Latham’s China Data Protection Move Shows Firms’ Security Worry

Latham & Watkins’ move to cut Hong Kong-based lawyers’ default access to the firm’s global database shows how handling confidential data has become a greater concern for law operations as China tightens security rules.

Latham’s Hong Kong lawyers can see China files by default but must get firm permission before accessing the international database, the Financial Times reported Feb. 13. The change means that in a raid, law enforcement could access only Hong Kong and China databases, a person familiar with the matter told the Times.

Latham’s move comes after China implemented data restrictions last year and intensified scrutiny of businesses amid rising tensions with the West. Chinese authorities last year questioned Bain & Co. employees in the company’s Shanghai office, the company confirmed to Bloomberg News.

“This move by Latham simply makes official what many people in Hong Kong across all professions and businesses were already doing,” Robert C. Bata, principal at at advisory firm WarwickPlace Legal, said in an emailed response to questions.

Latham’s Hong Kong office declined to comment.

Dentons last year said it was splitting from its Chinese operations to comply with the new data regulations, which give President Xi Jinping’s administration the power to shut down or fine companies that leak or mishandle sensitive information.

Caroline Cheung, Dentons’ clients and markets manager at the Hong Kong office, didn’t say if Dentons was limiting Hong Kong lawyers’ access to global databases as Latham was reported to have done.

“Our Hong Kong office has long been and remains an integral part of Dentons, with appropriate protocols and systems designed to ensure protection of our clients’ confidential information,” Cheung said. “Our colleagues in Hong Kong continue to collaborate closely with colleagues across every region of our firm as we continue to meet client needs in the 80+ countries where we have a presence.”

‘Robust Systems’

Some other US law firms with Hong Kong offices, including Mayer Brown, Morgan Lewis and Quinn Emanuel Urquhart & Sullivan, declined to reply to requests for comment on whether they were taking measures similar to those taken by Latham.

“We are not in a position to comment on the strategy of other firms,” said a Baker McKenzie statement from its Hong Kong office. “We take our duties to our clients very seriously. We have robust systems and controls in place to ensure we comply with local laws and regulations while safeguarding confidentiality of client data.”

Other US and foreign firms won’t necessarily issue blanket instructions like those put in place by Latham, Bata said. “But they will certainly be aware of and tacitly approve the widespread use of means for protecting exposure of their and their clients’ sensitive information,” he said.

It’s possible that China might adjust its rules to enable companies in Hong Kong to serve clients without having to limit their access to global files or sequester their Chinese data, said Peter Zeughauser, a law firm management consultant who advises US law firms in China.

“This would make sense in that it would help maintain and grow Hong Kong as an Asian legal and financial center, a position that is eroding in favor of Singapore,” Zeughauser said.

China operations have become challenging for US law firms as the Chinese economy slumps, security regimes tighten, competition with domestic firms intensifies, and tensions with the US government rise.

Orrick Herrington & Sutcliffe, Baker Botts, McDermott Will & Emery, Vinson & Elkins and Latham have closed at least one China office since 2020. Some firms have expanded in Singapore, citing the country’s easy access to other Asia nations and its attractiveness as a place to do business for corporate clients.

Hong Kong itself plans to tighten security regimes. The government for the semi-autonomous Chinese territory announced Jan. 30 it aims to pass a law covering offenses including treason, sabotage, sedition, theft of state secrets and espionage.

Hong Kong’s proposed definition of state secrets under the legislation would bring the city more in line with mainland China’s vague laws around such information and espionage, Bloomberg News reported Jan. 30.