Earlier today, the European Commission (the Commission) issued a draft “adequacy decision” as well as the texts that will constitute the EU-U.S. Privacy Shield (the Privacy Shield). This includes the Privacy Shield Principles companies have to abide by, as well as written commitments by the U.S. Government on the enforcement of the arrangement, including assurance on the safeguards and limitations concerning access to data by public authorities.

An “adequacy decision” is a decision, adopted by the Commission, which establishes that a non-EU country ensures an adequate level of protection of personal data by reason of its domestic law and international commitments.  The practical effect of such a decision is that personal data can flow from the 28 EU Member States (and the three European Economic Area member countries: Norway, Liechtenstein and Iceland) to that third country, without any further restrictions.  Once adopted, the Commission’s adequacy finding establishes that the safeguards provided when data are transferred under the new Privacy Shield are equivalent to data protection standards in the EU.

In the Commission’s press release, Commissioner Jourová said:

Protecting personal data is my priority both inside the EU and internationally. The EU-U.S. Privacy Shield is a strong new framework, based on robust enforcement and monitoring, easier redress for individuals and, for the first time, written assurance from our U.S. partners on the limitations and safeguards regarding access to data by public authorities on national security grounds. Also, now that President Obama has signed the Judicial Redress Act granting EU citizens the right to enforce data protection rights in U.S. courts, we will shortly propose the signature of the EU-U.S. Umbrella Agreement ensuring safeguards for the transfer of data for law enforcement purposes. These strong safeguards enable Europe and America to restore trust in transatlantic data flows.

The Commission and the U.S. Department of Commerce reached agreement on February 2, 2016 for a new framework for transatlantic exchanges of personal data for commercial purposes, known as the Privacy Shield.  The Privacy Shield reflects the requirements set out by the European Court of Justice in its October 2015 ruling in Schrems which declared the old Safe Harbor framework invalid.

What are the main differences between the “Safe Harbor” arrangement and the EU-U.S. Privacy Shield?

According to the Commission, the Privacy Shield provides stronger obligations on companies in the U.S. to protect the personal data of Europeans. It requires stronger monitoring and enforcement by the U.S. Department of Commerce (DoC) and Federal Trade Commission (FTC), including through increased cooperation with European Data Protection Authorities (DPAs).

The Privacy Shield will include:

• Strong obligations on companies and robust enforcement: the new arrangement will be transparent and contain effective supervision mechanisms to ensure that companies respect their obligations, including sanctions or exclusion if they do not comply. The new rules also include tightened conditions for onward transfers to other partners by the companies participating.

• Clear safeguards and transparency obligations on U.S. government access: the U.S. government has given the EU written assurance that any access of public authorities for national security purposes will be subject to clear limitations, safeguards and oversight mechanisms, preventing generalized access.  The U.S. will also establish a redress possibility in the area of national intelligence for Europeans through an Ombudsperson mechanism within the Department of State, who will be independent from national security services. The Ombudsperson will follow-up complaints and enquiries by individuals and inform them whether the relevant laws have been complied with. These written commitments will be published in the U.S. federal register.

• Effective protection of EU citizens’ rights with several redress possibilities: Complaints have to be resolved by companies within 45 days. A free of charge Alternative Dispute Resolution solution will be available. EU citizens can also go to their national Data Protection Authorities, who will work with the DoC and FTC to ensure that unresolved complaints by EU citizens are investigated and resolved. If a case is not resolved by any of the other means, as a last resort there will be an enforceable arbitration mechanism. Moreover, companies can commit to comply with advice from European DPAs. This is obligatory for companies handling human resource data.

• Annual joint review mechanism: that will monitor the functioning of the Privacy Shield, including the commitments and assurance as regards access to data for law enforcement and national security purposes.

How will the Privacy Shield work?

U.S. companies will register to be on the Privacy Shield List and self-certify that they meet the requirements.  This procedure has to be done each year. The US Department of Commerce will monitor and actively verify companies’ privacy policies are in line with the relevant Privacy Shield principles and are readily available. The U.S. will maintain an updated list of current Privacy Shield members and remove those companies that have left the arrangement. The DoC will ensure that companies that are no longer members of Privacy Shield must still continue to apply its principles to personal data received when they were in the Privacy Shield, for as long as they continue to retain such data.

What’s Next?

A committee composed of representatives of the Member States will be consulted and the EU Data Protection Authorities (Article 29 Working Party) will give their opinion, before a final decision is issued. In the meantime, the U.S. side will make the necessary preparations to put in place the new framework, monitoring mechanisms, and the new Ombudsperson mechanism.

The Commission has encouraged companies to begin their preparations so as to be in a position to join the Privacy Shield as soon as possible after it is in place following the adoption of the Commission decision.

The Privacy Shield requires action from many actors:

• U.S. companies must fulfill their obligations under the framework in the full knowledge that it will be strictly enforced and they will be sanctioned if they are non-compliant.  Specifically, the Privacy Shield requires commitment to the following privacy principles: 1) Notice, 2) Choice, 3) Security, 4) Data Integrity and Purpose Limitation, 5) Access, 6) Accountability for Onward Transfer, and 7) Recourse, Enforcement and Liability. The Commission also encouraged companies to opt for EU DPAs as their chosen avenue to resolve complaints under the Privacy Shield and to publish transparency reports on national security and law enforcement access requests concerning EU data they receive.

• U.S. authorities are entrusted with overseeing and enforcing the framework, respecting the limitations and safeguards as far as access to data for law enforcement and national security purposes is concerned, and those entrusted with responding in a timely and meaningful manner to complaints by EU individuals about the possible misuse of their personal data;

• EU DPAs play an important role in ensuring that individuals can effectively exercise their rights under the Privacy Shield, including by channeling their complaints to the appropriate U.S. authorities, triggering the Ombudsperson mechanism, assisting complainants in bringing their case to the Privacy Shield Panel, as well as exercising oversight over human resources data transfers; and

• The Commission is responsible for making a finding of adequacy and reviewing it on a regular basis.