The United States Federal Trade Commission ("FTC") has issued warning letters to 28 companies claiming to be certified participants in the Asia-Pacific Economic Cooperative ("APEC") Cross-Border Privacy Rules ("CBPR") system. This is an important reminder for companies, including Canadian companies, that the use of international certifications is something in which regulators take a keen interest.
The APEC CBPR system provides a common standard for cross-border flows of personal information based on the APEC Privacy Framework. Companies that wish to self-certify as CBPR compliant must implement privacy policies and practices compliant with the CBPR program requirements and then obtain certification of this compliance from an APEC-recognized Accountability Agent. Once an organization has been certified for participation in the CBPR system, these privacy policies and practices will become binding as to that participant and will be enforceable by an appropriate authority, such as a regulator, to ensure compliance. Participating countries include the United States, Japan and Mexico. Canada joined in 2015, meaning CBPR-certified Canadian companies can freely transmit personal information to other self-certified companies in these jurisdictions (and vice-versa). It is anticipated that the system will expand to eventually encompass the remaining 16 APEC member economies.
The FTC warning letter is targeted at companies that claim to be APEC CBPR certified but have not presented evidence of taking the correct steps to obtain the certification. This leaves them open to an enforcement action based on the FTC's authority over unfair or deceptive acts or practices:
We are writing because your website indicates that you represent that you participate in the [APEC CBPR]. However, our records indicate that your organization has not taken the requisite steps to be able to claim participation in the APEC CBPR system, such as undergoing a review by an APEC-recognized Accountability Agent. A company that falsely claims APEC CBPR system participation may be subject to an enforcement action based on the FTC's deception authority under Section 5 of the Federal Trade Commission Act ("FTC Act"). Indeed, we have brought many cases against companies that we allege, among other things, have falsely claimed to participate in international privacy program such as the APEC CBPR system, see generally https://www.ftc.gov/tips-advice/business-center/legalresources?type=case&field_consumer_protection_topics_tid=251.
The FTC did not release the names of the organizations to which it sent letters. This gives the organizations a chance to demonstrate compliance and revise their websites and thereby avoid the reputational damage associated with being publicly cited by the regulator. However, the fact that the FTC publicized the issuance of the warning letters likely indicates that it views the problem of unsubstantiated certifications as an issue which needs to be addressed.
Lessons for Canadian Business
While the Canadian privacy regime generally benefits from having broad private-sector privacy legislation that permits transfers of personal information under specified conditions, companies may want to (or be required to) obtain certification in certain circumstances. If they do, they should keep in mind the following points:
1. Regulators all over the world, including in Canada, are more closely scrutinizing self-certification. The FTC letter is part of a broader crackdown on APEC CBPR certifications. In May 2016, the FTC reached a settlement with Very Incognito Technologies, Inc., doing business as Vipvape, based on allegations that Vipvape represented on its website that it was APEC CBPR certified when, according to the complaint, it was not.
The FTC's action on the APEC CBPR self-certification program can be seen as part of a broader regulatory concern with deceptive or misleading attestations of compliance. False (or out of date) certifications were also an issue with the now-defunct US-EU Safe Harbor certification program, and in August of 2015, the FTC announced settlements with thirteen companies it charged had misled consumers by claiming they were certified members of the Safe Harbor framework.
Companies which are part of self-certification programs should be watchful of regulatory actions and be prepared to respond to requests for information from their regulators. It would be prudent to expect regulators in other jurisdictions including Canada, the EU and Australia to be more aggressive in their investigation of self-certification systems in future. The best way for a company to avoid trouble is straightforward: do not falsely claim a certification your organization does not have (and ensure that any such certifications validly obtained have not expired).
2. Have your compliance monitored by a reputable organizations APEC CBPR sets out a certified process and ongoing requirements for becoming an "Accountability Agent" which can certify that a company is meeting standards required by APEC for cross-border flows of personal information. In order to become an Accountability Agent, an organization must apply first to the relevant authority where it intends to operate (such as the Office of the Privacy Commissioner in Canada or the FTC and Department of Commerce in the United States). Once the organization has obtained the approval of the relevant authority, its application is forwarded to the APEC Joint Oversight Panel for approval. The process takes time, and is detailed.
Companies should be wary of organizations which claim to offer auditing and certification on the cheap. Consider asking questions about the would-be Accountability Agent's experience with regulators in different jurisdictions, their technical capabilities, and if any organization which they certified has ever experienced a privacy breach or regulatory investigation. The bona fides of an Accountability Agent may also be confirmed online.
3. Retaining records of audits is important, but... Companies being assessed for compliance with an international privacy framework will be request by regulators to produce documentation of certification. No company wants to be in a situation where a regulator asks questions about their international certifications and the supporting documentation is unavailable, incomplete or out of date. A similar situation can arise if a company has entered into contracts in which it has represented that it has valid certifications – the counter party may ask for proof (either at the time of execution, or during the life of the contract). As a result, companies will want to ensure that documentation supporting its certifications is updated regularly, stored securely, and can be produced in response to a regulatory inquiry.
However, retaining information about compliance with international privacy standards also comes with risk. Regulators are not the only ones interested in this information. A company's privacy audit results can be valuable evidence to opposing counsel in future litigation. Companies should consider engaging their own counsel prior to undertaking an auditing or compliance process to ensure they are taking steps to protect privilege (if appropriate) and understand potential litigation risk.
The recent FTC warning letters are an important reminder that regulators are interested in privacy self-certification programs. Prudent organizations should ensure their certifications are valid and up to date, and that they are prepared to respond to regulators if necessary.
*Arie van Wijngaarden is a JD/MBA student in McCarthy Tetrault's Toronto office.
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