Contents
Espionage Organization Contact Prohibited
Intelligence Collection is Broadly Defined
Possession of Secrets Storage Media
Overview
Law is China’s foundation for national security and therefore a great concern for foreign companies doing business with China. The rules require incorporating national security risk management within organization processes, covering the following goals:
- State secret protection
- Unauthorized data export prevention
- Data minimization
- Cybersecurity assurance
To comply with these rules, businesses will need to analyze the risk of how their reports and data are being transferred abroad. Export control regulations also apply to R&D, exports, and technology conference communications. Due diligence into business partners’ financial, supply chain, and human resources history is necessary to avoid unintentional collusion with an espionage organization or its agents. Legal compliance is especially important for international projects, NGO collaboration, or market research. Ongoing staff training is necessary in order to avoid compliance risks.
The China Anti-Espionage Act grants law enforcement powers to punish espionage activities and authorizes preventative measures such as surveillance and interception of espionage activities. The law is meant to conform to international practices on espionage prevention and is a key pillar in China’s national security law system.
Espionage Organization Contact Prohibited
“Espionage activity” is defined in the Anti-Espionage Act Administrative Rules § 4(a), it encompasses is any relationship with an espionage organization and its officers, the identities of which are defined by the lead national security agency at the cabinet level. An “espionage organization” specifically is any organization formed by a foreign government for the purpose of suborning China’s public servants, people, or businesses to unlawfully obtain a state secret or intelligence, or to carry out an overthrow or sabotage activity, by using the techniques of penetration, theft, surveillance, or bribery. (Source: Government)
Example spy organizations include the CIA, MI6, FSB, and Taiwan Bureau of Defense Intelligence. An officer of an espionage organization is someone who at the direction and with support of an espionage organization or its members, recruits or induces a person to take action that endangers PRC national security.
Suspicion of espionage organization collusion can be raised over:
- Unusual employee backgrounds
- Contact with state secrets or technology during business activities
- Suspicious source of funds
- Accidental collection of intelligence
- Cybersecurity violations
Joining or accepting tasks from an espionage organization constitutes an espionage activity (See Espionage Act § 1(b)). The China Criminal Law Act § 110 contains similar provisions criminalizing joining and espionage organization or accepting their tasks in a way that endangers national security, with a penalty of three to ten years’ incarceration, and aggravated crimes with ten years to life imprisonment.
For example, the China MSS publicized the Liang Chengyun case, wherein a US passport holding Hong Kong person, Liang, went to the US in 1983 to run a restaurant. The US signed a cooperation agreement with the US to recruit Liang as a reporter, and at the same time was granted US citizenship. The US intelligence agency provided Liang with a fake resume and instructed him to act as a “patriotic philanthropist” donating to overseas Chinese associations, where he would carry out espionage activities against China and recruiting public servants. Liang was arrested in 2021 and sentenced to life imprisonment in 2023 on espionage charges. Other penalties included confiscating 500,000 Yuan and depriving him of political rights. (CCTV: MSS Unmasks ‘Virtuous’ American Spy, also reported on ABC News).
Foreign Intelligence Agents
Use background checks and monitor employee activities to prevent them from using their company employment as cover for espionage. Do work with firms and organizations outside China in a legally compliant manner, and avoid making contact with anyone who is associated with any espionage organization listed by China’s lead agency for national security. Run background checks and due diligence on new collaborators or business partners and in your contract provide what liability each party will assume.
For an example of where a collaborator’s background as a foreign intelligence asset led to legitimate Chinese espionage charges, following the Detention of Michael Spavor and Michael Kovrig case, Spavor sued the Canadian government for deceiving him into collecting intelligence on China through their agent Kovrig, resulting in his three-year long detention.
Merely making oneself available to assist a foreign espionage organization is an illegal espionage activity under the provisions Espionage Act. The PRC congressional findings emphasized perpetrators usually know that they are dealing with a spy agency’s representative. They will take the initiative to get in touch by various means, expressing an intention to be an agent for the foreign espionage organization and perform work at their behest. This includes offering state secrets to the handler, and preparing to take action that threatens national security, whether independently or in collusion with the foreign espionage organization. State secrets is governed by an entirely different statute with different rules.
See CBL’s article on China’s State Secrets Laws to learn more about how these rules affect you.
Intelligence Collection is Broadly Defined
Espionage is defined under the China Criminal Law Act is any theft, surveillance, purchase, or unlawful provision of a state secret or intelligence. The definition of “intelligence” is anything that affects state security or the national interest, and which may not be disclosed. Courts hearing national security cases must obtain expert opinion as to whether the information constitutes “intelligence,” and that opinion may come only from a state secrets agency. Typically, the agency providing expert opinion on intelligence matters will be the national state secrets bureau or military secrecy commission but can also be a local office.
The Revised China Anti-Espionage Act has an expanded definition of what may constitute a stolen secret. In addition to state secrets, it expends to any documents, data, materials, or articles that implicate national security or the national interest. Espionage activities thus include any theft, surveillance, purchase, or unlawful provision of these things.
The Rice Seed Case was a well-known espionage prosecution. Zhu, the president of an agricultural technology company was recruited by a foreign espionage agency to steal Chinese industry secrets using as a front company, a “seed development partnership” venture.
He sold five proprietary rice seed strains to the foreign espionage agency for an excessively high price and afterwards formed a new company to sell other seed strains to foreign persons. The expert opinion rendered by the state secrets officers determined that the seeds provided were “intelligence”, and subsequently national security officers arrested Zhu. The Hefei Lower Appeals Court in Anhui convicted him of criminal provision of intelligence to foreign countries, with a sentence of 18 months.
The state secrets office assessed fined against seventeen associated parties in the case. A follow-up investigation discovered that persons in China’s seeds industry had been selling Chinese crop seed secrets to foreign countries for many years.
The Capvision case from 2023 illustrates what action the Chinese government will take about alleged threats to national security. According to Suzhou state security offices and law enforcement officials, Capvision allegedly took numerous consulting engagements to provide analysis of sensitive Chinese industries on behalf of foreign firms known to have close ties to their own countries’ government, military, and intelligence agencies.
Capvision provided clients access to its expert network that included individuals who provided insider government policy insight about several highly sensitive fields in China, including defense, money markets, finance, pharma, health, and energy. The experts within their network allegedly provided classified national security secrets and intelligence in these industries. As a result, national security officials, applying the law, issued a corrective action order demand to the company requiring it cease and desist from threats to Chinese national security.
What Services May be “Espionage”
Before commencing research related work, check regulations that restrict what kinds of consulting services may be legally provided to an international client. Two regulations were issued by Chinese authorities specifically to govern this kind of activity:
A transnational investigations permit is required when accepting an engagement for any organization located outside mainland China, for services involving market or social research activities. An organization or individual based outside China cannot collect data, instead a locally licensed organization must do those tasks for them.
A regulatory security assessment must be obtained from the Cyberspace Affairs Commission for engagements that would involve transmitting data outside China, information on critical network infrastructure, or personal data on 100,000 or more persons (or 10,000 if involving sensitive personal information), and the Commission frequently issues new rules imposing evolving requirements.
Preserve all records related to permits and security assessments, otherwise you may face civil or criminal liability. Therefore, make sure that the local consulting firm or its subcontractor has a transnational survey permit for any international business engagement involving market or social research, and if not do not hire that firm.
It is illegal for a person or organization based outside China to do market or social research in China except through the service of a consulting organization licensed in China. The Data Export Security Assessment Procedures must be followed for any cross-border data transmission of any sensitive or critical industry and have in place a compliance program that will ensure counterespionage rules are followed.
See CBL’s article on Cross-Border Data Export Compliance to learn about your obligations when transferring data outside China.
Directing enemy attacks is criminalized under China Criminal Law Act § 110, and specifically covers certain espionage activities that endanger national security, with a sentence of 10 years to life in prison, but 3-10 years for lesser dangers. The PRC Criminal Law Act Adjudication Guidelines provide that “enemy” means a nation at war with China or which has bombarded its territory during peacetime.
The scoping language under the two statutes covering this offense is non-overlapping. The China Espionage Act § 4(e) applies to activities amounting to an “attack” whereas the China Criminal Law Act has narrower scoping language and can only apply to bring a criminal prosecution if the perpetrator’s actions amounted to an attack to assist an aggressor that has bombarded China. Otherwise, the applicable statute is Espionage Act § 4(a).
Cyberattacks are defined under China Espionage Act at § 4(a)(4) to include espionage activities involving any internet attack, intrusion, disruption, control, or damage to government agencies, classified programs, and critical IT infrastructure.
Espionage against third countries is prohibited under Espionage Act § 4(b) when done on Chinese soil or using Chinese citizens or organizations, where such activity endangers Chinese national security.
Possession of Secrets Storage Media
The Espionage Act § 14 imposes a warning and up to 10 days’ detention for unlawfully obtaining or possessing a state secret document, data, record, or object, or possessing spying equipment without authorization, in cases where such conduct does not rise to the level of a criminal offense. Specifically, this provision means the individual lacks proper clearance to possess state secrets or lack clearance to authorize those particular secrets. (See Espionage Act Administrative Regulations § 17.) Violators are subject to an administrative penalty under the Espionage Act § 61.
Colluding with persons based outside China to unlawfully steal, surveil, purchase, or provide state secrets is prohibited under Espionage Act §4. Moreover, since the China State Secrets Act prohibits unlawfully obtaining or possessing a state secret, the State Secrets Bureau may separately impose penalties under its law enforcement powers. Secrets Act § 57 prohibits obtaining, surveilling, or concealing storage media containing state secrets, with violators subject to confiscation of illegal income.
For violations not rising to the level of criminality, the jurisdictional agency may issue a corrective action order, the parent agency or prosecutor’s office may initiate a prosecution personally against the organization’s managers and directly responsible persons.
Therefore, businesses should implement an internal information security review process, and train China based employees to recognize what may constitute unlawfully obtaining or possessing state secrets. Violations of state secret rules should be immediately investigated to ensure corporate compliance and avoid endangering the national interest.
Any person who discovers possible espionage should make a report to the national security agency, and there is in fact a reporting hotline and website that guarantees reporters’ anonymity. The two contact methods are:
- Phone Hotline: 12339
- Government Website: www.12339.gov.cn
- Snail mail to Chinese government office
- Walk-in reporting at government office
- WeChat Official Account Report
If an employee whistleblower reports a violation, you should cooperate with the investigation by voluntarily providing information and assistance, while ensuring that your internal investigation process complies with Chinese law and company policy.
Security restricted areas are designated around offices for the Chinese Communist Party, government, military, or near military or other secret bases. The Espionage Act requires obtaining a special permit from the local national security office prior to construction, renovation, or expansion of buildings in one. Security restriction areas are drawn by the local national security office in coordination with other interested agencies governing economics, construction, secrecy, and military matters. The permit rules are written jointly by the jurisdictional cabinet level agencies. Applications can be made in person or on the government’s national security website.
If you start work without a permit, you are liable to regulatory penalties and could be shut down and be ordered to undergo a national security or foreign investment security review, which can cause problems for financing, insurance, and supply chain management. Foreign businesses should include a security restricted area compliance review as part of a due diligence and contracts review projects and include extra days to get a permit, to ensure that the project timeline is not disrupted.
Conclusion
China’s complex national security regulations warrant investing resources into ensuring compliance. Otherwise, the Chinese government will not allow such businesses to achieve stable growth in their markets.
FURTHER READING