Jurisdiction - China
Reports and Analysis
China – Beijing Securities Firm Analysts Convicted Of State Secret Offences.

9 May, 2012

 

Legal News & Analysis – Asia Pacific – China – Dispute Resolution

 

Media in China recently reported the sentencing of two Beijing securities analysts to five years and six months in prison and six months in prison with one year probation respectively for obtaining and deliberately divulging State secrets relating to PRC macroeconomic data. 1 The two cases are connected to the convictions of two PRC government officials for divulging State secrets, which we discussed in a previous e-bulletin. 2
 
These latest convictions demonstrate the PRC Government's and the People's Procuratorate's willingness to proceed against analysts who knowingly received and circulated sensitive material. It also reflects the Chinese court's approach to sentencing in these cases.
 
Key facts
 
1.     Lin Songli is a former macroeconomic analyst of Guosen Securities (国信证券股份有限公司).  He was prosecuted for divulging 3 items of "classified" (机密) State secrets and 2 items of "confidential" (秘密) State secrets. 3 Lin sent these statistics to his contact via MSN instant messenger. On 29 March 2011, the Xicheng District People's Court sentenced Lin to six months in prison with one year probation.
 
2.     Wu Zhiwen is the former general manager of Jin Mailong (Beijing) Asset Management Company (金麦龙(北京)资产管理公司).  Wu was accused of unlawfully obtaining six items of "classified" (机密) State secrets and 24 items of "confidential" (秘密) State secrets, a number of which came from Wu Chaoming (one of the officials sentenced last year). Wu disclosed this information multiple times, a number via text message. The Court found Wu guilty of unlawfully obtaining State secrets. 4 He was sentenced to five years and six months in prison. 5
 
Comment
 
1.     The relevant State secrets consisted of confidential pre-release PRC macroeconomic statistics, such as GDP, CPI, M1, M2, etc. This information was clearly confidential and potentially lucrative inside information for those trading in securities both in China and elsewhere.
 
2.     Wu Chaoming and then Wu Zhiwen had circulated the material widely within their Nankai University alumni (most by text). The fact that such sensitive information was passed on informally, reflects changes in the way the information can be leaked, but also the strength of connections and information exchange within the many informal business networks in China especially all levels of university alumni.  While in practice the use of text and informal nature of the exchanges within the circle of friends and alumni, may have made the conduct seem less criminal to those involved it did not make the offence any less serious in terms of PRC law. This is especially since these classes of pre-public release macroeconomic data should have been recognised as sensitive, and in particular by analysts within Beijing securities firms.
 
3.     Moreover, the extent to which the material was circulated was said to be one of the issues relevant to sentencing. 6 Wu's actions resulted in a much broader publication of the material, whereas Lin's publication was a one off. This is reflected in their respective sentences.
 
4.     While there is an offence for being in possession of "confidential" or "classified" materials and refusing to explain their source and use, there is no liability under PRC Law for passively receiving unsolicited confidential information of this type and not doing anything with the material. 7 In this respect we are not aware of any charges being brought against the alumni who received the sensitive information via text.
 
Key tips
 
1.     Non-public confidential information which may fall within the scope of State secrets or trade secrets 8 should never be sourced through non-official channels.
 
2.     The fact that such information may be sourced through informal networks of "class mates" or colleagues does not change the nature of the material being circulated and potential criminal liability under PRC law.
 
3.     Staff should be instructed that if this class of information is received, under no circumstances are they to pass the information onto others or otherwise rely or use the material.
 
4.     All businesses should have in place internal rules and guidance regarding the management of State and trade secrets risk in China.  These rules should set out a process for dealing with the potential receipt and handling of this information through official and unofficial sources.
 
A Quick Guide to dealing with this area can be found here.
 
 
For further information, please contact:
 
Mark Johnson, Partner, Herbert Smith
 

 

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