On December 27, 2015, the Standing Committee of the National People’s Congress (NPC), China’s top legislative body, enacted a Counter-Terrorism Law (see the Chinese version here, and an unofficial English translation here), which took effect on January 1, 2016.  The adoption of this law, a year after the first draft was released for public comment, followed closely the adoption of a new National Security Law and a draft Network Security Law.

The Counter-Terrorism Law reinforces the government’s broad powers to investigate and prevent incidents of terrorism and requires citizens and companies to assist and cooperate with the government in such matters.  The law imposes additional and specific obligations on companies in certain sectors, including those providing telecommunications, Internet, and financial services.  Non-compliance or non-cooperation can lead to significant penalties, including fines on companies and criminal charges or detention for responsible individuals. In some respects, the new law provides greater, higher-level legal authority to pre-existing regulations and practice. In others, it imposes new obligations or makes existing obligations more specific (e.g., penalties).

The law’s broadly-worded requirements create some uncertainty as to their implications for companies’ data protection and security policies. The final version of the law removes some of the more controversial requirements of the draft versions, including the requirement that telecommunications and Internet services providers install “backdoors” into their products, register encryption keys with the government, and keep servers and data related to Chinese users within the country. Nonetheless, the law imposes new requirements that require careful attention. For example, telecommunications and Internet services companies must:

  • Provide technical support and assistance, including handing over access or interface information and decryption keys; and
  • Establish content monitoring and network security programs and adopt precautionary security measures to prevent the dissemination of information on extremism, report terrorism information to the authorities in a timely manner, keep original records, and promptly delete such messages to prevent further circulation.

Companies in many other sectors, such as freight, transportation, and hospitality (including car rental), as well as providers of telecommunications, Internet, and financial services, are required to conduct identity checks of their customers or clients and refuse to provide services to those that decline to provide such information. It is unclear how these new provisions will interact with other provisions that require companies to collect certain types of personal data only with permission from customers.

These specific requirements are framed against the backdrop of more general obligations to assist government authorities in counter-terrorism investigations and operations. As is common with high-level Chinese laws, the language in the new Counter-Terrorism Law, including the definition of “terrorism” itself, is broad, leaving significant discretion in the hands of the responsible agencies. The contours of its implementation in practice, including its implications for companies handling user data and information, may become clearer as implementing regulations are issued.

Material for this post was contributed by Yan Luo of Covington & Burling LLP.

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Photo of Eric Carlson Eric Carlson

Eric Carlson has nearly two decades of experience advising clients operating in China and other jurisdictions in Asia on compliance and investigations matters, particularly in the areas of corruption/FCPA/fraud and export controls/sanctions.

Having lived in China for more than a decade, he has …

Eric Carlson has nearly two decades of experience advising clients operating in China and other jurisdictions in Asia on compliance and investigations matters, particularly in the areas of corruption/FCPA/fraud and export controls/sanctions.

Having lived in China for more than a decade, he has deep experience leading highly sensitive investigations in China and other jurisdictions in Asia, including investigations presenting complex legal, political, and reputational risks. He speaks Mandarin and Cantonese and has led more than four hundred witness interviews in Chinese in 24 provinces in China, and conducted dozens of trainings in Chinese. He is a Certified Fraud Examiner.

Eric also counsels clients on the compliance risks of proposed transactions, conducts compliance due diligence as part of mergers, acquisitions, and joint ventures, assists companies in updating and strengthening their internal compliance programs and tailoring them to the unique features of Asian markets, and developing and presenting tailored compliance training in Chinese and English. Eric has advised scores of companies and organizations representing nearly every major industry.

Eric is a regular speaker on China-related compliance issues. He has been quoted in publications such as The Wall Street Journal, The Economist, The Financial Times, Global Investigations Review, Compliance Week, FCPA Report, The Corporate Treasurer, Commercial Dispute Resolution, China Business Law Journal, and Economy and Nation Weekly and was a contributing editor to the FCPA Blog. Chambers notes that Eric has “much more than just a conversational grasp of the language, but the ability to conduct interviews on specific subject matter details and get to the root of the issues.” Chambers further notes that “his language skills are very impressive” and that he provides “great advice that is grounded in reality,” adding: “They know the industry and their advice is very risk-based and balanced.” One client noted to Chambers: “They have strong regional coverage both in terms of footprint as well as language skills. If I have a compliance investigation in region with a tight timeframe, I know they can get it done. They take a more realistic approach to scoping investigations.” Other clients noted to Chambers that Eric is “really brilliant” and “an expert in this field.” According to one client surveyed by Chambers, “he is particularly adept at ‘right sizing’ the scope of an investigation to get at the key issues without incurring unnecessary operational or financial burden. He is also incredibly responsive to client communications.”

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Photo of Ashwin Kaja Ashwin Kaja

With over a decade of experience in China, Ashwin Kaja helps multinational companies, governments, and other clients understand and navigate the complex legal and policy landscape in the country. He plays a leading role in Covington’s China international trade and public policy practices…

With over a decade of experience in China, Ashwin Kaja helps multinational companies, governments, and other clients understand and navigate the complex legal and policy landscape in the country. He plays a leading role in Covington’s China international trade and public policy practices and, outside of Covington, serves as the General Counsel of the American Chamber of Commerce in China.

Ashwin helps clients solve acute problems that arise in the course of doing business in China and position themselves for longer-term success in the country’s rapidly evolving legal and policy environment. He is an expert on Chinese industrial policy and has worked on matters related to a wide range of sectors including technology, financial services, life sciences, and the social sector. Ashwin has also counseled a range of clients on data privacy and cybersecurity-related matters.

As the General Counsel of the American Chamber of Commerce in China (AmCham China), Ashwin serves as a senior officer of the organization and as an ex officio member of its Board of Governors, supporting nearly one thousand member companies in developing their businesses in China and advocating for their needs with China’s central and local governments.

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Photo of Yan Luo Yan Luo

With over 10 years of experience in global technology regulations, Yan Luo specializes in the intersection of law and technology, focusing on regulatory compliance and risk mitigation for technology-driven business models. Her key strengths include data protection, cybersecurity, and international trade, with a …

With over 10 years of experience in global technology regulations, Yan Luo specializes in the intersection of law and technology, focusing on regulatory compliance and risk mitigation for technology-driven business models. Her key strengths include data protection, cybersecurity, and international trade, with a particular emphasis on adapting to regulatory changes and ensuring compliance to support technology sector business strategies.

In recent years, Yan has guided leading multinational companies in sectors such as cloud computing, consumer brands, and financial services through the rapidly evolving cybersecurity and data privacy regulations in major Asian jurisdictions, including China. She has addressed challenges such as compliance with data localization mandates and regulatory audits. Yan’s work includes advising on high-stakes compliance issues like data localization and cross-border data transfers, navigating cybersecurity inspections for multinational companies, and providing data protection insights for strategic transactions. Additionally, Yan has counseled leading Chinese technology companies on global data governance and compliance challenges across major jurisdictions, including the EU and the US, focusing on specific regulations like GDPR and CCPA.

More recently, Yan has supported leading technology companies on geopolitical risk assessments, particularly concerning how geopolitical shifts impact sectors at the cutting edge, such as artificial intelligence and semiconductor technologies.

Yan was named as Global Data Review’s “40 under 40” in 2018 and is frequently quoted by leading media outlets including the Wall Street Journal and the Financial Times.

Prior to joining the firm, Yan completed an internship with the Office of International Affairs of the U.S. Federal Trade Commission in Washington, DC. Her experiences in Brussels include representing major Chinese companies in trade, competition and public procurement matters before the European Commission and national authorities in EU Member States.

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