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IMPACT ANALYSIS: U.S. advisory warns on Hong Kong risk but vague on enforcement inclinations
29 Jul 2021

The U.S. departments of State, Treasury and Homeland Security recently issued a joint advisory warning U.S. companies in Hong Kong of escalating financial, legal and reputational risks associated with doing business in the territory. The advisory attributes “many” of these risks to implementation of the National Security Law (NSL) and other recent legislative changes that have taken place in Hong Kong.

The NSL grants additional investigative and enforcement powers to law enforcement agencies in Hong Kong and Mainland China, a development that has stoked concerns that businesses, and their staff, could be exposed to heightened regulatory risk. In the advisory (LINK: here), the U.S. government warned businesses in Hong Kong that they are at risk of electronic surveillance without warrants, and being compelled to comply with requests from the government for sensitive corporate data and personal information of customers.

NSL ENFORCEMENT

The NSL grants local law enforcement additional powers to conduct warrant-less searches, digital surveillance and property seizures in the course of national security investigations. Individuals under investigation can be restricted from leaving Hong Kong and their travel documents seized. The NSL further provides for authorities to compel “foreign and Taiwan political organizations and agents” to disclose details on local personnel, assets and sources of income.

Hong Kong chief executive Carrie Lam has said that the administration of the NSL, including any related enforcement activities, are managed in secret. News reporting of enforcement actions that have been brought thus far, could offer some insight into how the law is being enforced and the impact that it may have on the business community.

Dozens of local political activists, including former government officials and a U.S. citizen, have been arrested under the national security law over the past year (LINK: here). International banks in Hong Kong have been asked to freeze bank accounts belonging to pro-democracy activists and their relatives. At least one bank (LINK: here) has hinted it has had to undertake additional due diligence and been exposed to additional reputational risk related to NSL enforcement activity.

Shortly after the NSL was implemented, Hong Kong police raided the headquarters of Next Digital last August, a Hong Kong-listed media conglomerate owned by local media tycoon, Jimmy Lai. Next Digital was raided again in May and five executives of Apple Daily, a local pro-democracy news outlet, were arrested. Apple Daily’s CEO and chief editor were arrested with conspiracy to commit foreign collusion under the NSL. Apple Daily’s assets were frozen by authorities and the company ceased operations on June 24.

By Helen Chan, Reuters, 27 July 2021

Read more at Reuters

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