It is odd that JWs are claiming priest-penitent privileges when such a concept has never been part of the denomination to begin with. In fact, such a concept would be completely antithetical to the JWs concept of clerical-laity distinction (namely they do not think one exists). So it is hard to read what happened as anything other than as a post-hoc ass-covering.

To be more general, I do believe that the state is morally permitted to interfere with church practice if they have a clear indication certain practices are a danger to public order and safety--e.g. the state banning Mormon/Islamic polygamy, laws against the carrying of unmodified Sikh Kirpans, etc, etc.