EU puts out final guidance on data transfers to third countries

The European Data Protection Board (EDPB) published its final recommendations yesterday setting on guidance for making transfers of personal data to third countries to comply with EU data protection rules in light of last summer’s landmark CJEU ruling (aka Schrems II).

The long and short of these recommendations — which are fairly long; running to 48 pages — is that some data transfers to third countries will simply not be possible to (legally) carry out. Despite the continued existence of legal mechanisms that can, in theory, be used to make such transfers (like Standard Contractual Clauses; a transfer tool that was recently updated by the Commission).

However it’s up to the data controller to assess the viability of each transfer, on a case by case basis, to determine whether data can legally flow in that particular case. (Which may mean, for example, a business making complex assessments about foreign government surveillance regimes and how they impinge upon its specific operations.)

Companies that routinely take EU users’ data outside the bloc for processing in third countries (like the US), which do not have data adequacy arrangements with the EU, face substantial cost and challenge in attaining compliance — in a best case scenario.

Those that can’t apply viable ‘special measures’ to ensure transferred data is safe are duty bound to suspend data flows — with the risk, should they fail to do that, of being ordered to by a data protection authority (which could also apply additional sanctions).

One alternative option could be for such a firm to store and process EU users’ data locally — within the EU. But clearly that won’t be viable for every company.

Law firms are likely to be very happy with this outcome since there will be increased demand for legal advice as companies grapple with how to structure their data flows and adapt to a post-Schrems II world.

In some EU jurisdictions (such as Germany) data protection agencies are now actively carrying out compliance checks — so orders to suspend transfers are bound to follow.

While the European Data Protection Supervisor is busy scrutinizing EU institutions’ own use of US cloud services giants to see whether high level arrangements with tech giants like AWS and Microsoft pass muster or not.

Last summer the CJEU struck down the EU-US Privacy Shield — only a few years after the flagship adequacy arrangement was inked. The same core legal issues did for its predecessor, ‘Safe Harbor‘, though that had stood for some fifteen years. And since the demise of Privacy Shield the Commission has repeatedly warned there will be no quick fix replacement this time; nothing short of major reform of US surveillance law is likely to be required.

US and EU lawmakers remain in negotiations over a replacement EU-US data flows deal but a viable outcome that can stand up to legal challenge as the prior two agreements could not, may well require years of work, not months.

And that means EU-US data flows are facing legal uncertainty for the foreseeable future.

The UK, meanwhile, has just squeezed a data adequacy agreement out of the Commission — despite some loudly enunciated post-Brexit plans for regulatory divergence in the area of data protection.

If the UK follows through in ripping up key tenets of its inherited EU legal framework there’s a high chance it will also lose adequacy status in the coming years — meaning it too could face crippling barriers to EU data flows. (But for now it seems to have dodged that bullet.)

Data flows to other third countries that also lack an EU adequacy agreement — such as China and India — face the same ongoing legal uncertainty.

The backstory to the EU international data flows issues originates with a complaint — in the wake of NSA whistleblower Edward Snowden’s revelations about government mass surveillance programs, so more than seven years ago — made by the eponymous Max Schrems over what he argued were unsafe EU-US data flows.

Although his complaint was specifically targeted at Facebook’s business and called on the Irish Data Protection Commission (DPC) to use its enforcement powers and suspend Facebook’s EU-US data flows.

A regulatory dance of indecision followed which finally saw legal questions referred to Europe’s top court and — ultimately — the demise of the EU-US Privacy Shield. The CJEU ruling also put it beyond legal doubt that Member States’ DPAs must step in and act when they suspect data is flowing to a location where the information is at risk.

Following the Schrems II ruling, the DPC (finally) sent Facebook a preliminary order to suspend its EU-US data flows last fall. Facebook immediately challenged the order in the Irish courts — seeking to block the move. But that challenge failed. And Facebook’s EU-US data flows are now very much operating on borrowed time.

As one of the platform’s subject to Section 702 of the US’ FISA law, its options for applying ‘special measures’ to supplement its EU data transfers look, well, limited to say the least.

It can’t — for example — encrypt the data in a way that ensures it has no access to it (zero access encryption) since that’s not how Facebook’s advertising empire functions. And Schrems has previously suggested Facebook will have to federate its service — and store EU users’ information inside the EU — to fix its data transfer problem.

Safe to say, the costs and complexity of compliance for certain businesses like Facebook look massive.

But there will be compliance costs and complexity for thousands of businesses in the wake of the CJEU ruling. And in a recent open letter to lawmakers ahead of an EU-US summit earlier this month, startup associations on both sides of the Atlantic urged policymakers to find ways to partner on regulatory standards alignment — writing that recent developments in the digital sphere, such as the invalidation of Privacy Shield, “threaten to leave our ecosystems at a disadvantage in tough globally competitive markets”. 

Discussing the concerns with TechCrunch, Benedikt Blomeyer, director of EU policy for Allied for Startups, added: “Startups are global from day one and as such, a US startup has much to offer for EU consumers. Why is that despite increasingly interconnected markets, and more and more data protection laws coming into force, increasingly trade barriers are arising in the digital economy?”

Though asked if the startups backing the call for the EU and US to work towards reducing regulatory divergence are lobbying for anything as specific as US surveillance law reform at this stage of their campaign Blomeyer declined to comment for now.

Commenting on the EDPB’s adoption of final recommendations, chair Andrea Jelinek said: “The impact of Schrems II cannot be underestimated: Already international data flows are subject to much closer scrutiny from the supervisory authorities who are conducting investigations at their respective levels. The goal of the EDPB Recommendations is to guide exporters in lawfully transferring personal data to third countries while guaranteeing that the data transferred is afforded a level of protection essentially equivalent to that guaranteed within the European Economic Area.

“By clarifying some doubts expressed by stakeholders, and in particular the importance of examining the practices of public authorities in third countries, we want to make it easier for data exporters to know how to assess their transfers to third countries and to identify and implement effective supplementary measures where they are needed. The EDPB will continue considering the effects of the Schrems II ruling and the comments received from stakeholders in its future guidance.”

The EDPB put out earlier guidance on Schrems II compliance last year.

It said the main modifications between that earlier advice and its final recommendations include: “The emphasis on the importance of examining the practices of third country public authorities in the exporters’ legal assessment to determine whether the legislation and/or practices of the third country impinge — in practice — on the effectiveness of the Art. 46 GDPR transfer tool; the possibility that the exporter considers in its assessment the practical experience of the importer, among other elements and with certain caveats; and the clarification that the legislation of the third country of destination allowing its authorities to access the data transferred, even without the importer’s intervention, may also impinge on the effectiveness of the transfer tool”.

Commenting on the EDPB’s recommendations in a statement, law firm Linklaters dubbed the guidance “strict” — warning over the looming impact on businesses.

“There is little evidence of a pragmatic approach to these transfers and the EDPB seems entirely content if the conclusion is that the data must remain in the EU,” said Peter Church, a Counsel at the global law firm. “For example, before transferring personal data to third country (without adequate data protection laws) businesses must consider not only its law but how its law enforcement and national security agencies operate in practice. Given these activities are typically secretive and opaque, this type of analysis is likely to cost tens of thousands of euros and take time. It appears this analysis is needed even for relatively innocuous transfers.”

“It is not clear how SMEs can be expected to comply with these requirements,” he added. “Given we now operate in a globalised society the EDPB, like King Canute, should consider the practical limitations on its power. The guidance will not turn back the tides of data washing back and forth across the world, but many businesses will really struggle to comply with these new requirements.”

This report was updated with additional comment