The Privacy Shield in a nutshell.
The Privacy Shield permits U.S. businesses to process and control the personal data of individuals, aka data subjects, located in the European Union (EU). Without the Privacy Shield, U.S. businesses risk losing hundreds of millions of dollars if they cannot transfer personal data from the EU — businesses that cannot establish offices in the EU or negotiate agreements with each of the EU member countries will forego commerce with EU companies and data subjects. The U.S. government has agreed to enforce the Privacy Shield against U.S. businesses on behalf of EU data subjects. The U.S. government necessarily has to execute its enforcement duties with diligence. You might say, U.S. government agencies must bite as bad as they bark.
Is certification the best option for your company?
EU privacy standards that protect the data of its citizens are much stricter than those of the U.S. The EU requires U.S. companies to comply with privacy principles that comprise the EU/U.S. Privacy Shield. The U.S. Department of Commerce (Commerce Department) oversees U.S. businesses’ applications and certifications under the Privacy Shield. Your company may decide to be certified under the Privacy Shield if your business is subject to the jurisdiction of the Federal Trade Commission (FTC) or Department of Transportation (DOT); and EU citizens access your website, they do business with you or you conduct business in an EU member country. Each circumstance must be analyzed on a case-by-case basis. Issues such as volume, whether you are a data controller or processor, and whether you have multinational affiliates have bearing on your analysis.
How does the Privacy Shield compare to the Safe Harbor?
The Privacy Shield is more stringent than the Safe Harbor; some privacy principles that were merely guidelines under Safe Harbor are now affirmative covenants under the Privacy Shield. The U.S. government also must meet a higher standard under the Privacy Shield. The EU obligates the FTC and DOT to investigate and enforce penalties against U.S. companies that violate the Privacy Shield Principles.
What is the cost of certification?
While certification under the Privacy Shield is voluntary, U.S. businesses that receive personal data transfers from the EU must meet the same requirements as U.S. businesses that are certified. The fees for certification are based on the business’ annual revenue: the minimum fee is $250 per year for up to $5 million in revenue, and the maximum fee is $2,500 per year for more than $500 million in revenue. U.S. companies that are required to resolve disputes by an EU Data Privacy Authority must pay additional fees.
The application process itself is no more complicated than most other business certification processes. The “real” cost of becoming certified under the Privacy Shield will likely be in personnel resources, especially if the business is not already compliant with the Safe Harbor rules. For example, the business must dedicate personnel to develop privacy policies, educate employees about the policies, monitor the actions of employees and third party data processors, and take action against parties who violate the policies. There are also costs associated with verifying that third party processors update their security and privacy policies in step with Privacy Shield requirements. You can review a summary of the five basic steps U.S. businesses must take to apply for certification here. You can review the seven Privacy Shield Principles here.
Alternatives to self-certification under the Privacy Shield.
It may be more cost effective for a business with limited personnel to use a private company to assist with the certification process, establish compliant policies and procedures, and provide ongoing monitoring, auditing, education and advice. The Commerce Department maintains an ever-expanding list of companies that transfer data to U.S. companies from abroad in compliance with the Privacy Shield and the Madrid Resolution, U.S./Swiss Safe Harbor or the privacy rules adopted by the Asia-Pacific Economic Cooperation EU, European Economic Area, Switzerland and Asia Pacific Economic Cooperation. When evaluating private companies, you should pay close attention to which party to the agreement is liable for violations of the Privacy Shield and the extent to which the contract covers transfers of data to third parties.
Binding Corporate Rules (BCR), model contract clauses and unambiguous consent are also options that you may consider if self-certification is unfeasible for your business. BCRs are available to multinational companies. An affiliated company located in the EU may transfer personal data to its U.S. location subject to BCRs. Model Contracts, drafted by the European Commission, require U.S. businesses to provide adequate levels of protection of the privacy of data subjects. If you are a data processor, not a data controller, you may have the option of entering into a Direct Data Processing Agreement or adopt the Model Clauses for Processors to eliminate the negotiation of broader issues that apply to controllers, but not processors. If you receive data from a limited number of known EU data subjects, the most cost effective way for you to transfer their data to the U.S. would be to obtain from each of them clear, unambiguous statements that they freely permit the transfer of their personal data.
What are the possible repercussions of not complying with the Privacy Shield?
The FTC can investigate alleged violations of the Privacy Shield, enter consent orders and findings of contempt, and impose administrative penalties. Currently, administrative penalties may be up to $40,000 per violation or per day, for continuing violations. Additional penalties against a business include the FTC’s removal of a company from the Privacy Shield list, resulting in liability under the False Statements Act if the company claims it is certified. Learn from the lessons of others — the FTC has issued record-breaking fines in the past two years, including a $1.3 billion fine issued in the past month. The data owners in the EU, the EU Commission and/or data privacy authority may also have private rights of action against a U.S. company that violates relevant rules.
- Assess how your U.S. based business receives personal data from EU data subjects. Based on the volume, your relationship to the data owners, and whether you process or control the data, you may have to delegate an employee or contractor who is knowledgeable about data privacy and cybersecurity to monitor, update and enforce the policy and verify that the privacy notice meets all applicable state, federal and international rules.
- Consult all aspects of your company organization to assess which option is best for you. Privacy is not a distinct division within your company. Verify that operations, human resources and enforcement of policies work in concert to maintain the standards of the Privacy Shield.