European Union: GDPR, Part VI: What Are The Roles Of U.S. Regulators?

When the General Data Protection Regulation (GDPR) goes into effect on May 25, 2018, the European Union (EU) will mark a sea change in how its member states will seek to protect and regulate the collection and use of EU citizens' data. But as we have noted in our seven-part series analyzing the impact of Europe's new data regulation and the hurdles that businesses will have to clear in order to comply with its provisions, the effects of the GDPR will not stop at the EU water's edge. Indeed, much like the EU's current Data Protection Directive 95/46/EC, the GDPR limits transferring personal data to countries outside of the EU that do not offer "adequate levels of data protection," and under both the Data Protection Directive and the GDPR, U.S.-based companies may only import or process personal data from the EU if they take measures to ensure their compliance with EU data protection laws. One of those methods is by participating in the EU-U.S. Privacy Shield, a trans-Atlantic data agreement by which U.S. companies can voluntarily self-certify their compliance with specific privacy principles and be allowed to import personal data from the EU.

As part of the Privacy Shield, several U.S. regulatory agencies have undertaken important roles either administering the data transfer pact, or enforcing U.S. companies' compliance with its terms. Consequently, American businesses looking to import personal data from the EU should pay special attention to the roles that these domestic agencies have in this voluntary program, and their powers to enforce compliance with the Privacy Shield. This post, the sixth in a seven-part series analyzing the impact of the GDPR, will discuss the roles that U.S. regulatory agencies play under the EU-U.S. Privacy Shield to enforce a self-certifying company's compliance, and how those roles may change once the GDPR goes into effect next year.

"Adequately" Transferring EU Personal Data to the U.S. under the GDPR

To understand how U.S. regulatory agencies may be affected by the GDPR, it is important to understand the restrictions on exporting personal data to foreign counties the EU currently has in place, restrictions that the GDPR will mirror and reinforce. Under Article 25 to the EU's current Data Protection Directive, personal data can only be transferred to countries outside the EU and the broader European Economic Area (EEA) ­— comprising the EU member states as well as Iceland, Liechtenstein, and Norway — when "an adequate level of protection" of personal data is guaranteed. Towards that end, the Data Protection Directive authorizes the European Commission (EC) to determine whether foreign nations offer data protections similar to those under EU law.

Similarly, Article 45 of the GDPR also permits the EC to determine if a foreign nation offers an adequate level of protection comparable to the EU's. So far, the EC has deemed only 11 countries to fully provide "adequate" protections for personal data – a list that does not include the United States.

However, both the Data Protection Directive and the GDPR permit the export of personal data to countries that have not received adequacy determinations from the EC under certain circumstances, such as where an entity agrees through the use of binding corporate rule (BCRs) or model contract clauses developed by the EC to provide adequate safeguards for the protection of personal data leaving the EU. An additional measure available to U.S. companies is the EU-U.S. Privacy Shield, a voluntarily mechanism administered by the U.S. Department of Commerce for U.S.-based companies to self-certify their compliance with the Privacy Shield's Framework and Supplemental Principles to protect personal data imported from the EU. In its Privacy Shield Adequacy Decision, the EC determined that the privacy protections of the Privacy Shield Principles with which all participating companies must agree to comply, combined with provisions under U.S. law to safeguard personal data and other mechanisms built into the Privacy Shield, ensure an adequate level of protection for personal data transferred to the United States under its regime.

Though the Privacy Shield was developed under the Data Protection Directive, it is expected to continue to be used as mechanism for U.S.-based companies to import and ensure an adequate level of protection for personal data under the GDPR. Per paragraph 146 of the EU's Privacy Shield Adequacy Decision, however, the EC will reassess the Privacy Shield's level of protection once the GDPR enters into force. Consequently, the EU may propose revisions to the Privacy Shield's structure in the future if it views its operations as inconsistent with the GDPR's provisions.

U.S. Regulators' Roles Under the Privacy Shield

While self-certifying companies must fulfill their own requirements under the Privacy Shield, the Privacy Shield imposes requirements on certain U.S. agencies to administer and enforce participating companies' compliance with the trans-Atlantic data transfer pact.

U.S. Department of Commerce (Commerce): Commerce is the chief U.S. agency charged with administering the EU-U.S. Privacy Shield. Among its duties, Commerce must routinely monitor the functioning of the Privacy Shield, review and verify how participating companies are complying with the Privacy Shield Principles, and remove those companies from the list of participating Privacy Shield entities if they persistently fail to comply with the Privacy Shield Principles. Commerce is also charged with conducting joint annual reviews with the EC and other relevant U.S. agencies — including the Federal Trade Commission (FTC), the U.S. Department of State, the U.S. Department of Transportation, the Office of the Director of National Intelligence, and the U.S. Department of Justice, among others — of the program's functioning and effectiveness.

Additionally, the Privacy Shield authorizes European Data Protection Authorities (DPAs) to channel complaints from EU citizens regarding the practices of U.S. companies under the Privacy Shield to Commerce for resolution. Once it receives a complaint from a DPA, Commerce must review and respond to the DPA within 90 days, with the aim of facilitating a resolution of the complaint with the U.S. company. Commerce must also produce an annual report analyzing the complaints it receives each year.

Federal Trade Commission: The FTC is the primary regulatory agency that enforces participating companies' compliance with the Privacy Shield. Under the Privacy Shield Adequacy Decision, a participating U.S. company must publicly declare its commitment to the Privacy Shield Principles and disclose and effectively implement its Privacy Shield privacy policies. Failing to do so is deemed to be an unfair and deceptive trade practice, enforceable by the commission under Section 5 of the FTC Act. The FTC enforces Privacy Shield noncompliance by issuing consent orders against companies that violate the Privacy Shield's requirements. Such consent orders typically prohibit companies from further engaging in non-compliant behavior and subject them to extended compliance monitoring by the FTC—typically up to 20 years after the date of the consent order. Any subsequent violation of the consent order may result in civil penalties up to $40,654 per violation1.

Additionally, the Privacy Shield requires the FTC to work with the European DPAs and Commerce to ensure all complaints from EU citizens about companies' participation under the Privacy Shield are investigated and resolved.

Given the EU's emphasis on using effective mechanisms to ensure compliance with the Privacy Shield's terms, American businesses should expect the FTC to be an active enforcement agency in this space. Indeed, the FTC was similarly empowered under Section 5 to enforce participating companies' compliance with the Privacy Shield's predecessor, the U.S.-EU Safe Harbor Framework. During the framework's lifetime, the FTC routinely engaged in regulatory actions and issued consent orders against companies for violating the Safe Harbor Framework.

U.S. Department of Transportation (DOT): Similar to the FTC, the DOT is required under the Privacy Shield to enforce compliance of Privacy Shield-participating U.S. carriers and ticket agents under its authority pursuant to 49 U.S.C. § 41712. As with the FTC's Section 5 authority, a participating carrier or ticket agent's failure to adhere to the Privacy Shield's requirements is deemed to be an unfair and deceptive practice under Section 41712. The DOT Aviation Enforcement Office is charged with investigating Privacy Shield complaints and taking enforcement actions where there is evidence of a violation. If the DOT resolves an enforcement action with a company, the DOT must monitor the company's compliance with the enforcement order and make the order publicly available.

U.S. Department of State: One of the most important provisions of the Privacy Shield is the creation of the State Department's ombudsperson, who is charged with handling and resolving complaints from EU citizens concerning U.S. national security access to data transmitted from the EU. U.S. national security surveillance activities were a major concern to the European Court of Justice when it invalidated the Privacy Shield's precursor, the U.S.-EU Safe Harbor Framework, in its 2015 Schrems decision. Crucially, the ombudsperson position is designed to be independent of the U.S. intelligence agencies and is empowered to oversee all complains concerning American national security access to commercial data transfers from the EU to the U.S., whether under the Privacy Shield, BCRs, model contract clauses, or other derogations permitted by EU law.

The U.S. Regulators' Privacy Shield Roles under the GDPR

As noted above, the U.S. and the EU are required under the Privacy Shield Adequacy Decision to conduct annual reviews of and assess the Privacy Shield's performance. Towards that end, the American and European representatives concluded their first annual Privacy Shield review on October 18, 2017, in which the data transfer pact's performance was generally given praise. Importantly, the EC found that the Privacy Shield in practice still ensures an "adequate level of protection" for personal data from the EU and that "U.S. authorities have put in place the necessary structures and procedures to ensure the correct functioning of the Privacy Shield...." While the EC did detail a number of recommended steps to improve the Privacy Shield's functions, it did not indicate that it expected the Privacy Shield — or U.S. regulators' roles in administering and enforcing the pact — to change once the GDPR enters into effect. However, because the Privacy Shield was negotiated to comply with EU data protections under the Data Protection Directive, it is likely that European regulators will carefully examine the roles of U.S. regulators in the context of the GDPR's requirements once it formally replaces the Data Protection Directive on May 25, 2018.

Meanwhile, American companies interested in participating in the Privacy Shield should consult with experienced legal counsel to learn more about what measures they need to take in order to self-certify under the trans-Atlantic data transfer pact, and how to sign up to do so. Additional information about participating in the Privacy Shield can be found on the Commerce Department's website,


1 The FTC's maximum civil penalty amount for 2017 is per the annual adjustment required under the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Consequently, companies can expect civil penalties for violating the terms of an FTC consent order to only increase in the future.

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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