Shield or sword? The new EU-U.S. Privacy Shield

On Feb. 2, European and American officials announced they had met their deadline to come up with a new framework for transatlantic legal data transfer between the United States and Europe — a new “EU-U.S. Privacy Shield.”

Ever since the Oct. 6, 2015 European Court of Justice ruling in Schrems v. Data Protection Commissioner invalidated the old Safe Harbor framework, data transfers between Europe and the U.S. were essentially deemed unlawful unless made subject to other mechanisms, including model form data transfer agreements or binding corporate rules.

In that case, Max Schrems, a Facebook user and plucky law student, initiated a complaint after discovering that Facebook’s Irish subsidiary transferred personal information of users to servers that were located in the U.S. without ensuring an adequate level of protection for such data.

For the 4,465 multinational companies that relied on the U.S.-EU Safe Harbor list, the Schrems decision was a nasty shock. It woke the world to the realization that, following Edward Snowden’s revelations regarding U.S. surveillance and the collection and transfer of personal information by the National Security Agency through its Prism Program, European data protection authorities were not going to sit idly by and allow transfers of data outside of Europe (in this instance, Ireland) to territories they deemed did not have adequate data protection laws.

Negotiations to replace Safe Harbor began quickly after the decision and the Article 29 Working Party (composed of representatives from the data protection authority of each EU member state, the European Data Protection Supervisor, and the European Commission) set an ambitious deadline to replace the framework. They wanted it in place before individual data protection authorities could begin enforcing their rights to block individual data transfers outside the EU to countries whom they consider to provide inadequate data protection.

The new EU-U.S. Privacy Shield will include the following:

Strong obligations on companies handling Europeans’ personal data and robust enforcement

U.S. companies wishing to import personal data from Europe will need to commit to robust obligations on how personal data is processed and individual rights are guaranteed. The U.S. Department of Commerce will monitor that companies publish their commitments, which makes them enforceable under U.S. law by the U.S. Federal Trade Commission.

Additionally, any company handling human resources data from Europe has to commit to comply with decisions by European data protection authorities.

Clear safeguards and transparency obligations on U.S. government access

For the first time, the U.S. has given the EU written assurances that the access of public authorities for law enforcement and national security will be subject to clear limitations, safeguards, and oversight mechanisms. These exceptions must be proportionate and used only to the extent necessary.

The U.S. will no longer engage in “indiscriminate mass surveillance” on the personal data transferred to America under the new arrangement. The parties will engage in an annual joint review to regularly monitor the functioning of the arrangement, which will also include the issue of national security access.

The European Commission and the U.S. Department of Commerce will conduct the review and invite national intelligence experts from the U.S. and European data protection authorities to attend it.

Effective protection of EU citizens’ rights with several redress possibilities

Any EU citizen who feels his or her data has been misused under the new arrangement will have several redress possibilities. Companies have deadlines to reply to complaints. European DPAs can refer complaints to the Department of Commerce and the Federal Trade Commission.

In addition, alternative dispute resolution will be free of charge. On the American side, a new ombudsperson will be created to handle complaints on possible access by national intelligence authorities.

The U.S. Department of Commerce’s own fact sheet on the Privacy Shield was quick to praise the initiative, saying the EU-U.S. Privacy Shield significantly improves commercial oversight and enhances privacy protections, noting:

•    The Department of Commerce will step in directly and use best efforts to resolve referred complaints, including by dedicating a special team with significant new resources to supervise compliance with the Privacy Shield.
•    The Privacy Shield adds an important new avenue to supplement the others. Companies now will commit to participate in arbitration as a matter of last resort to ensure that EU individuals who still have concerns will have the opportunity to seek legal remedies.
•    The Privacy Shield includes new contractual privacy protections and oversight for data transferred by participating companies to third parties or processed by those companies’ agents to improve accountability and ensure a continuity of protection.

The same announcement regarding the Privacy Shield confirmed that Andrus Ansip, vice president for the digital single market on the European Commission, and Vera Jourová, commissioner for justice, consumers, and gender equality at the EU, would prepare a draft “adequacy decision” in the coming weeks, which could then be adopted by the European Commission after obtaining the advice of the Article 29 Working Party and after consulting a committee composed of representatives of the member states.

In the meantime, the U.S. would begin to put into place the new framework, monitoring mechanisms and the new ombudsperson discussed above.

The new Privacy Shield rules are not in force yet and clearly much remains to be done.

For one thing, there is some doubt whether the European Commission can actually put this framework in place without the approval/blessing of the various local data protection regulators. While the Article 29 Working Party said on Feb. 3 that it will not be taking enforcement action against companies that are using alternative transfer protocols following the invalidation of Safe Harbor, companies relying on that framework do not have that certainty and remain vulnerable.

In addition to his original complaint, Max Schrems has also initiated additional complaints in Germany, Belgium, and Ireland. In the meantime, the Privacy Shield announcement was too late to save Facebook in France.

Giving credence to the power of local data protection authorities, on Jan. 26, the Commission Nationale de l’Informatique et des Libertés, the French data protection authority, issued a formal notice to Facebook Inc. and Facebook Ireland Ltd. to comply with the French Data Protection Act within three months or face possible referral to its select committee, which could then choose to pursue sanctions against the company, including fines.

Following a detailed investigation of Facebook’s data collection practices, the CNIL had issued Decision 20016-007, which found Facebook’s behaviour in violation of several key tenets of French data protection law, including:

•    Collecting, without prior information, data concerning the browsing activity of Internet users who do not have a Facebook account, without informing Internet users that it sets a cookie on their terminal when they visit a Facebook public page (e.g., page of a public event or of a friend). This cookie transmits to Facebook information relating to third-party web sites offering Facebook plug-ins (e.g., Like button) that are visited by Internet users;
•    Collecting data concerning the sexual orientation and the religious and political views without the explicit consent of account holders and not informing users on sign-up regarding their rights and processing of their personal data;
•    Setting cookies that have an advertising purpose without properly informing and obtaining the consent of Internet users;
•    Compiling all the information Facebook has on account holders to display targeted advertising (information provided by the Internet users themselves, collected by the web site and by other companies of the group, and transmitted by commercial partners). However, the company provides no tools for account holders to prevent such compilation, which, according to the CNIL, violates their fundamental rights and interests, including their right to respect for private life; and
•    Transferring personal data to the United States on the basis of Safe Harbor, even though the Court of Justice of the European Union declared invalid such transfers in its Oct. 6, 2015 ruling. Facebook claims it is not, in fact, using Safe Harbor to transfer data — pointing to prior comments it made last year, in which it said: “Facebook, like many thousands of European companies, relies on a number of the methods prescribed by EU law to legally transfer data to the U.S. from Europe, aside from Safe Harbor.”)

The CNIL stated that it made its formal notice against Facebook public due to the seriousness of the violations and the number of individuals using Facebook — it has more than 30 million users in France.

The CNIL decision followed the creation of a working group set up in March 2015 by the Article 29 Working Party composed of the five data protection authorities (France, Belgium, The Netherlands, Spain, and Germany) that decided to investigate Facebook after it had amended its privacy policy. The CNIL also noted that similar investigations conducted by the Belgian, German, Spanish, and Dutch data protection authorities are ongoing at the national level and within an international administrative co-operation framework.

The European Commission hopes to have the new Privacy Shield in place within three months. In the meantime, companies that relied on Safe Harbor — either through their own registration and self-certification with the U.S. Department of Commerce or relying on the registration and self-certification of their subcontractors — may find themselves subject to investigation and prosecution by European DPAs.

Stay tuned for more information.