I mean forget the international intrigue angle. Some jackass troll with some money to burn can file a frivolous lawsuit against you seeking discovery of this material. Either the cost of production or the risk that they can find something embarrassing to pull out of context (or maybe even something debatable as wrong doing) means you'll pay some extortionary settlement to make them go away.

Beyond the obvious possible profit motive these attacks can be arms length arranged by competitors or people with an axe to grind to trip you up and slow you down. Because your activity is valuable to you there is an asymmetry-- they can bring the action cheaply because they aren't risking much, but your defense is expensive because if you flub it you could lose everything.

Part of the value of a legal advisor generally and particularly something like a legal AI is that it lets you map risk surface: "What if we started selling all the customer secrets? would we go to ultra-prison?"-- you don't ask because you're going to do it, you ask to perform a sensitivity analysis, to know where the dragons are hiding, and to setup contingencies. For stuff you're actually doing/going to do you want advice backed by a team who can defend it if it goes wrong.

All of hosted AI is a big risk from the perspective of discovery-- but particularly or legal advice/research that seems extremely radioactive and a bad tradeoff.

If anything being outside of the west might be a slight asset on this risk-- as there is some chance that they respond to a subpoena with "bite me"... but that probably doesn't overcome the other concerns you raise.