European Union: Harbor Doubts – What The EU's 'Safe Harbors' Decision Really Means

Last Updated: 22 October 2015
Article by Kenneth Mullen

You may have read the headlines regarding the Court of Justice of the European Union (CJEU) decision in the Max Schrems v Irish Data Protection Commissioner case in which a formal European Commission decision to approve the 'Safe Harbors' Scheme for EU-US data transfers has been declared invalid.

Some of the initial reaction seemed to verge on hysterical. The US tech industry is facing "a legislative buzzsaw" or a "bombshell" according to some sources and others seemed to indicate that the CJEU decision was a major threat to transatlantic trade. But is this really going to be the case?

As the dust settles, the following provides is our brief reality check on the decision and what it means:

1. 'Safe Harbor Certification' can no longer be relied upon to automatically legitimise EU-US data transfers. TRUE US organisations that are subject to US Department of Commerce (DoC) jurisdiction can no longer rely on the automatic free-pass that the Safe Harbor gives them to receive EU data. There are 4480 US organisations with a 'current' certification who are directly impacted. Non-DoC regulated organisations who could never claim the benefit of Safe Harbors such as organisations in the banking, financial and charity sector are not directly affected. However, there is a wider, indirect impact on organisations that have been using the services of US affiliates, technology providers or data processors with Safe Harbor status. Generally if that EU client was sharing customer or employee data with a certified vendor (or its parent company) it had assurance that the data transfer to that US company automatically met data privacy requirements, without having to make further enquires. This is no longer the case.

2. Personal Data can no longer be legally transferred to the US and needs to be kept in the EU. FALSE. Some types of EU-US data transfers also automatically exempt (e.g. where a transfer is needed to obtain legal advice or necessary in order to perform a contract for an individual, such as reserving a US hotel), Furthermore, Safe Harbors was only one way to meet required EU Data Protection Directive standards. There are other routes to compliance – notably through getting an individual's freely given consent to the data transfer, use of the EU sanctioned standard 'model contract clauses' to cover the transfer, implementing binding corporate rules (for internal global transfers) or – certainly as far as UK organisations are concerned – data exporters can still make their own 'real-world' assessment of the US data importer's privacy/security arrangements and conclude that it meets required legal standards. On this last point, it's worth bearing in mind that organisations signed up to the Safe Harbors Framework have had to implement a range of privacy processes to be able to annually certify their standards under pain of DoC enforcement action. This is not a process that any of these organisations would have taken lightly, given that DoC sanctions are arguably a more fearsome prospect than the data privacy sanctions regimes of many EU authorities. This is on top of stringent State privacy legal requirements that some organisations have to deal with in places such as California. So practically – while alternative methods to legal compliance now need to be applied as a result of the CJEU judgement - privacy standards previously in place in formerly certified US organisations will not have suddenly disappeared.

3. US data importers are all about to be sued. FALSE. First, as noted above the ruling only impacts on transfers to Safe Harbor registered companies. The judgement is an interpretative ruling and does not declare transfers to Safe Harbor registered companies as automatically illegal. It merely gives EU data protection authorities the scope to make their own judgement on legality. Yes, some high profile companies may now become targets for complaints by EU-based activists but claims that swathes of individuals/regulators are going to be taking enforcement action seem far-fetched. As far as the UK regulator, the Information Commissioner is concerned, their reaction to the judgement has been measured and recognises that affected organisations will need time to put alternative arrangements in place. We also note that an EU-US Umbrella Agreement for sharing of data in relation to law enforcement has just been finalised and it may well be that a replacement to the Safe Harbor arrangement on the back of this agreement may be round the corner.

Summary

While some of the original reporting has been overblown, it would be a mistake to dismiss this judgement altogether. With the potential for increased public and regulatory scrutiny, all organisations exporting personal data between Europe and the US are now on notice that they should be reviewing their data transfer arrangements.

  • For EU companies exporting their data internally or externally – it is time to check contracts with US affiliates, suppliers or providers of cloud-based solutions and ask questions of those who have been relying on Safe Harbor registration as to what measures are now being put in place in light of the judgement.
  •  For US data importers who are signed up to Safe Harbors, it is time to review customer contracts and look at alternative arrangements in order to answer these customer questions and minimise vulnerability to regulatory attack.

Adopting an approach based on the EU model clauses would seem to be the obvious alternative for many businesses affected by the CJEU decision but each organisation should look rationally at its own individual situation and act accordingly. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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