November 9, 2016
November 9, 2016
In this digital age, an organization’s ability to collect, analyze, aggregate, associate, and securely share data around the world is mission-critical. However, an increasing number of laws have been adopted across the globe regulating and restricting the transfer of information, ranging in type from data privacy-focused regulations to national security-focused regulations.
Regulatory restrictions can present significant challenges for global organizations, as they could directly impact business transformations (e.g., new cloud sourcing arrangements, the collection of mobile and Internet data, big data analysis projects, and the like) and corporate compliance initiatives (e.g., auditing, monitoring, internal investigations, e-discovery, whistleblower hotlines, and other similar compliance undertakings).
Knowing what these restrictions are, how they impact the business, and how the organization is addressing compliance are key to the board’s oversight of data management practices, which are an increasingly fundamental business element.
Knowledge is Power
Because regulations are increasingly impacting how information may be collected, used, and transferred, it is essential for directors and executives to understand these regulations and to apply best practices. By doing so, boards can help their organizations mitigate the risk of exposure to regulatory noncompliance, in particular as the potential penalties for noncompliance become increasingly material. To accomplish this, boards must ensure that their organizations are informed of the five W’s of data to stay ahead of the compliance curve:
Data Privacy-Related Cross-Border Transfer Restrictions
Outside of the United States, many jurisdictions, including those in the European Union, regulate the collection, processing, and transfer of personal data via comprehensive data protection laws that cover a broad range of personal data and activities related to such information, including its collection, use, and transfer. Considering the ubiquity of data collection for marketing, commerce, and employment purposes, these regulations have significant implications for a broad range of businesses.
Personal data covered by these regulations is often broadly defined to include any information relating to, or that could be linked to, an identified or identifiable individual, including the following:
These regulations often restrict the transfer of such personal data across international borders unless certain conditions are met. The first question in the analysis is often whether the data is being transferred to a jurisdiction that provides similar or “adequate” protection for personal data.
If the answer is “no,” then investigate whether:
It is important to note that accessing personal data remotely in a different jurisdiction from the one in which it is stored is often viewed by foreign regulators as a transfer to that other jurisdiction (e.g., viewing data stored in Germany from a computer in the U.S.). It is also noteworthy that United States’ legal protections for personal data frequently fail to meet the “adequacy” standards of authorities in more highly regulated jurisdictions, such as those in the European Union.
Data Privacy-Related Cross-Border Transfer Solutions
There are several solutions for organizations that need to transfer personal data across borders to countries that may not be deemed to provide “adequate” protection to personal data by certain foreign authorities, such as the United States. Boards should ask management teams to verify that one or more of the following solutions is in place to comply with applicable cross-border data transfer restrictions:
These solutions will likely continue to evolve, along with the various regulations that impose the restrictions, in order to address the ever-changing digital marketplace. For example, under the new European General Data Protection Regulation (GDPR), which comes into effect in May of 2018, requirements around what constitutes valid data subject consent will have more prescriptive conditions and any new decisions by the European authorities deeming that a non-EU jurisdiction provides “adequate protection for personal data” will likely be subject to more rigorous requirements (although existing “adequacy” decisions will be grandfathered). The penalties are also increasing, with fines for violating the GDPR going up to EUR 20,000,000, or 4 percent of the total worldwide annual turnover of the preceding financial year, whichever is higher. Furthermore, beyond data privacy-related cross-border transfer restrictions, boards should also be aware that there may be additional potentially applicable cross-border transfer restrictions on organizations, including those related to national security or state secrets.
Given the significant financial and regulatory burdens for non-compliance, boards need to understand how these cross-border transfer regulations may impact their organization and stay informed of their organization’s compliance position, and any risk decisions made related thereto, when it comes to both current and future data collections and uses.
As a partner at Baker & McKenzie LLP, Michael Egan advises clients across a range of industries regarding the legal aspects of global privacy and data protection, data security, information technology, and related restrictions on data collection and transfer. Joan Meyer chairs the North America Compliance, Investigations & Government Enforcement Practice Group at the firm.