The European General Data Protection Regulation (GDPR) comes into force on May 25, 2018.  This gives companies only two months to prepare for and comply with the GDPR. Companies should be conducting data mapping to identify all cross-border transfers of personal data so that they can determine the best way to comply with the GDPR requirements.

Illustration of binary code rippling out from the European Union flag, in relation to GDPRThe GDPR has been, perhaps, the most widely talked about privacy regulation for the past year and a half after it was approved by the EU Parliament on April 14, 2016 because of the sweeping changes it will bring to how the global digital economy operates with regard to processing personal data. GDPR will apply to all EU-based companies, irrespective of whether personal data is processed inside or outside of the EU. The GDPR will also apply to companies outside the EU that offer goods or services to individuals in the EU and/or that monitor or track the online behavior or activities of individuals in the EU.

Any transfer of personal data to a third country can take place only if certain conditions are met by the data exporter and the data importer. If a company is transferring EU personal data outside of the EU, that company must identify a valid transfer mechanism to legally transfer that personal data.  The most widely used transfer mechanisms are: (1) transfers within the EU and adequacy rulings; (2) appropriate safeguards; and (3) derogations.

Transfers Within the EU and Adequacy Rulings

Under GDPR, personal data can be moved between EU member states (and Norway, Liechtenstein, and Iceland) without restriction.

Cross-border transfers may also take place without a need to obtain further authorization if the European Commission determines that the third country’s body of national law ensures an adequate level of protection for personal data. The European Commission considers several factors when determining if the country has an adequate level of protection, including the specific processing activities, access to justice, international human rights norms, the general and sectoral law of the country, legislation concerning public security, defense and national security, public order and criminal law.

Appropriate Safeguards

In the absence of an adequacy determination, cross border personal data transfers are permitted if the controller and processor use EU-approved safeguards. The most widely used transfer mechanisms are binding corporate rules, model contractual clauses, and certification mechanisms (e.g. Privacy Shield).

Binding corporate rules (BCRs) are internal codes of conduct adopted by multinational companies to allow transfers between different branches of the organization. BCRs are a favored mechanism because of their flexibility, ability for tailored customization, and a lower administrative burden once implemented.

Model contractual clauses are legal terms contained in a template data processing agreement drafted and ratified by the EU. Model contractual clauses can be burdensome because companies are required to enter new model contractual clauses to cover each new third party and each new purpose for processing or transfer.

Because the European Commission does not recognize the U.S. as an adequate third country, U.S. companies can comply by certifying under the EU-U.S. Privacy Shield that they meet the high data protection standards set out in the Privacy Shield.  The Privacy Shield remains subject to the same criticism that ultimately resulted in the downfall of its predecessor (Safe Harbor), that it does not fully protect the fundamental rights of individuals provided under EU privacy laws.

Derogations

In the absence of either an adequacy decision or the implementation of an appropriate safeguard, a cross-border transfer can still take place in limited circumstances, where an exception applies. These circumstances include situations where the individual explicitly consents after having been informed of the risks of data transfer in the absence of an adequacy decision and appropriate safeguards, the transfer is necessary for the performance of a contract between the parties, or if the transfer is necessary for important reasons of public interest. The permitted derogations are fact-specific and are generally not intended to be relied upon as a company’s primary transfer mechanism.

Guidance for GDPR Compliance

Transferring personal data out of the EU without a valid transfer mechanism can result in significant fines and increased regulatory oversight.  Beginning on May 26, 2018, compliance with the GDPR will be essential for companies engaging in cross-border transfers of personal data.

To comply with the GDPR, companies should first identify and map all cross-border data flows.  Companies should then examine and assess for each of these flows whether the receiving country is in the EU (and Norway, Liechtenstein and Iceland) or is otherwise deemed adequate.  If not, the company should consider whether any appropriate safeguards have been put in place, and/or whether any specific derogations apply.

Europe map with padlock symbolizing the General Data Protection Regulation (GDPR)With the European’s Union’s new General Data Protection Regulation (or GDPR) taking effect in less than 100 days, the interest of many U.S. Companies has been piqued as to how the GDPR may affect their overseas and internet-based businesses.  This article on CFO.com, “Why GDPR Matters,” which I co-authored with Bill Shipp from Vaxient, LLC and Jonathan Marks, CPA from Marcum, LLP, tackles this hot issue and answers why GDPR should matter to U.S. companies in a wide variety of industries.

To assist U.S.-based companies in determining how GDPR may affect their business, Fox Rothschild has also developed a GDPR mobile app called “GDPR Check” (details and download information here).  The app is designed to help companies determine which areas of their business (if any) may require GDPR compliance.

If you have any questions about how GDPR may affect your company, we encourage you to consult a knowledgeable attorney and experienced professionals.