United States: Who Has The Keys?

Last Updated: July 18 2016
Article by Todd Liao

The Standing Committee of the PRC National People's Congress ("NPC") passed a new Anti-Terrorism Law (the "ATL") on December 27, 2015, which took effect on January 01, 2016.  As terrorist-related activities impacting Chinese citizens, domestically and abroad, have spurred an increased focus on the topic by China's leaders, the ATL represents China's first attempt to create a unified anti-terrorism law and codify previous provisions scattered in criminal law and administration regulations. The ATL creates the first definition, if extremely broad, of terrorism under Chinese law, as follows: any proposition or activity that creates social panic, endangers public safety, or violates personal and property rights; or, coercion of national organs or international organizations through violence, destruction, intimidation, so as to achieve political, ideological or other objectives. Already, commentators note that this ambiguous language leaves authorities sweeping discretion to label activities as terrorism.  

Of particular import to the international business community has been the ATL's provisions related to technology and information services.  Chinese leaders have struggled in balancing security interests with privacy concerns when addressing the access allowed to law enforcement agencies to emails, texts, etc.  An initial draft released in November 2014  (the "November 2014 Draft") sparked protests from throughout the international community because of requirements that technology companies provide the Chinese government with proprietary data from users and requirements that Chinese authorities have access to personal information.  The final version of the ATL removed most provisions from the November 2014 Draft that had caused significant concern, but the ATL retains provisions requiring that telecommunications service providers(电信业务经营者)and internet service providers ("互联网服务提供者")("ISP") cooperate with government authorities in investigating terrorism activities, with the degree of cooperation required by such companies unclear in the ATL, creating potential concerns regarding data privacy and security for companies operating in China.

Though the ATL's scope is broad, this article focuses on these provisions of the ATL that address ISPs, and their potential impact on data privacy and security for companies operating within China.

Requirements for Telecoms Service Providers and Providers of Internet Services (ISP)

The ATL's provisions regarding ISPs are contained in Articles 18, 19 and 21.  Together, these articles require that ISPs comply with the following rules relating to terrorism investigations:

  • ISPs must provide their encryption keys to government authorities: Article 18 requires ISPs to "provide technical interfaces, decryption and other technical support and assistance" to the public security and state security agencies "when they are following the law to avert and investigate terrorist activates".  ISPs are also required to use their technical skills to decipher encrypted documents and other materials shared online by suspected terrorists, when so instructed by public security authorities.
  • Enhanced censorship and oversight of Chinese internet: Article 19 of the ATL directs ISPs must adopt monitoring, reporting, early detection, censorship, and emergency response measures to prevent dissemination of any information with terrorist or extremist content. Specifically, if an operator of network and information system discovers "information with terrorist content," then it shall immediately cease transmission of the offending information, record all details related to its transmission, and report the matter to the public or national security authorities. These requirements mirror censorship requirements under current telecommunications regulations, simply expanding these rules to include "terrorist content." 
  • Real-name registration: the ATL stipulates that ISPs operating networks and information systems (as well as the lodging, long-distance transportation, financial and car rental service provides)  must require the real names of all registered users. Under the ATL, ISPs are required to verify the identity of their clients and deny services to any individual whose real identity is unclear.  Such requirements have long existed for ISPs providing services related to blogs and messaging, and the ATL essentially expands such requirements further to all other services.  

The penalties of ISPs for non-compliance are significant, including monetary fines greater than RMB500,000 for companies and similar monetary fines and detention for individual managers of ISPs.

Changes between November 2014 Draft and ATL

The ATL omits additional requirements that had generated the most furor, including that (i) ISPs file with authorities their password and cryptographic information with encryption authorities, and (ii) installation of so-called backdoors allowing PRC authorities access to encrypted information and communications.  In their place, Article 18 of the ATL offers a more narrowly crafted requirement for assistance in terrorism-related investigations.  While such assistance conceivably includes similar activities contemplated in the November 2014 Draft, authorities appear to have narrowed the instances in which such services will be requested to make concessions regarding privacy concerns.    

The ATL also omits the November 2014 Draft's requirement that ISPs place all relevant equipment and customer data within China.  However, notwithstanding removal of this provision in the ATL, other provisions of Chinese law, already in existence and pending, contain similar requirements.  Such rules require that customer data relating to various industries, including e-banking, e-insurance, credit reporting and network-based payment services, be stored and maintained within China.  Furthermore, the Draft Cyber Security Law issued on July 6, 2015, also requires key information infrastructure operators to store citizen' personal information and other important data onshore within China, though the draft is currently narrower than that contemplated under the November 2014 Draft.  

Finally, China's so-called "Great Firewall" already causes significant impediments for internet users in China to connect with any servers located outside China, which has already compelled many businesses to shift servers to China for local customers.

"Assistance" and censorship by ISPs under the ATL

Notwithstanding the removal of some of the most controversial provisions from the November 2014 Draft, the ATL's requirement that ISPs provide technical assistance regarding encryption are nonetheless troubling.  It is unclear whether such "assistance" might entail measures contemplated under the November 2014 Draft, such as handing over encryption keys and creating backdoors, even if more narrowly applied.  

Another practical problem faced by ISPs is the requirement that they adopt measures to exercise self-censorship.  Presumably, the major ISPs will utilize specialized filter software looking for keywords, but concerns remain whether this is feasible or burdensome. The ATL does not specify specific standards or requirements.

Chinese authorities defend these measures as reasonable and necessary in the current international climate.  As with many other states, Chinese leaders are concerned about the scope of monitoring by Western governments (as revealed by Edward Snowden) and wish similar capabilities, and recent moves by Apple, Google, Microsoft and others to further encrypt communications has caused concerns about the Chinese government's ability to effectively monitor communications. In this context, China continues to defend these measures as reasonable and necessary.  

Implications for Non-ISP Foreign Companies

While the ATL has sweeping implications for ISPs and other technology companies providing services within China, other foreign companies should face more limited impact for the following reasons: 

(i) the major subject of the new law is internet service providers or telecom operators. There are no provisions directly addressing other types of foreign invested enterprises. Commentators note, however, that the expression " Providers of Internet Services " is not defined under the ATL, and a broad interpretation by authorities could conceivably impact operators of non-commercial websites in China.  Nonetheless, PRC legislator's specifically stated that the ATL is not intended to impact multinational businesses conducting "ordinary business" in China; 

(ii) the ATL targets potential cybercrime or terrorism, and there are no provisions addressing business secrets or intellectual property. In this regard, officers of the NPC Standing Committee stated on numerous occasions that the ATL "will not install backdoors to infringe intellectual property rights."; and

(iii) the ATL only grants the Public Safety Bureau and National Security Bureau with the right to request the cooperation of Telecoms Service Providers and Providers of Internet Services in examining encrypted information.  Additionally, the ATL requires a "strict approval process" for such requests. However, it is worth noting that the legislators have yet to offer further specifics of this approval process. 

Looking Forward

While the ATL represents something of an improvement from the November 2014 Draft, its ambiguities remain a cause for concern with international businesses.  While Chinese authorities have clearly stated that their intention has not been to impact international businesses or intellectual property, the ATL's ambiguities nonetheless leave Chinese authorities with the discretion to impact such activities.  Further implementation rules or enforcement actions will be necessary to understand the full impact of the ATL on international businesses and their operations in China.  

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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