Privacy Shield is on its Way

by Latham & Watkins LLP

On March 17, 2016, the Civil Liberties Committee convened to discuss whether the Privacy Shield framework that will replace Safe Harbor provides adequate protection to the data of EU citizens. A number of experts were questioned including: the US lead negotiator, the EU Data Protection Supervisor, members of the Article 29 Working Party and Max Schrems, whose court case against Facebook led to Safe Harbor’s downfall.

The meeting of the Civil Liberties Committee follows on from the European Commission’s publication last month of the legal texts that will form the basis of the EU-US Privacy Shield and a Communication summarizing the action taken to rebuild trust in the data flows from the EU to the US. The European Commission also made public a draft “adequacy decision” establishing that the safeguards provided under the Privacy Shield are equivalent to the EU data protection standards. The documents provide a better idea of the substance and structure of the Privacy Shield, announced by the European Commission on February 2, 2016 and confirm the US commitment to ensuring that there will be no indiscriminate mass surveillance by its national security authorities.

Focus areas of the Privacy Shield

From the material made public, the new framework focuses on four areas:

1. Enhanced obligations The Privacy Shield framework is set to address a number of concerns which were raised in the European Commission’s 13 recommendations for review of the Safe Harbor Scheme which was published in November 2013. The privacy principles of the Privacy Shield are the same as those set out under the previous Safe Harbor framework (notice, choice, security, data integrity and purpose limitation, access, accountability for onward transfer and recourse, enforcement and liability). However, according to the European Commission, companies that sign up to the Privacy Shield will face more stringent obligations and robust sanctions for non-compliance. There will also be strict conditions for onward transfers by the company to its partners. The obligations will extend to any company that subsequently withdraws from the Privacy Shield but wants to retain such data. Such a company must affirm to the US Department of Commerce on an annual basis its commitment to continue to apply Privacy Shield Principles or provide “adequate” protection for the information by another authorized means (for example, using a contract that fully reflects the requirements of the relevant standard contractual clauses adopted by the European Commission). Failing this the company must return or delete the information. A company that withdraws from the Privacy Shield must remove from any relevant privacy policy any references to the Privacy Shield that imply that it continues to actively participate in the Privacy Shield and is entitled to its benefits.

2. US Government access to EU personal data For the first time, the US government has given the EU written assurance that any access of public authorities for national security purposes will be subject to defined limitations, safeguards and supervision mechanisms, preventing generalized access to personal data. An Ombudsperson, who will be independent from national security agencies, will be appointed and will follow-up complaints and enquiries by individuals to inform them whether the relevant laws have been complied with. These written assurances will be published in the US Federal Register.

3. Redress Complaints have to be resolved by companies within 45 days and be free of charge. Alternative Dispute Resolution solutions will be available. EU citizens can also go to their own national Data Protection Authorities, who will work with the Federal Trade Commission to ensure that unresolved complaints by EU citizens are scrutinized and resolved. If a case is not resolved, there will be an arbitration procedure ensuring an enforceable remedy.

4. Monitoring An annual joint review process will examine the functioning of the Privacy Shield, including the commitments regarding access to data for law enforcement and national security purposes. The European Commission and the US Department of Commerce will conduct the review with associate US national intelligence experts. The European Commission will also draw on other sources of information available, including transparency reports by companies on the extent of government access requests. The EU Commission will also hold an annual privacy summit with interested NGOs and stakeholders to discuss broader developments in the area of US privacy law and their impact on Europeans. On the basis of the annual review, the European Commission will issue a public report to the European Parliament and the EU Council.

Next Steps

On the EU side the Article 29 Working Party will analyse the framework and intends to adopt its opinion during its next plenary meeting on April 12 and 13, 2016, after which the opinion of the Member States will be obtained in the so-called comitology procedure. The final step in the EU procedure for approval will be the European Commission’s “finding of adequacy” in relation to the Privacy Shield. On the US side, the US authorities will prepare to put in place the new framework, monitoring mechanisms and the new Ombudsperson.

Following the adoption of the Judicial Redress Act by the U. Congress, signed into law by President Obama on February 24, 2016, the EU Commission intends to progress the procedure on the Umbrella Agreement as well.

What does this mean for Safe Harbor certified companies?

As the Privacy Shield hasn’t been formally approved or adopted yet, companies who previously relied on Safe Harbor, will need to continue to seek alternative mechanisms to comply with the European data export requirements, the main alternative being the Standard Contractual Clauses.

Once the Privacy Shield has been adopted, Safe Harbor certified companies who wish to certify under the Privacy Shield will need to audit their current privacy practices to review if these meet new requirements, and if not, will need to make changes to such practices to achieve compliance. This is particularly relevant given the expectation of higher enforcement activity. Such changes may include updating privacy policies, security measures, data handling protocols (especially in relation to dealing with government access). It remains to be seen how many companies will opt for the Privacy Shield after they have turned to Standard Contractual Clauses or other means.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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