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What you should know about cross-border data transfer laws

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Data is the lifeblood to virtually every business decision and the very essence of every business transaction. But what happens when cross-border data transfer is forbidden or highly regulated in your industry, preventing you from collaborating with a third-party service provider? Most often, projects come to a standstill.

This is particularly disturbing when it disrupts the basic premise of a KM system—the ability to share knowledge widely. Whether you’re a U.S. company looking to outsource your critical KM project to a service provider, or a European company looking to outsource manufacturing work and the knowledge associated with it to China, it’s imperative to understand the various data transfer regulations of your industry and country. Multinational companies are generally aware of data transfer laws, but smaller ones just embarking on looking beyond country borders may not be.

In the U.S., key regulated industries, such as telecommunications, finance, healthcare, government, and insurance, have specific requirements regarding the sharing of customer data outside of the U.S. One of the most comprehensive federal laws is the Health Insurance Portability and Accountability Act (HIPAA) for healthcare data; another is the Gramm-Leach-Bliley Act (GLBA) for financial institutions. These laws require organizations to protect the privacy and security of sensitive data, and they often restrict the transfer of data outside the country.

Additionally, the U.S. government has export control laws, including the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR), which regulate the export of certain types of data and technology considered critical to national security. Companies in regulated industries need to ensure that they comply with these regulations when sharing data with outsourcing partners abroad. The U.S. Department of Defense (DoD) has specific requirements for contractors handling defense-related information.

The European Union established the General Data Protection Regulation (GDPR), and while GDPR is a European regulation, U.S. companies doing business in the EU or processing the personal data of EU citizens must comply with its requirements. GDPR imposes strict rules on the transfer of personal data outside of the EU, including requirements for adequate safeguards when data is transferred to countries without an adequate level of data protection.

The outsourcing considerations for sharing data across borders

In some cases, U.S. regulations may require data to be stored within the borders of the U.S., making it difficult to outsource certain data-related or IT projects to foreign partners.

When companies are able to share data, they often establish strict contractual agreements with outsourcing partners to ensure compliance with U.S. regulations. These agreements outline data protection requirements, the right to conduct audits, and penalties for noncompliance.

And, in many cases, regulated industries are required to conduct assessments to evaluate the potential risks associated with outsourcing data or services to other countries and to put processes in place to protect that information from unauthorized use. They also must properly disclose when data is being shared with a third-party service or solution provider. Another point to consider is that when data, including personal information, is being shared with an outsourcing partner outside the country, it is often subject to the laws of that country. The organization could be subpoenaed and required to share that data if asked to.

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