Global Taxes

Hong Kong: businesses strive to avoid falling foul of new security law as first case proceeds

Stephen MulrenanThursday 27 August 2020

In late August, two High Court judges in Hong Kong refused an application challenging the detention of 23-year-old Tong Ying-kit, in a case concerning the first person charged under the territory’s new national security law (NSL). The judgment provides some clarity on the NSL at a time of upheaval for business in Hong Kong.

Tong Ying-kit is alleged to have ridden a motorcycle at police officers while carrying a pro-democracy flag following promulgation of the NSL in early July.

In their decision, the judges refuted three common attacks on the NSL as groundless: that Article 42(2) of the NSL is an unconstitutional ‘no bail’ provision; that Article 44, which empowers the Chief Executive to appoint judges to hear NSL cases, renders judges hearing such cases as not ‘independent’, or contrary to the rule of law; and that the prescription of the range of sentences by Articles 20, 21 and 24 for persons found guilty of offences under those articles somehow interferes with a judge’s power of sentencing.

Philip Dykes SC, Chairman of the Hong Kong Bar Council and a barrister at Bernacchi Chambers, says that proper consultation prior to the NSL’s promulgation could have addressed the problematic Article 42(2).

This law is a game changer in many respects and it’s one that companies left in Hong Kong have to take seriously

Yuka Kobayashi
Assistant Professor in China and International Politics, SOAS, University of London

‘Article 42(2) says no bail shall be allowed except where the court is satisfied that the defendant or accused will not continue to commit acts against national security,’ says Dykes. ‘It’s a curious phrase because it reads as though you will only get bail if you admit you have transgressed, and the court is satisfied that you won’t transgress again in the future.’

Dykes says the government counsel agreed with him that the words should not be taken literally because having a no bail provision would be inconsistent with independent judicial power.

‘This is reassuring because the Court has made clear that what seemed to be an obstacle to defendants getting bail actually isn’t,’ he explains. ‘So, this is the first significant ruling on the law and it’s one that confirms the status quo, notwithstanding the rather unusual wording of the law.’

Tong Ying-kit faces charges under Articles 20 and 21 of the NSL (secession) and under Article 24 (terrorist activities). For most businesses in Hong Kong, the risk of being directly implicated in activities constituting offences under these categories, as well as under Articles 22 and 23 (subversion), is likely to be low.

However, the NSL makes it unlawful for a person to assist in, abet or provide pecuniary or other financial assistance or property for the commission of crimes of secession, subversion or terrorist activities. Law firms are therefore advising clients to conduct appropriate levels of due diligence and monitoring on their business counterparties with whom they have (or will have) dealings to ensure these are not caught by the NSL’s prohibitions.

Global wealth managers are meanwhile reportedly examining whether their clients in Hong Kong have ties to the city’s pro-democracy movement in an attempt to avoid falling foul of the NSL.

‘This law is a game changer in many respects and it’s one that companies left in Hong Kong have to take seriously,’ says Yuka Kobayashi, Assistant Professor in China and International Politics at SOAS, University of London. ‘If they don’t go through those kinds of assessments, they’re going to really put their companies at risk.’

The fourth and final category of offences under the NSL – relating to collusion with foreign or external parties in a manner that endangers national security – is causing most concern for businesses in Hong Kong. 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 People’s Republic of China.

On the face of it, global companies could find themselves in a scenario whereby complying with the sanctions of one country (ie, US sanctions on China) could mean breaking the law of another (ie, Hong Kong’s NSL). Financial institutions are caught in the middle, says Dykes, and must choose who to side with.

The NSL’s ‘other hostile activities’ phrase, meanwhile, is also open to broad interpretation.

Winnie Tam SC is Diversity and Inclusion Officer on the IBA Asia Pacific Regional Forum and Head of Chambers at Des Voeux Chambers. She says that although there is an assumption that the NSL is written in very broad terms, it is really no different to the sort of complaints that any laymen might have on any legal provision. ‘Legal provisions are drafted in language that humans use, and there’s always room for interpretation,’ she says. ‘I think we should trust our common law judges because they are very used to interpreting law in language that has a variety of shades of meaning.’

‘In terms of the degree of breadth, this law is no different to criminal law – be it burglary or theft or assault – but because it is a national security law and China has imposed it, people tend to be overly sensitive and worry if they’re going to get into trouble,’ she adds. ‘I have every confidence.’

For now, international businesses – including law firms – have been quiet on the implications of the new law, which Kobayashi describes as being ’very prudent’. Deal flow, particularly international M&A, has been on the decline since last year’s riots, but this has been exasperated by the NSL.

Meanwhile, immigration statistics show that applications for visas to work in Hong Kong’s legal sector have dropped by approximately 500 per cent. A recent survey by the American Chamber of Commerce in Hong Kong revealed that about half of US businesspeople intend to leave the city.

‘Some expats in Hong Kong have moved forward their decision to return home, given the uncertainty of the impact of the new law, while some locals have been inquiring about visas to countries such as Australia and the UK,’ says Andrew McGrath, Director of Green Light Consulting Asia.

Tam says that current discussions on Hong Kong’s future remind her of those at the time of the 1997 handover. ‘Hong Kong is very resilient, but it will get worse before it gets better.’