Cyprus: Consumer Privacy in Cyberspace- the Need to Harmonize Global Data Flows

Mr Economou is a legal consultant to the Cyprus Commission for the Protection of Competition

U.S. Bancorp's Consumer Privacy Pledge opens with the assurance that "Protecting your privacy is important to the U.S. Bancorp family of financial service providers". Four hundred words later the bank says it allows itself to disclose all the information it has "to other financial institutions with which we have joint marketing arrangements". Indeed, the bank has not been reluctant to make such disclosures in the past. The bank sold to a telemarketing company the following information about its customers: "name, address, telephone numbers of the primary and secondary customer, gender, marital status, homeownership status, occupation, checking account number, credit card number, social security number, birth date, account open date, average account balance, account frequency information, credit limit, credit insurance status, year to date finance charges, automated transactions authorized, credit card type and brand, number of credit cards, cash advance amount, behavior score, bankruptcy score, date of last payment, amount of last payment, and statement balance". In a prepared statement the bank's CEO characterized this kind of transaction as an "industry-wide practice".

Millions of people now engage in daily activities on the Internet, and under current technical configurations, their behavior -- our behavior -- creates detailed stores of personal data. The Internet is an interactive telecommunications system, which means that computers attached to it do not merely receive information but also transmit it. Social, political and commercial life on the Internet creates a finely grained data map of our interests, our beliefs, and our interpersonal relationships. This personal information also has great commercial value; it is no exaggeration to consider personal data to be the gold currency of the Information Age.

Legal traditions around the world clearly show that laws will be established to safeguard the right of privacy when new electronic services are provided. This was true with Communication acts to ensure the privacy of communications sent by telephone and, more recently, Wireless acts to safeguard the privacy of location data network services.

With virtually every new technology that involved the collection of personal consumer information, countries around the globe pass laws to safeguard privacy. Many have already established clear responsibilities for companies that collect personal information in the course of a commercial transaction.

These laws have promoted best business practices, promoted public confidence, and limited the misuse of personal information in the new electronic environments. In other words, these laws have encouraged public adoption of new services to the benefit of both consumers and businesses.

Human rights groups see privacy as one of the most basic of social rights and most national constitutions at least pay lip service, echoing the privacy rights spelled out in the United Nation's 1948 Universal Declaration of Human Rights.

By contrast, China has long traditions of government keeping close tabs on citizens; the word 'privacy' is hard to translate in Chinese, the closest meaning may be 'secret'. Laws protecting privacy blend with those that empower censors. Chat room tracking, e-mail workplace monitoring, and surveillance of dissidents are standard procedures.

Europeans have come to see privacy rights in recent decades in term of 'data protection' that put limits on commercial trafficking in consumer information and the trans-border flow of data about citizens.

Europe's Data Protection Initiative puts forth a comprehensive data regulation approach that requires multinational companies, even U.S. ones, to limit the data it can collect on Web sites, in direct marketing, and about their own employees and meant for internal, administrative use.

These restrictions threatened a breakdown in international e-commerce until the two sides negotiated a truce a little more than a year ago. The conflict between consumer protection and free date flow remains and barriers in data flow could still spark an Internet trade war between US and Europe far more serious than the recently ended dispute over banana trade.

A recent study by Consumers International, a federation of consumer organizations, found a majority of 750 European and American Web sites in 12 countries failed to comply with most international privacy standards. The laws of several countries in which Amazon operates require both access and deletion on request, unlike the U.S. Amazon site that keeps the right to keep all information about a customer.

America Online (AOL) recently added to its privacy policy that they and their advertisers may use cookie technology to determine on an anonymous basis which advertisements AOL's members responded to. In effect, they may collect anonymous and aggregate advertising metrics, such as counting page views, promotion views, or advertising responses and thus compile data about its members and measure the effectiveness of advertising.

During the last year, several nations, including Canada and Australia, legislated broad, technology-independent privacy rights for their citizens, partly with an eye toward enabling free data flows with the EU. Close to a hundred companies, including Hewlett Packard, Intel, Acxiom Data, and Microsoft have signed up with the Safe Harbor program. The program, as it will be seen further down, applies only to data of Europeans, but Microsoft has stated that it will apply that standard to all its customers, including the U.S.

The OECD has issued Guidelines for Consumer Protection in the Context of Electronic Commerce. The Guidelines are designed to help ensure that consumers are no less protected when shopping online than they are when buying from their local store or placing an order through a catalogue. They reflect the existing legal protection available to consumers in more traditional forms of commerce and set forth the core characteristics of transparent and effective consumer protection for online business-to-consumer (b2c) transactions.

Moreover, a group of privacy-promoting organizations are emerging. Among these institutions are:

• industry organizations that support self-regulation by drafting codes of conduct;
• privacy seal organizations, such as TRUSTe and BBBOnLine;
• "infomediaries" that represent consumers by offering to exchange their data only with approved firms;
• privacy watchdog organizations that bring developing issues to public attention; and
• technical bodies, such as the World Wide Web Consortium (W3C), engaged in drafting Internet transmission standards, including the Platform for Privacy Preferences (P3P). P3P is software transmission protocol that seeks to allow the individual to control his/her access to Web sites based on his/her privacy preferences and the practices at a given site.

U.S. Data privacy law is comprised of a patchwork of constitutional, statutory and common law privacy rights that afford substantial protection in very narrow areas. Privacy rights are recognized under U.S. law in specific circumstances (such as in the context of criminal investigations or in response to intrusive snooping by strangers), for particular categories of information (such as tax returns, personal financial data or medical records) or for specific classes of people (such as children). By comparison, the protections afforded by U.S. privacy laws are less comprehensive than those mandated by the EU's Privacy Directive.

The EU Privacy Directive compelled EU Member States to adopt uniform rules governing data privacy by October 24, 1998. The Directive treats data privacy as a fundamental human right and generally protects personal data collected by governments or for business purposes. Data collected for "purely personal" or "household purposes" is outside the scope of the Directive.

• Consent or Necessity. Article 7 provides that personal data generally may only be processed where an individual's consent has been obtained or in certain cases of necessity.
• Consent must be "unambiguously given", specific and informed. A notice buried in Web site Terms and Conditions will not suffice.
• Personal data alternatively may be processed if one of five conditions are met, such as where processing is necessary for the performance of a contract or to protect the vital interests of the data subject.
• Article 9 recognizes an exception for the processing of personal data carried out solely for "journalistic purposes or for the purpose of artistic or literary expression...", but only "if they are necessary to reconcile the right to privacy with the rules governing freedom of expression".

• Certain categories of data generally may not be processed absent explicit consent (or may not be processed at all, depending on individual national laws implementing the Directive). These categories of data include information revealing racial or ethnic origin, political opinions, religious or philosophical beliefs or trade union membership or disclosing details of a person's health or sex life (Article 8).

• Member States may exempt data processing from the protections of the Directive where necessary to safeguard: national security; defense; public security; the prevention, investigation, detection or prosecution of criminal offences; important economic or financial interests of the EU or a Member State; certain inspection and regulatory functions; or the protection of the data subject or the rights and freedoms of others (Article 13).
• Data Quality. Article 6 compels Member States to assure that personal data is processed fairly and lawfully; collected for specified, explicit and legitimate purposes and not further processed in a way incompatible with those purposes; accurate, and in certain circumstances kept up to date; and kept in a form which permits identification of individual data subjects only for as long as necessary for the purposes for which the data originally was collected.

• Mandatory Disclosures. Articles 10 and 11 compel controllers to disclose to data subjects their identities; the purpose for which personal data is being processed; and certain additional information such as whether particular information sought must be provided or is merely optional.

• The Rights to Access Data and Object to its Processing. Article 12 provides individuals with limited rights to review and correct personal data. Article 14 further provides limited rights to object to the processing of personal data for direct marketing purposes or on "compelling legitimate grounds".
• Data controllers are responsible for ensuring the confidentiality and security of personal data.
• Article 25 restricts the transfer of personal data outside of the EU except where third countries ensure "an adequate level of protection..." for personal data, as judged by the standards of the Directive.

These national and European-wide measures for information privacy posed significant challenges to the free flow of personal data to the U.S.

In response to the EU´s Data Protection Directive, the U.S. Commerce Department drafted and negotiated EU approval of "Safe Harbor" standards for privacy. The U.S. sought to bridge differences in privacy approaches between the two countries and to provide streamlined means for U.S. organizations to comply with the Directive. The Safe Harbor, approved by the EU in July 2000, is an important way for U.S. companies to avoid experiencing interruptions in their business dealings with the EU or facing prosecution by European authorities under European privacy laws. Under the Safe Harbor, U.S. companies are deemed to provide "adequate protection" for the personal data of Europeans within the meaning of article 25 of the Directive.

To gain an exemption from the Directive, U.S. companies must join a self-regulatory program like TRUSTe or BBBOnLine and promise to follow seven principles when handling personal data about European citizens. Those principles include providing customers with notice of how the information will be handled, a choice to opt out of having that information shared with third parties, secure handling of the data and access to the information. Companies must also ensure that third parties that receive the data from them also provide similar protections.

One of the most controversial provisions is enforcement, or what some see as a lack thereof.

The agreement calls for policing to be done by private groups and backed up by U.S. agencies such as the Federal Trade Commission (FTC), which can file deceptive trade practices charges against a company failing to live up to its promises. But some question the effectiveness of this system. Further, a study released by Canada's trade commissioner found that the three biggest Web seal programs, BBBOnLine, TRUSTe and WebTrust "addressed privacy protection, dispute resolution and compliance to varying degrees, although none of them completely satisfactory".

At the same time, the FTC has limited jurisdiction, covering only some commercial organizations. For example, banks and other financial institutions are not covered by the Safe Harbor at the moment.

The EU and U.S. negotiators put off discussion of the Safe Harbor's application to the U.S. financial services industry, which is regulated by the Federal Reserve and others, after they could not agree on the U.S. demand that such companies be automatically included in the Safe Harbor. U.S. officials and industry argue that U.S. financial companies' data handling practices are already regulated under U.S. law, which will be further enhanced once a new banking deregulation law passed by Congress goes into full effect.

But EU officials say it is still unclear whether such laws provide the same protection as the Safe Harbor and they are seeking assurances that Safe Harbor will be enforced to this respect too.

To top this concern, America's war against global terrorism risks jeopardizing hard-won European laws on protecting personal data if governments go for tougher action by law enforcement authorities. After the September 11 events, concern about further atrocities involving the use of electronic communications systems may have prevailed over the need for manageable e-commerce and personal data protection.

Governments rushed to jump on the anti-terrorism bandwagon to push through a whole range of new ´police´ powers on the expense of human rights protection and data privacy protection. Recently, however, civil libertarians and many e-businesses, including Microsoft, are appealing for restrain and are asking legislators to divert their focus and deal, instead, with the issue of consumer data in its entirety.

Consumer laws, policies and practices exist to help build consumers' trust and confidence by protecting them from unfair or deceptive acts or practices and helping to establish a more balanced relationship between sellers and consumers in commercial transactions. Domestic retail markets offer consumers assurances that their interactions and purchases are covered by national legal and private sector consumer protections. The increase in cross-border transactions and the limited or non-existent face-to-face contact between businesses and consumers brought on by the growth of electronic commerce reinforce the need for a predictable and trustworthy global marketplace.

The EU Data Protection Directive and the U.S. Commerce Department's Safe Harbor indicate a possibility of harmonizing global data flows at a high level of privacy protection. But are we anywhere near an international convention? Surely even supporters must realize that gaining agreement on such a treaty would be extremely difficult, particularly as long as the U.S. resists passage of broad privacy legislation.