Internet commerce works because data flows freely around the globe — usually. But there are barriers to data flows, and recent developments have spotlighted a key one: the European Union’s restrictions on the international transfer of personal information data. Indeed, it appeared for a while that the primary work-around to those restrictions, the U.S. Commerce Department’s Safe Harbor program, could be imperiled.
For now, Safe Harbor seems relatively safe, but the U.S.-EU relationship with respect to data transfers still seems rocky. While the Safe Harbor and other methods for U.S. companies to transfer personal data to and from Europe remain, the long-sought easing of EU privacy barriers to international data transfers has become even more distant.
The problem, of course, is Edward Snowden’s revelations about National Security Council and CIA surveillance. European trust in U.S. respect for personal privacy, never strong to begin with, took a huge hit when the Snowden documents revealed surveillance projects like Project PRISM (involving electronic communications metadata) and the Verizon court order (involving phone records).
Unfortunately for U.S. and international businesses, the headline-making Snowden revelations are affecting international data transfers, which in many cases are crucial to business operations. Since 1995, the EU’s Data Protection Directive has required EU member states to set high barriers to the release of personal information. And the proposed new EU Data Protection Regulation, which could be enacted next year and would be implemented directly at the EU level, would further enhance EU privacy protections.
For U.S. companies, the biggest concern is the EU prohibition on transfers of personal data to any country that does not have protections considered “adequate” under European law. That includes the United States, thus technically prohibiting transfers to the U.S. of European databases, including personal information. Exceptions are made where U.S. companies use EU-approved standard contractual clauses (SCCs), which embody key EU privacy principles. In the case of transfers of personal data across EU borders within a multinational corporation, the EU has issued approved binding corporate rules (BCRs).
But the biggest exception is the “safe harbor” under U.S. Commerce Department rules. It’s essentially a self-regulatory program, approved by the EU, in which U.S. companies self-certify their compliance with seven privacy principles, and subject themselves to federal enforcement in the case of non-compliance. It’s an important program and the favorite U.S. method for complying with EU privacy rules. More than 3,000 U.S. businesses have enrolled in the Safe Harbor program, and it underlies millions of data transfers.
After Snowden, some Europeans propounded a simple syllogism:
- The Safe Harbor depends on trusting the United States on privacy.
- The Snowden revelations show that we can’t trust the United States on privacy.
- Therefore we shouldn’t continue to recognize the Safe Harbor.
This fall I met one of the leaders in EU privacy legislation, MEP Jan Philipp Albrecht, and though he didn’t portray the situation quite so darkly, he stressed that Europeans at the least had to consider the Snowden revelations, and what they meant, as they consider EU-U.S. data transfers. Put simply, the Snowden revelations necessarily put the Safe Harbor under scrutiny.
As stated in a European Commission report issued on November 27, “Large-scale US intelligence collection programs, such as PRISM affect the fundamental rights of Europeans and, specifically, their right to privacy and to the protection of personal data. These programs also point to a connection between Government surveillance and the processing of data by private companies, notably by US internet companies.” The report suggested that U.S. surveillance programs could imperil citizen trust in the digital economy, “with potential negative consequences on growth.”
So far the signs are that the Safe Harbor will likely survive. The EU’s report, although critical of “weaknesses” in the Safe Harbor, concluded that there was no need to suspend or moderate EU-U.S. data transfers in light of the Snowden disclosures. But the commission stressed that “deficiencies” in the Safe Harbor had to be corrected, and it made 13 recommendations for “making Safe Harbor safer.”
Among the EU’s most significant recommendations:
- U.S. enforcement agencies should conduct selected “ex officio investigations” to ensure that U.S. companies are complying with their Safe Harbor responsibilities.
- In cases of doubts about compliance or complaints, the Commerce Department should inform EU data protection authorities.
- U.S. companies should explain in their privacy policies the situations (for example, national security or law enforcement needs) where the government may collect and process their data.
- Citizens should be made more aware of their rights to alternative dispute resolution (through providers like the BBB and TRUSTe) in the case of disputes about use of their personal information.
One of the commission’s recommendations, clearly directed to the U.S. government, is ensuring “that the national security exception foreseen by the Safe Harbor Decision is used only to an extent that is strictly necessary or proportionate.”
The report recognizes the need on both sides of the Atlantic to facilitate EU-U.S. data transfers. It notes, for example, that U.S. based companies like Mastercard need “to channel the very large amount of personal data involved in its operations.” And it recognizes that EU-based companies, like Orange France, need the Safe Harbor so that they can use U.S. services like Amazon’s data storage. Clearly examples like these promoted the commission’s focus on improving rather than ending the Safe Harbor. And as a recent report of the International Association of Privacy Professionals noted, requiring US companies to use alternative methods “would be far more time- and resource-consuming and may involve complicated review and approval processes on a case-by-case basis.”
But though the Safe Harbor’s survival is a victory, it also shows that the Snowden revelations have clearly had an effect. Not long ago, a major Commerce Department “green paper” report on privacy included as a major goal the development of “a framework for mutual recognition of other countries’ commercial data privacy frameworks.” Translation: “We want the Europeans to compromise on their data transfer rules.” If the NSA is listening to what European privacy advocates are saying in response, it’s probably hearing, “Nein.”
Mark Sableman is a partner in Thompson Coburn’s Intellectual Property group. He is the editorial director of Internet Law Twists & Turns. You can find Mark on Google+ and Twitter, and reach him at (314) 552-6103 or email@example.com.