HONG KONG: Foreign companies in Hong Kong have been reviewing their operations since last year ahead of the now-passed domestic national security legislation, but they had already made major changes after the Beijing-imposed version came into force in 2020, corporate lawyers and consultants have said.
City and central authorities have reassured the international sector that the new legislation, mandated under Article 23 of the Basic Law, the city's mini-constitution, would not disrupt their operations and would be beneficial to the city's business environment.
But some companies are said to have remained concerned about the potential for unintentional breaches of the law, despite their preparation work.
Two insiders familiar with foreign business operations in Hong Kong told the South China Morning Post that several firms had anticipated the legislation and some had already carried out additional reviews before the month-long public consultation period started at the end of January.
James Ellender, the Asia-Pacific managing director of risk consultancy firm Futurum Asia, said some of the company's biggest clients had asked for employee screening and due diligence checks on suppliers since the third quarter of 2023.
"I've certainly seen an uplift in inquiries in the last week, but the much larger firms in Hong Kong have been reading this as likely to happen since last year, so they've already been preparing for [Article 23]," he explained last Friday.
He was speaking just hours before the Safeguarding National Security Ordinance came into force last Saturday after it sped through the legislature in a series of marathon sessions just 50 days from the launch of the month-long public consultation.
A Hong Kong-based lawyer and specialist in banking and restructuring said foreign firms were more concerned about the new "theft of state secrets" and "external interference that endangered national security" provisions in the new law.
He added some firms had informally asked him for advice on compliance matters related to the new law or planned a review of present practices.
But the lawyer, who asked not to be named, agreed a major impact was not expected as most of the big changes had already been made over the past few years.
He said some multinational and accounting firms - including at least three banking and telecommunication companies he knew of - had implemented extra measures after the 2020 law came into force.
The lawyer added these included restrictions on access to sensitive information by Hong Kong-recruited staff.
"All these are international practices which are not made public," he said.
But he added accountancy or analytical firms which researched China's economy might face higher risks because of the new "theft of state secrets" offence.
The legislation, designed to work alongside the four-year-old Beijing law passed in the wake of Hong Kong's 2019 social unrest, covers 39 offences divided into five categories: treason; insurrection, incitement to mutiny and disaffection and acts with seditious intention; sabotage; external interference endangering national security; and theft of state secrets and espionage.
Chief Executive John Lee Ka-chiu signalled as far back as the start of his 2022 election campaign that Article 23 legislation would be a priority for his administration.
He set a 2024 deadline for the new law in February last year.
United States-based lawyer Dan Harris, a founding partner of Seattle international law firm Harris Sliwoski and co-author of the China Law Blog, said that the new law was "more of a change in degree than brand new things".
But he added uncertainties remained and that businesses were unclear on how to handle confidential information under the domestic legislation.
Harris said there were also concerns over liability for unintentional national security breaches.
Kurt Tong, a former top US diplomat in Hong Kong and now a partner in Washington-based business advisory firm The Asia Group, said concerns about the Article 23 legislation mostly revolved around changes to the city's legal traditions, the way of doing business and a lack of clarity.
Beijing's Hong Kong and Macau Affairs Office said the legislation had taken into account the city's role as an international financial and trade centre.
It added the new law ensured the normal development of business consultations, market research and other activities and the free flow of information were not affected.
Albert Chen Hung-yee, a University of Hong Kong law professor and a former member of the Basic Law Committee, said the city's domestic national security legislation shared a similar definition of state secrets with the mainland.
But he highlighted the city law used "narrower" language and also had a public interest defence which was not contained in similar mainland legislation.
"I think there is very low risk … of businesses in Hong Kong accidentally or unintentionally breaching the law," Chen said.
Ryan Mitchell, an associate professor of law at the Chinese University of Hong Kong, agreed that concerns raised by some could stem from a perception that there was a "porting over" of the "restrictive mainland approach to protecting state secrets".
Apart from the ordinance's definition of state secrets, which is similar to the mainland's, there are also similarities in some of the areas covered, from national defence to economic and social development.
But Mitchell said, because of Hong Kong's common law legal system, that "aspects of the legislation that do resemble those of the relevant mainland laws will end up functioning rather distinctly".