High Court set to decide on state secrets law's reach
Donna Wacker, a partner of Clifford Chance, looks at the issue of mainland secrecy laws and their effect on Hong Kong companies
Regulators and accountants in Hong Kong are facing a challenge of how to handle China's state secrecy laws. The Hong Kong Court of First Instance earlier this month ordered Ernst & Young to explain the basis on which it relies upon "state secrets" as the reason for refusing to hand over accounting records to the Securities and Futures Commission (SFC). The records relate to mainland company Standard Water's listing application in Hong Kong in 2009. Ernst and Young has an obligation under the Securities and Futures Ordinance (SFO) to provide the records unless it can demonstrate a reasonable excuse for not doing so.
This will be a landmark court decision in Hong Kong as it is the first time that the court has been asked to rule on whether a potential breach of China's state secrets law provides a party with a reasonable excuse for potentially breaching Hong Kong law.
The Maintenance of State Secrets Law, which was promulgated in 1988 and amended in 2010, establishes a regime of identifying and protecting Chinese state secrets.
What is a "state secret" is very broadly defined to include any information relating to state security and interests whose disclosure may harm state security or interests in politics, the economy, national defence and foreign affairs, and includes matters such as social development, science and technology.
Depending upon the type of state secret and the seriousness of the breach (ie: whether the disclosure caused loss to the mainland) an offender may be subject to a wide range of criminal penalties, from a fine to imprisonment or even the death penalty.