Navigating the Complex Landscape of U.S. Data Transfer Regulations
In Brief
As geopolitical tensions escalate, companies operating within the U.S. face a complex and evolving web of regulations governing cross-border data transfers. These regulations, primarily driven by national security concerns, enforce strict limitations on the handling of various types of data, including personal and technical information critical for research and development. The recently introduced U.S. Department of Justice’s Data Security Program (DSP) is a prime example, aiming to restrict the flow of sensitive data to entities located in designated countries of concern, including China, Russia, and Iran. This article explores the multifaceted aspects of these regulations and what companies need to know to remain compliant.
Understanding the Data Security Program
The Data Security Program (DSP) sets forth specific prohibitions against making substantial amounts of Americans’ personal data available to foreign entities based in countries identified as security threats. Notably, these restrictions extend to subsidiaries situated in other nations and cover various forms of data. The DSP is not but one element in a tapestry of U.S. regulations designed to safeguard data, alongside the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR). Together, these regulations create a stringent framework for how companies handle sensitive data both domestically and internationally.
Importance of Proactive Compliance
To safeguard against potential compliance risks, U.S.-based companies must take proactive steps. It’s crucial to begin by identifying the types of data they hold, which can include personal information, technical data concerning product development, and information related to national security.
Companies should conduct a thorough audit to determine where this data is stored, processed, or accessed, and assess to whom this data is disclosed. This involves mapping data flows between staff, affiliates, vendors, research collaborators, and other business partners. Of particular concern are transfers that might involve parties from countries labeled as “countries of concern” by the U.S. government.
The Breadth of “Sensitive Personal Data”
A common misunderstanding is that the term “sensitive personal data” applies only to highly confidential or private information. In fact, the definition is much broader, encompassing a variety of identifiers—names, email addresses, phone numbers, and even pseudonymous data like IP addresses and cookie data. The DSP comes into play when U.S. entities collect certain types of personal data above specific thresholds, such as precise geolocation or health information about large numbers of U.S. individuals.
Who Qualifies as a “Covered Person”?
Under the DSP, a “covered person” refers to different categories of foreign entities and individuals that come under the regulation’s purview. This includes foreign entities based in “countries of concern,” those owned by such countries, and certain foreign individuals. Interestingly, the DSP also covers U.S. government-related data, which adds another layer of complexity to compliance efforts.
Prohibited and Restricted Transfers
While the DSP categorizes transfers as either “prohibited” or “restricted,” it establishes that no access to Americans’ bulk sensitive personal data or U.S. government-related data can be granted to covered persons in either case. The implications of violating these regulations can be severe, with consequences ranging from civil penalties to criminal charges.
Consent and Due Diligence
A critical point to note is that obtaining consent from data subjects does not absolve companies from complying with the DSP’s restrictions. As a result, organizations must conduct ongoing due diligence on their business partners to assess whether they might be owned or controlled by covered persons. If the answer is affirmative, companies may need to terminate existing arrangements to remain compliant.
Export Controls on Technical Data
The U.S. operates two main export control regimes: military and dual-use. Military export controls fall under ITAR, while dual-use items—those with both civilian and military applications—are governed by EAR. These regulations apply to any company, whether U.S.-based or not, dealing with controlled technology or data.
The Importance of Intellectual Property Awareness
In terms of intellectual property, companies must be acutely aware that technical information is treated as "exported" when U.S. patent applications for inventions are filed overseas. U.S. law imposes specific restrictions on applicants filing for patents abroad, particularly if these inventions were created in the U.S. The aim is to allow for a review period to assess whether the technical disclosures could pose a national security risk.
Coordinated Compliance Strategies
Effective compliance within this regulatory landscape necessitates coordinated efforts across various divisions, including legal, privacy, cybersecurity, export control, and intellectual property. Governance teams play a pivotal role in ensuring that due diligence, vendor screenings, and access controls meet the diverse requirements across various frameworks.
Importantly, companies should avoid siloed approaches. A situation that may not raise red flags under one regulation could still lead to complications under another if it allows foreign access to sensitive data about U.S. individuals or governmental functions.
Final Thoughts
As data transfer regulations continue to evolve and converge, companies must remain vigilant and adaptable in their compliance strategies. Understanding the nuances of these regulations is not merely a legal exercise; it’s essential for executing operational continuity and protecting sensitive information in an increasingly interconnected world.
