caalley logo

The alley for Indian Chartered Accountants

Hong Kong’s Article 23 law:
Auditors call for clarity amid fears over handling confidential information linked to possible state secrets

Accountancy sector lawmaker and former colleague urge ‘legal reassurances’ in Article 23 bill to avoid legal liabilities for professionals carrying out their work

They worry confidential corporate information could potentially be linked to state secrets, placing auditors in difficult situations

Mar 17, 2024

Auditors in Hong Kong need more legal assurances that a domestic national security bill will not place an onerous burden on them as they handle confidential corporate information that could potentially be linked to state secrets, a current accountancy sector lawmaker and a former colleague have said.

The two industry representatives, along with 11 other unnamed accountants, told the Post that as auditors and accountants they could be handling sensitive information and feared being caught in the difficult situation of deciding to keep client confidentiality and having to inform the authorities.

“We need the government to clarify this matter and tell us how we can allay the industry’s concerns,” said lawmaker Edmund Wong Chun-sek of the accountancy functional constituency.

The proposed law targets five types of offences – treason; insurrection; theft of state secrets and espionage; sabotage endangering national security; and external interference.

Hong Kong is required to pass the legislation under Article 23 of the Basic Law, the city’s mini-constitution.

The bill now before the Legislative Council defines seven types of “state secrets”, the disclosure of which could endanger national security, including secrets related to major policy decisions, national defence, armed forces and the economic, social, technological and scientific development of mainland China and Hong Kong.

The highest penalty for illegal disclosure of state secrets is a 10-year prison term.

Wong said the industry needed “legal reassurance” in the bill so that accountants, auditors and tax advisers would not risk legal liabilities when handling sensitive information and even trying to report suspicious national security breaches.

“One of our key responsibilities is to serve as a goalkeeper to safeguard Hong Kong’s status as an international financial centre,” he said.

“We worry that we may often run into a Catch-22. If we really come across such national security breaches and want to report them, there is a chance that we will breach our own code of conduct about confidentiality.”

Ronny Tong Ka-wah, a member of the Executive Council, the city’s key decision-making body, said that when doubts arose, accounting professionals could ask their information provider about how a particular document was obtained or seek advice from authorities whether it was classified as a state secret.

“If he tells you that it was from a legal channel, then you can just believe him,” he said. “If you reasonably believe him, you will be rid of criminal intent.”

Tong, who is also a barrister, said auditing firms could still resign from such engagements or offer a qualified report to cast doubts on a company’s financial statements or reporting practices.

“This is your professional risk. Everything, even without the national security bill, has always been like this,” he said.

Solicitor and former accountancy sector lawmaker Kenneth Leung Kai-cheong said the legislation could lengthen audit procedures, as accounting firms would spend extra time and resources checking with security authorities whether a specific document was considered a state secret.

“Handling state secrets is one of the training items before auditors go to mainland China,” he said. “Current training may need to get more extensive [after the laws are introduced].”

In a position paper on the bill, the Hong Kong Bar Association said that many of the categories under state secrets had commercial implications, such as economic, social and technological developments, and suggested authorities offer more clarity.

The Post contacted major accounting firms known as the Big Four in the business: Deloitte, Ernst & Young (EY), KPMG and PwC.

PwC said it would not comment on the legislation, and the three others did not respond to queries.

A check by the Post found that of the 519 groups authorities listed as expressing support for the legislation during the month-long consultation that ended on February 28, none came from the accountancy sector.

Queries to 13 Hong Kong accountancy groups, including the Institute of Internal Auditors, the Institute of Certified Public Accountants and the Business Accountants Association, also went unanswered.

Eleven accounting professionals, ranging from auditors at the Big Four accounting firms to partners from mid-tier companies, told the Post that they feared the legislation could create a grey area because of the broad definition of state secrets.

The Securities and Futures Commission said it had helped authorities gauge the industry’s views and concerns during the bill’s consultation.

The Accounting and Financial Reporting Council said the bill facilitated regulators’ work to ensure compliance across all financial institutions and addressed the city’s economic and fiscal security.

Both regulators said they supported the legislation.

The Post has also contacted the Security Bureau for comment.

The bill is expected to enter the final stage of deliberation and pass at the Legislative Council as early as this week following marathon meetings by lawmakers to scrutinise its articles since it was gazetted on March 8.

Several legislators contacted by the Post said they had not received any instructions to standby for a special full-council meeting before Wednesday’s regular session.

People convicted of illegally acquiring state secrets can be punished by up to five years in jail while those guilty of unlawful possession may face up to three years in jail.

[South China Morning Post]

Read more on:
Don't miss an update!
Subscribe to our newsletter