If I remember correctly, you can be ordered to decrypt any suspected illegal data on or travelling from your computer. Even ignoring the fact that the only difference between a 2GB file of random noise and a 2GB AES-TwoFish file is that the latter decrypts with the right password, (and thus if ordered to decrypt the first you're kinda SOL) this law includes SSL connections, for which the key is not known to you. There were some articles about the law on HN a couple months back after it was proposed, and I think it managed to pass. Again, AFAIK.
There was something like this more than a decade ago. I remember reading and complaining about it at the time, and feeling slightly superior that we weren't that crazy here in the (pre-9/11) US. sigh
One from Falkvinge (first hit on google), responding about as you'd expect [1], and a link to the actual law [2]. It doesn't make encryption illegal, it just makes it illegal to not produce the key on demand. You can decide which is worse.
