MHC Tech Law: Taking a closer look at Privacy Shield


7 Mar 20169 Shares

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MHC Lawyers takes a look at Privacy Shield, which is set to replace Safe Harbour to allow for data transfers between Europe and the US.

Since the Court of Justice of the European Union (CJEU) found that Safe Harbour was invalid, organisations that operate across the US and the European Economic Area (EEA) have been in an uncertain position when it comes to data transfers.

Many hoped for a replacement for Safe Harbour. The Article 29 Working Party (the collective group of European data protection authorities, or DPAs) indicated that no general enforcement action would be taken until the end of January this year.

This gave organisations some welcome breathing space to put in place alternative measures to legitimise data transfers to the US.

However, it also put pressure on the European Commission to finalise a replacement data transfer scheme with the US, which had been under negotiation for two years.

On 2 February last, the Commission delivered – announcing the Privacy Shield, the replacement for Safe Harbour.

Since then, we have been waiting for the details, and, on 29 February, the Commission released an extensive set of documents, which set out how the Privacy Shield will operate, let’s take a look at some of the key issues.

When will the Privacy Shield come into effect?

The Privacy Shield, while agreed in principle with the US, must still be formally adopted as a matter of EU law, as a Commission Decision. The Commission is aiming for adoption in June 2016. However, before that can take place, the current draft decision must go through a procedure known as “comitology”. This involves a series of steps:

Review by the Article 29 Working Party and the European Data Protection Supervisor: The Article 29 Working Party released a statement on 29 February welcoming the Commission’s publication of the draft decision and related texts, and indicating its intention to adopt an opinion on its analysis of the documents in mid-April.

Examination by member state committee: Next, a committee made up of representatives of each EU Member State will consider the draft decision. The decision must be approved by a qualified majority of the committee.

Adoption of the Decision by the Commission: Once the draft decision has been through this procedure, the Commission may adopt the decision formally, and it will become effective.

However, there a number of roadblocks that could derail or lengthen this process. First, at any time during the comitology procedure, the European Parliament or Council could ask the Commission to maintain, amend or withdraw the draft decision.

Second, either a member state, the Council, or the European Parliament could seek to refer the draft Privacy Shield decision to the CJEU.

The most likely candidate would appear to be the European Parliament. There is precedent for the European Parliament challenging a Commission data protection adequacy decision in a similar manner – in 2006, it successfully challenged the Commission Decision on the disclosure of Passenger Name Records before the CJEU.

How will the Privacy Shield work?

As with the now defunct Safe Harbour, the Privacy Shield will be a self-certification scheme for US businesses, which will allow them to receive data from the EEA.

The substance of the Privacy Shield is very similar to that of Safe Harbour. This is helpful for businesses that are already certified under or familiar with the Safe Harbour scheme, as the learning curve will not be too steep.

As with the Safe Harbour scheme, the Privacy Shield decision is based on US organisations complying with seven key ‘principles’. When personal data is treated in accordance with these principles, the Commission’s draft Privacy Shield decision provides that such personal data enjoys “adequate” protection in the US, within the meaning of the Data Protection Directive.

In other words, transfers to US members of the Privacy Shield scheme would be legitimate under EU data protection law.

The Privacy Shield principles are as follows:

Notice: The certified organisation must provide information to individuals on 13 items, including its participation in the Privacy Shield, the types of data collected, the purposes for which the data is collected and used and the requirement to disclose personal information in response to lawful requests by public authorities and the designated dispute resolution body.

Choice: Individuals must be able to opt out of the disclosure of their data to a third party and the use of their data for a new, materially different purpose to the original purpose.

Accountability for onward transfer: For onward transfers to a third-party controller, organisations are required to enter into certain contracts, and are constrained in their ability to engage in onward transfers.

Security: Organisations are obliged to take reasonable and appropriate data security measures.

Data Integrity and Purpose Limitation: Organisations can only process personal information in a way that is compatible with the purposes for which it was collected or authorised by the individual subject.

Access: Individuals must be able to access their personal information from certified organisations.

Recourse, enforcement and liability: The Privacy Shield scheme creates a series of recourse mechanisms, to which organisations will be subject, including enforcement by the Department of Commerce and independent authorities such as the Federal Trade Commission, arbitration of disputes, the creation of an ombudsperson, and investigation by a panel of European DPAs.

There are also supplemental principles dealing with a number of issues, including sensitive data, journalistic exemptions, performing due diligence and audits, the role of EU DPAs, the right of access, human resources data, the obligatory contracts for onward transfers and dispute resolution and enforcement.

The Privacy Shield is a self-certification scheme – organisations will self-certify by making a submission to the US Department of Commerce. These submissions must be made annually.  The Department of Commerce will maintain a list of the certified organisations on its website. Organisations are required to provide follow-up procedures to verify their compliance with the principles, either through self-assessment or outside compliance reviews.

Will the Privacy Shield pass the CJEU’s test?

For the Privacy Shield to become an effective and practical tool for businesses, it will need to meet the requirements set out in the CJEU’s decision in Schrems v Data Protection Commissionerwhich invalidated Safe Harbour.

At the heart of the debate, and the CJEU’s decision, are a series of competing interests: the privacy of the individual, the desire to encourage the free flow of data across borders in the interest of trade, and the national security interests of sovereign states.

The Safe Harbour scheme was not seen as appropriately balancing these interests. Four issues are central to assessing the Privacy Shield’s prospects for survival and whether it strikes an appropriate balance.

US law and surveillance practices: While the CJEU did not make a specific finding as to US law, a lot of the scrutiny which Safe Harbour attracted related to the surveillance practices of the US government, and, in particular, allegations of mass surveillance.

Much of the documentation released by the Commission on Monday relates to US law and practices, including letters from the US Secretary of State, the US Office of the Director of National Intelligence and the Criminal Division of the US Department of Justice. These documents should result in a more balanced debate around surveillance practices and, no doubt, will be carefully scrutinised by the stakeholders in the comitology process.

The powers of EU DPAs: The judgment in Schrems emphasised the CJEU’s concerns with Commission Decisions that constrained EU DPAs in the exercise of their powers. While new enforcement mechanisms are being created under the Privacy Shield, it appears that the focus is on using US enforcement mechanisms. However, the de facto bar on EU DPAs investigating complaints and prohibiting data transfers that seemed to operate under Safe Harbour, and which was criticised by the CJEU, is less evident under the Privacy Shield. Where EU DPAs seek to investigate certified organisations, those organisations are bound to cooperate.

Individual redress: While not explicitly called out by the CJEU in the Schrems judgment, the possibility for individuals to bring actions or complaints to protect their own interests is seen as a key safeguard of the right to privacy. The Privacy Shield attempts to develop new ways to allow individuals to protect their rights, which is augmented by the new US Judicial Redress Act.

Oversight: Safe Harbour was adopted in 2000, in a world before cloud computing and the growth of digital state surveillance, driven by anti-terrorism initiatives. After 15 years, it was creaking with age, and seen as ill-equipped to deal with current data transfers.

In order to ensure that the Privacy Shield continues to operate as intended, it contains in-built oversight. The Commission will be keeping the Privacy Shield scheme under review annually, meeting and producing a joint annual review report with the Department of Commerce and the Federal Trade Commission. Critically, EU DPAs will be able to participate in these meetings. The draft decision also contains a process for suspension of the Privacy Shield, in certain circumstances where the protection of EU citizens is threatened.

Ultimately, whether the Privacy Shield survives the adoption process, and potential future challenges by private litigation, remains to be seen. In many ways, it will be shaped in the coming months as it moves through the adoption procedure and as various stakeholders have their opportunity to comment.

The stakes are high – every business which operates across the Atlantic Ocean and every citizen in the EEA with an internet connection has an interest in the outcome. We will have to wait to see where the chips will fall.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

Tech Law is a weekly series brought to you by Irish law firm Mason Hayes & Curran, whose legal tech team advises the world’s top social media organisations and emerging start-ups. Check out www.mhc.ie for more.

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Magnifying glass image via Shutterstock

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