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China Releases New Implementation Regulations for State Secrecy LawMarch 5, 2014
China’s State Council has issued the Regulations on the Implementation of the Law of the People’s Republic of China on Guarding State Secrets (the “Regulations”), which took effect on March 1, 2014 and replaced the Measures for Implementing the Law on Guarding State Secrets (the “Measures”) issued in 1990. The Law on Guarding State Secrets (the “State Secrecy Law”) was originally issued in 1988, and was later amended in 2010 to keep up with the rapid development of technology used for the transmission and storage of information. China has also taken other measures to emphasize the importance of protecting the confidentiality of state and business secrets. For example, on March 25, 2010, the State-owned Assets Supervision and Administration Commission issued the Interim Measures on Protection of Business Secrets of Centrally Administered Enterprises (the “Measures on Business Secrets of CAE”), under which certain business secrets of centrally administered enterprises (“CAEs”) may also be categorized as state secrets.
China’s state secrets legal regime has been in the spotlight in recent years, primarily because of the increase in cross-border litigation and investigation cases that involve the overseas transmission of documents and information located in China. For example, the U.S. Securities and Exchange Commission’s (the “SEC”) lawsuit against Deloitte in connection with the Longtop securities litigation case, along with the recent SEC administrative law judge’s ruling that placed a six-month suspension on Chinese affiliates of the big four accounting firms from auditing U.S.-listed Chinese companies, both arose from the accounting firms’ fear of violating Chinese state secrecy laws should they turn over audit documents to the U.S. Furthermore, the Chinese state secrecy laws have ramifications for multinationals conducting internal investigations that involve the production of documents in response to overseas regulatory authorities’ requirements.
The Regulations introduce provisions seemingly aimed at limiting arbitrary expansion of the scope of state secrets. However, the definition and scope of state secrets remains broad. This article summarizes the salient aspects of the Regulations and their potential impacts on companies that operate businesses in China.
The Scope and Classification of State Secrets
The Regulations seek to restrict government agencies and relevant entities from classifying documents and information as state secrets that, in accordance with current laws, should be publically known. The Regulations also bar such agencies and entities from disclosing any information that involves state secrets. This provision is reported as “an effort to boost government transparency.” However, it does not provide specifics as to what categories or types of documents or information should be considered public knowledge. The Regulations add that “the scope of what is state secret should be adjusted in a timely manner according to changes in the situation.” This provision could add extra uncertainty and complexity because it is unclear what sort of changes in a situation might result in an adjustment of the scope of state secrets.
The Regulations restate the classification and labeling requirements under the State Secrecy Law, which hold that the name, classification level, term of secrecy, and the scope of access be specified when a secret becomes classified. Likewise, documents and materials that are not clearly marked as state secrets may still be regarded as such. This is based on the Supreme People’s Court’s Judicial Interpretations Regarding Trial of the Crime of Stealing State Secrets, which provides that if a person knows or should have known that an item, although not marked as a state secret, relates to national security and national interests, and that person steals, secretly gathers, purchases, or illegally provides such item to an organization, institute, or person outside of China, that person will be held criminally liable for theft of state secrets. To further illustrate this point, the Regulations provide that, for objects or devices containing state secrets that are unable to bear state secrets labeling, the relevant government agency or entity classifying such state secrets should provide written notification to the recipient agencies, entities, and personnel that they are entrusted with protecting such state secrets.
As provided in the Regulations, when a government agency or entity is not certain about the scope or classification of a state secret, it shall report the issue to the relevant secrecy administration for determination. The central secrecy administration bureau has the authority to make decisions regarding state secrets proposed to be labeled “top secret”, as well as state secrets proposed by the central government agencies to be labeled “highly secret” and “secret”. A provincial secrecy administration bureau, on the other hand, has the authority to make decisions regarding the application of the labels “highly secret” and “secret” to materials upon the request of other government agencies and entities. Under the Regulations, the secrecy administration bureau must make a decision within 10 days (instead of 30 days as provided in the annulled Measures) after it receives the report from government agencies and entities.
Specific Requirements With Respect to State Secret Carriers
The Regulations outline more specific requirements with respect to the manufacture, delivery and usage of objects or devices that contain state secrets (the “State Secret Carriers”). Pursuant to the Regulations, manufacturers of State Secret Carriers must be qualified entities that have been examined by the secrecy administration bureaus; the delivery of the State Secret Carriers must be through confidential channels; and any copies of the State Secret Carriers must be treated in the same manner as the original carriers. The Regulations reaffirms the requirement under the State Secrecy Law that relevant government approvals must be secured and procedures must be followed before transporting the State Secret Carriers abroad.
Requirements with Respect to Confidentiality Agreements
The State Secrecy Law generally requires that government agencies or entities enter into confidentiality agreements with entities that deal with both the State Secret Carriers and information systems that involve state secrets. The Regulations further specify that government agencies and entities enter into confidentiality agreements with all contractors, product suppliers, and service providers when state secrets are involved in connection with procurement of projects, products or services. This provision can potentially provide helpful guidance to business counterparts that deal with the government agencies and entities as to what documents or information they obtain in connection with such procurement may be considered as state secrets.
The requirement regarding confidentiality agreements under the Regulations is generally consistent with the confidentiality agreement requirement adopted by the Measures on Business Secrets of CAE, which provides that CAEs should sign confidentiality agreements with business counterparts whenever CAEs are engaged in activities where business secrets may be involved. As mentioned above, certain business secrets of CAEs may also be categorized as state secrets.
 The Law on Guarding State Secrets was originally issued by the Standing Committee of the People’s Congress on September 5, 1988 and amended on April 29, 2010. The amended Law on Guarding State Secrets became effective on October 1, 2010.
 Article 3 of the Measures on Business Secrets of CAE, issued by the State-owned Assets Supervision and Administration Commission on March 25, 2010.
 Article 5 of the Regulations.
 Time World, China Alters State Secrecy Laws for “Greater Transparency” (February 3, 2014), source click here.
 Article 8 of the Regulations.
 Article 5 of the Supreme People’s Court’s Judicial Interpretations Regarding Trial of the Crime of Stealing State Secrets, issued by the Supreme People’s Court on November 20, 2000 and became effective on January 22, 2011.
 Article 15 of the Regulations.
 Article 19 of the Regulations.
 Article 21 of the Regulations.
 Article 26 of the Regulations.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Bingna Guo, an O'Melveny partner licensed to practice law in New York, Min He, an O'Melveny associate licensed to practice law in New York, and Sylvia Shi, an O'Melveny associate licensed to practice law in New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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