of the NSL for businesses who may be expected to comply with them. |
Reporting and liability |
The NSL contains no affirmative disclosure obligation requiring organisations or individuals to report offences. There is, however, a positive obligation to disclose to the Hong Kong Police any knowledge or suspicion of any property of an offender or of any property used, or intended to be used, to finance or assist the commission of an offence. Interestingly, there is also a provision for leniency for individuals who report an offence or provide material information in support of a criminal prosecution. Corporate liability for offences under the NSL is established by Article 31, which states that “an incorporated or unincorporated body such as a company or an organisation which commits an offence under this Law shall be imposed with a criminal fine.” While there is no provision in the NSL which explicitly imposes criminal responsibility on directors or persons in charge of a corporate body for committing an offence, our experience on other Hong Kong criminal enforcement matters suggests that no such provision is necessary. In Hong Kong, executives and directors who authorise or knowingly acquiesce to NSL offences risk being charged directly. |
Penalties |
Articles 31 and 32 set out the penalties to be imposed on organisations found guilty of offences under the NSL, namely criminal fines, suspension of business operations, revocation of licences or bu.siness permits and confiscation of unlawful proceeds from the offence in question. The NSL does not specify any parameters or upper limit as to the quantum of criminal fines. Individual penalties vary by offence, but in almost all cases consist of custodial sentences, ranging in duration up to life imprisonment. For the fourth category of offences (see above), the foreign institution/individual involved in collusion to endanger national security is subject to the same penalty as a local participant. The NSL is, in the first instance, a Hong Kong criminal statute to be investigated and prosecuted by Hong Kong authorities and tried in the Hong Kong courts. One notable aspect of the NSL, however, is its establishment of the Office for Safeguarding National Security of the Central People’s Government in Hong Kong, which can exercise jurisdiction over particularly serious or complex cases or where there is a "major and imminent threat" to national security, allowing such cases to be prosecuted and tried by PRC authorities in a PRC court. In such a case, prosecution and trial, and any penalties imposed will be in accordance with PRC criminal law. |
Scope of application |
The NSL establishes broad jurisdictional reach, with Articles 36 to 38 setting out the law’s applicability to, among others:
While there are always challenges to extraterritorial enforcement of criminal laws, the far-reaching nature of the NSL gives rise to a level of uncertainty for all organisations with business connections to Hong Kong without regard to whether they have physical operations in Hong Kong. |
For further information, please contact:
Jeremy Birch, Herbert Smith Freehills
jeremy.birch@hsf.com