Does the GDPR Apply to Your US-based Company?
If you’ve been following the headlines, you know that a day doesn’t pass without a reference to the “GDPR”. On May 25, 2018, the European Union (EU) General Data Protection Regulation (GDPR) will take effect, marking the most significant change to European data privacy and security in over 20 years. Most multinational companies, and of course EU-based companies should be in the process of ensuring GDPR compliance by May 2018. But what about if you are a US-based company with no direct operations in the EU? Do you think you are free of the GDPR’s reach? Think again!
In short, the GDPR aims to protect the “personal data” of EU citizens – including how the data is collected, stored, processed and destroyed. The meaning of “personal data” under the GDPR goes far beyond what you might expect considering how similar terms are defined in the U.S. Under the GDPR, “personal data” means information relating to an identified or identifiable natural person. A person can be identified from information such as name, ID number, location data, online identifier or other factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that person. This even includes IP addresses, cookie strings, social media posts, online contacts and mobile device IDs.
A major change made by the GDPR is the territorial scope of the new law. The GDPR replaces the 1995 EU Data Protection Directive which generally did not regulate businesses based outside the EU. However, now even if a US-based business has no employees or offices within the boundaries of the EU, the GDPR may still apply.
Under Article 3 of the GDPR, your company is subject to the new law if it processes personal data of an individual residing in the EU when the data is accessed. This is the case where the processing relates to the offering of good or services or the monitoring of behavior that takes place in the EU.
Thus, the GDPR can apply even if no financial transaction occurs. For example, if your organization is a US company with an Internet presence, selling or marketing products over the Web, or even merely offering a marketing survey globally, you may be subject to the GDPR. That said, general global marketing does not usually apply. If you use Google Adwords and a French resident stumbles upon your webpage, the GDPR likely would not apply to the company solely on that basis. If, however, your website pursues EU residents – accepts the currency of an EU country, has a domain suffix for an EU country, offers shipping services to an EU country, provides translation in the language of an EU country, or markets in the language of an EU country, the GDPR will apply to your company. Likewise, if your company is engaged in monitoring the behavior of EU residents (e.g. tracking and collecting information about EU users to predict their online behavior), the GDPR likely will apply to your company.
US-based companies with no physical presence in the EU, but in industries such as e-commerce, logistics, software services, travel and hospitality with business in the EU should already be in the process of ensuring GDPR compliance. However, all US-based companies, especially those with a strong Internet presence, should assess whether their business activity falls within the territorial scope of the GDPR.
Consequences of Non-Compliance
The GDPR imposes significant fines for companies that fail to comply. Penalties and fines, calculated based on the company’s global annual turnover of preceding financial year, can reach up to 4% or €20 million (whichever is greater) for non-compliance with the GDPR, and 2% or €10 million (whichever is greater) for less important infringements. So, for example, if a company fails to report a breach to a data regulator within 72 hours, as required under Article 33 of the GDPR, it could pay a fine of the greater of 2% of its global revenue or €10 million.
A report by Gartner predicted that more than 50% of companies within the scope of the GDPR will not be compliant by the end of 2018. Considering that one of the main objectives of the GDPR was to expand the territorial scope, companies based outside the EU should not be surprised to find that they are a particular target of data regulators.
Don’t let your company become next year’s headline! This article kicks off our GDPR series that will help your company navigate the key aspects of the regulation. Efforts toward compliance need to begin now.