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China’s internet censorship becomes global compliance problem

This post is about internet censorship. That, ironically, is a prohibited topic under China’s rapidly expanding censorship regime. Because I’ll talk about SEC registrants who warn investors about China’s internet censorship as a risk factor, that’ll likely add to the illegality. And by gratuitously mentioning Covid-19, democracy, human rights, Taiwan and Hong Kong, Russia’s invasion of Ukraine, and corruption in the PRC Communist Party, I’m compounding my offenses.

No wonder issuers operating in China have begun including warnings about censorship. Here’s what an e-commerce company incorporated in the Cayman Islands and based in Guangdong Province said in an SEC filing earlier this month (with my emphasis):

The PRC government has adopted regulations governing internet access and the distribution of news and other information over the internet. Under these regulations, internet content providers and internet publishers are prohibited from posting or displaying over the internet content that, among other things, violates PRC laws and regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious, fraudulent or defamatory. Failure to comply with these requirements may result in the revocation of licenses to provide internet content and other licenses, and the closure of the concerned websites. The website operator may also be held liable for such censored information displayed on or linked to the websites.

I’m seeing similar warnings lately in SEC filings from financial services firms, education companies, manufacturers, and others.

China’s censorship push is in overdrive. Inside the country, real-name registration of SIM cards has been “a common feature  . . . and one method of surveillance over users’ telecommunication activities.”

Now, Chinese regulators are also targeting content that originates from outside China. The newest weapon against foreign-based offenders is location tags — displaying users’ locations beneath posts and even comments on posts. The location tags, based on IP addresses, are displayed automatically.

Already, Chinese people posting from overseas are “easily targeted by nationalist influencers, whose fans harass them or report their accounts,” the New York Times said last month.

Location tags are necessary to “cut off the black hand manipulating the narratives behind the internet cable,” according to a state-run publication. The Cyberspace Administration of China (CAC) has issued draft regulations that require user IP addresses to be displayed in a “prominent way,” the Times said.

Other CAC regulations that became effective in February require “self media” accounts to obtain an “Internet News Information Service Permit.” Social media platforms in China messaged users not to comment on news unless they receive accreditation. Users who violate the restrictions can lose their social media privileges or worse.

And the China Association of Performing Arts (under the authority of the Ministry of Culture and Tourism) released new guidelines earlier this year warning that celebrities guilty of “undermining national unity” or “endangering national security” face industry bans.

An SEC-registered company that makes and sells electric bikes in China said in a recent risk warning it “could become subject to penalties, including confiscation of income, fines, suspension of business and revocation of required licenses” for violating China’s censorship rules.

The warning continued:

[W]e may also be subject to potential liability for any unlawful actions of our customers or users of our website or for content we distribute that is deemed inappropriate. It may be difficult to determine the type of content that may result in liability to us, and if we are found to be liable, we may be prevented from operating our website in China.

Compliance professionals should be concerned. For starters, China’s heavy-handed efforts to stifle free speech and flout data privacy protections conflict with laws and ethics standards elsewhere. Beyond that, the consequences of violating China’s complex web of censorship rules could endanger employees and cause severe or catastrophic commercial harm to companies.

Offenses against China’s censorship regime will be unavoidable. Many companies and their employees (including executive officers) will publish information accessible in China about one or more “forbidden” topics. Some companies and their employees will be compelled to do so by conscience, and others by laws and regulations requiring disclosure, such as SEC rules.

For compliance professionals — who have already become subject-matter experts about more and more topics  — China’s internet censorship regime is one more complex and rapidly changing challenge.

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