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After Safe Harbor; before Privacy Shield

Standard contractual clauses as solution for data transfers to the US

Under the EU Data Protection Directive (Directive), which in the UK has been implemented via the Data Protection Act 1998 (DPA), personal data may, in principle, be transferred outside the EEA only if that third country ensures an adequate level of protection for the data. This principle is enshrined in the eighth data protection principle.  One method to ensure adequate protection, which has recently gained increased interest, is the use of standard data transfer clauses (Standard Contractual Clauses or Clauses) established by the European Commission (Commission).

Background: Demise of the Safe Harbor

In addition to the Standard Contractual Clauses, another way to ensure compliance with the eighth principle is if the Commission makes a finding that a non-EU country ensures adequate protection of personal data by reason of its domestic laws or its international commitments.  The Commission did so in 2000 in respect of the US by establishing what became known as the Safe Harbor scheme, through which nearly 6,000 companies were able to become self-certified to receive personal data from the EU to the US. 

In light of the revelations made in 2013 by Edward Snowden concerning the activities of the US intelligence services, in particular the National Security Agency, the ability of the law and practice of the US to offer adequate protection against surveillance by public authorities of data transferred to the US, in the case in question via Facebook to servers in the US, was challenged. On 6 October 2015 the Court of Justice of the EU agreed and declared the Safe Harbor regime invalid.[1] As a result, if businesses that previously relied on the Safe Harbor scheme wish to continue to transfer data to the US, in order not to violate data protection legislation, they must make use of another method.

Standard Contractual Clauses as Alternative to Safe Harbor

For the time being the primary alternative to the Safe Harbor scheme is the use of a contract that contains the Standard Contractual Clauses (also referred to as Model Clauses or Model Contracts).  This method, too, is now under threat, however, because the Irish Data Protection Authority has recently indicated that it intends to refer a case that would challenge the legal basis for transferring data under Standard Contractual Clauses to the Court of Justice of the EU. The use of Standard Contractual Clauses was first established by the Commission in 2002 as a mechanism to lawfully transfer personal data out of the EEA and originally applied only to transfers from data controllers to data processors.  An updated version, which became effective in 2010, extended the regime to transfers to sub-processors (there are also controller to controller Standard Contractual Clauses).

The Standard Contractual Clauses are available free of charge and adopting them can be reasonably uncomplicated, but varies depending on the country (for example some data protection authorities require them to be submitted to them, or even to approve them). The use of the Clauses presents both drawbacks and benefits that should be considered prior to deciding on their use.

Clarifications to Guide Interpretation of the Standard Contractual Clauses

The Standard Contractual Clauses are indeed standard form, and as such, in order to function as intended, they may not be altered. Because they cannot be amended some contracting parties resort instead to explaining in their contracts how the Clauses are to be interpreted. Two prominent examples of areas that are often subject to such clarifications are sub-contracting and audit.

As noted above, Standard Contractual Clauses can be used in connection with sub-processors.  The use of a sub-processor is subject to the non-EU data importer obtaining the EU data exporter’s prior written consent.  In practice this consent requirement has at times, led to complex negotiations on where the non-EU data importer might be transferring data to an affiliate or using a third party to store the data.  Additionally, the EU data exporter remains liable for ensuring that the personal data is protected in the manner specified in the Clauses, including after it has been passed to a sub-processor.  If the sub-processor is an affiliate this is typically less of a concern, however, if the sub-processor is a third party there may be disagreements about the clarifications used in connection with this.

Under the Standard Contractual Clauses the data importer must allow materials connected to the agreement in respect of which the Clauses are used, to be audited by the data controller itself, or an independent body selected by the data controller. Oftentimes the underlying agreement in connection with which the Clauses were used already contains its own audit requirements, which might specify when, how, how often and upon how much notice audits may take place.  As a result, the audit requirement from the Standard Contractual Clauses may be accompanied by clarifications about how such audit rights are to be exercised, stating for instance that only the audit rights of the underlying agreement will apply (where these are appropriate).

The use of clarifications of this kind, which usually appear in a covering note, contribute to casting doubt on the unchanged nature of clauses whose intention it is to be the same across all contracts to which they apply.  Such clarifications also complicate a process that can otherwise be relatively streamlined. These clarifications might be understood as the parties’ intended interpretation but parties should specify that in the event of a conflict the terms of the Standard Contractual Clauses will override the clarifications.

Adoption and Applicability of the Standard Contractual Clause

In spite of the drawbacks associated with the interpretative clarifications, as well as the impracticalities of signing multiple Clauses agreements, the Standard Contractual Clauses do present other aspects that can entail marked benefits. In the UK the adoption process is relatively simple because use of the Clauses constitutes a pre-approved method of transferring personal data outside the EEA and does not necessitate further approval from the Information Commissioner’s Office. As a result, implementation in the UK can be very fast. Notably, however, not every EU country has accepted the Clauses as a pre-approved method and some do require the Clauses to be approved by the local regulator subsequent to adoption in order to be effective.  The outcome is therefore that the Clauses do not function as efficiently and quickly as intended in every country.

Compared to the Safe Harbor scheme, the applicability of the Standard Contractual Clauses is significantly broader.  In contrast to the Safe Harbor, which applied to transfers of personal data to the US only, the Clauses can be used in connection with transfers to any non-EU country.   

Future of the Standard Contractual Clauses

Many companies that previously relied on the Safe Harbor for transfers of personal data to the US are now adopting the Standard Contractual Clauses. The Clauses offer an alternative albeit not an ideal one to the void left by the Safe Harbor and it appears that the need to adopt them is perceived largely as an administrative hassle. Following the decision invalidating the Safe Harbor some companies noted, however, that they had not been relying exclusively on the Safe Harbor scheme but had been using the Standard Contractual Clauses as well, suggesting both that the impact of the invalidation and the consequent need to institute an alternate method is perhaps not as wide-spread as it otherwise might be and that the Clauses already have a significant foothold in EU-US data transfers.

In addition to the practical difficulties in implementing the Standard Contractual Clauses, as evidenced by the prevalence of clarifications, their adequacy in protecting personal data is also currently being questioned and there is a danger that like the Safe Harbor they might also be found to be an invalid method of transferring data to the US. Indeed, one regulator in a German federal state (Schleswig-Holstein) expressed the view that the Standard Contractual Clauses are an inadequate data transfer mechanism.  And, as referenced above, in May it was revealed that the Irish Data Protection Authority, the Irish Data Protection Commissioner, is planning to refer a case to the Court of Justice of the EU.  The case would challenge the legal basis for using the Standard Contractual Clauses to transfer data for much the same reason as the challenge brought against the Safe Harbor, namely that the mechanism fails to adequately protect personal data and in particular prevent mass surveillance. The Court of Justice of the EU is the only institution that may declare a Commission decision invalid and unless and until such time as it does so the Standard Contractual Clauses will remain a lawful method for transferring personal data.

In addition to Standard Contractual Clauses alternative methods that satisfy the eighth principle include Binding Corporate Rules or an exception from the rule is if you have consent from the data subject. Binding Corporate Rules, however, are limited to transfers within a specific corporate group and as such do not provide a broad-based alternative to the Standard Contractual Clauses.  Consent from the data subject is not recommended by data protection authorities for long term or repeated transfers.

Following the invalidation of the Safe Harbor mechanism the EU and the US have been working towards establishing a new methodology for data transfers and in February 2016 agreement on a new framework entitled the EU-US Privacy Shield was announced.  However, although this was initially welcomed, in April 2016 the Article 29 Working Party, which consists of EU data regulators, issued an opinion on the Privacy Shield which expressed concerns about the proposal and made requests for clarification.  In May 2016 the Article 31 Committee, which is made up of representatives of all member states and has veto power over the agreement, expressed the view that parts of the proposal were not acceptable and that more time is needed.  In May 2016 the independent supervisor of the EU institutions and advisor to the EU legislator, the European Data Protection Supervisor, issued a press release indicating that the Privacy Shield is not robust enough to withstand future legal scrutiny, that significant improvements are needed to respect the essence of key data protection principles, and that a longer term solution should be sought.  The discussions are still ongoing and it will be some time before the scheme is finalised and approved. Accordingly, albeit far from an ideal solution, it appears as though at present the Standard Contractual Clauses present the most workable solution for transatlantic data transfers but it remains to be seen what their long-term fate will be.  


[1] Maximillian Schrems v Data Protection Commissioner, Judgment in Case C-362/14, 6 October 2015.