On September 15, 2020, the Securities and Exchange Commission issued a cease‑and‑desist order against Unikrn, Inc. concerning its 2017 initial coin offering  of UnikoinGold .  The SEC found that the Unikrn ICO violated the prohibition in Section 5 of the Securities Act of 1933 against the unregistered public offer or sale of securities.  The SEC imposed several remedies, including requiring Unikrn to permanently disable the UnikoinGold token and a civil money penalty of $6.1 million. Continue Reading SEC Issues Enforcement Action Against Unikrn, Inc. for its ICO, Prompting Rare Public Dissent from Commissioner Hester Peirce

Last month, reports surfaced that fitness technology company Garmin may have made a multimillion dollar payment in response to a ransomware attack with reported links to Evil Corp, a Russian hacking group subject to U.S. sanctions.  This incident and other recent reports of ransomware attacks against large companies highlights that companies should consider potential civil and criminal liability under U.S. sanctions laws when responding to ransomware attacks. Continue Reading Ransomware and Sanctions Compliance: Considerations for Responses to Attacks

Background

On August 20, 2020, the Department of Justice (“DOJ”) announced that it had charged Joseph Sullivan, the former Chief Security Officer (“CSO”) of Uber Technologies Inc. (“Uber”), with obstruction of justice and misprision of a felony for allegedly attempting to cover up Uber’s 2016 data incident during the course of an investigation by the Federal Trade Commission (“FTC”).  While the DOJ and federal law enforcement have generally treated corporate hacking targets as victims in connection with data breaches, the charges against Sullivan reinforce that they will actively pursue any violations of federal law that are committed by entities or individuals during the course of responding to such incidents. Continue Reading DOJ Charges Former Uber Executive for Alleged Role in Attempted Cover-Up of 2016 Data Breach

In a landmark enforcement action related to a bank data breach, the Office of the Comptroller of the Currency (“OCC”) assessed an $80 million civil monetary penalty and entered into a cease and desist order with the bank subsidiaries of Capital One on August 6, 2020.  The actions follow a 2019 cyber-attack against Capital One.  The Federal Reserve Board also entered into a cease and desist order with the banks’ parent holding company.  The OCC actions represent the first imposition of a significant penalty against a bank in connection with a data breach or an alleged failure to comply with the OCC’s guidelines relating to information security. Continue Reading OCC Imposes $80 Million Penalty in Connection with Bank Data Breach

In a highly-anticipated landmark judgment handed down on July 16, 2020, the Court of Justice of the European Union (the “CJEU”) in Data Protection Commissioner v. Facebook Ireland and Maximillian Schrems (“Schrems II”, summarised in part 3. below and the full text of which can be accessed here) has:

  • invalidated the European Commission Decision 2016/1250 on the adequacy of the protection provided by the EU-U.S. Data Protection Shield (the “EU-US Privacy Shield”) for transfer of personal data from the EU to entities certified under the mechanism located in the United States;
  • upheld the European Commission Decision 2010/87 on standard contractual clauses for the transfer of personal data to processors established outside the EU (the “SCCs”); and
  • reminded that a transfer of data based on SCCs may be challenged before the competent supervisory authority, which has to “suspend or prohibit”, on a case-by-case basis, any such transfer when, in its view, the SCCs “are not or cannot be complied with.”

Continue Reading <i>Schrems II</i>: The CJEU Declares EU-U.S. Privacy Shield Invalid, Upholds the SCCs And Calls On 27 Supervisory Authorities to Ensure Their Compliance

On June 25, 2020, a federal district court in the Eastern District of Virginia held that a bank must produce in discovery a report generated by its cybersecurity forensic investigator following a 2019 data breach involving unauthorized access to personal information of customers and individuals who had applied for accounts.[1]  Even though the report was produced at the direction of outside counsel, the court rejected arguments that the forensic report is protected from disclosure by the work product doctrine.  Instead, the court determined that the report was not produced primarily in anticipation of litigation based on several factors, including the similarity of the report to past business-related work product by the investigator and the bank’s subsequent use and dissemination of the report.  This decision raises questions about the scope of work product protection for forensic expert and other similar reports in the context of an internal investigation. Continue Reading Federal Court Compels Production of Data Breach Forensic Investigation Report

Last month, the Financial Services Information Sharing and Analysis Center[1] (“FS-ISAC”) warned financial services companies, and particularly smaller firms, of a substantial increase in attempted cyberattacks since the start of the COVID-19 pandemic.  In particular, cyber-attacks targeted at bank employees rose in the first quarter of 2020.  As of early April, FS-ISAC had also identified over 1,500 fraudulent or phishing websites designed to look like pandemic-related lending or financial support programs to deceive visitors into disclosing sensitive personal information. Continue Reading FS-ISAC Warns that Cyberattacks Against Financial Services Firms Increased Substantially in Response to COVID-19 Mitigation Efforts

On May 5, 2020, the Seventh Circuit Court of Appeals held that a plaintiff has standing to assert a claim under the Illinois Biometric Information Privacy Act (BIPA) even without alleging any economic loss or data breach.  The court’s decision in Bryant v. Compass Group USA, Inc.,[1] held that merely alleging a failure to receive adequate disclosure or provide informed consent is sufficient to state a claim, potentially establishing in the Seventh Circuit a low bar for making claims under BIPA and other state statutes modeled off of it. Continue Reading The Seventh Circuit Holds That Lack of Disclosure and Informed Consent Under Biometric Information Privacy Act Satisfies Article III Standing Requirement

On May 4, 2020 the European Data Protection Board (“EDPB”) updated the guidelines on consent under the EU General Data Protection Regulation 2016/679 (the “GDPR”). The guidelines were originally published by the Article 29 Working Party on April 10, 2018 and later endorsed by the EDPB.[1] The full text of the updated EDPB guidelines can be read here. Continue Reading Cookie Walls and Scrolling Don’t Make the Grade – EDPB Clarifies Guidance on Consent Under GDPR

On April 28, 2020, the Belgian data protection authority (the Gegevensbeschermingsautoriteit / Autorité de protection des données, the “Belgian DPA”), handed down a decision imposing a €50,000 fine on Proximus, Belgium’s largest telecommunications operator, on the ground that Proximus had failed to protect its data protection officer (“DPO”) from conflicts of interests in violation of article 38(6) of the GDPR.[1]

In the case at hand, the Belgian DPA ruled that the conflict arose from the fact that Proximus’ DPO also fulfilled the function of director of audit, risk and compliance.  The Belgian DPA discovered this when investigating the company’s organisational measures relating to the security of its data processing operations after Proximus duly self-reported a personal data breach[2] in accordance with the GDPR.  Interestingly, the breach itself did not give rise to a sanction.

The Belgian DPA’s decision expressly states that it is intended to be dissuasive.[3]  As such, it sends a message to all companies subject to the GDPR that their DPO’s strategic role should not be undermined, but rather should be at the core of their organisational structure.  While non-binding guidance already existed concerning the risks of conflicts of interest arising from part-time DPO arrangements,[4] this sanction is, to our knowledge, among the first of its kind since the GDPR became applicable.[5] It will no doubt be invoked as a precedent by DPOs across the EU when seeking additional autonomy and responsibility, and by data protection authorities in other member states following the lead of the Belgian DPA.

Summarised below are the practical takeaways from this decision to assist organisations and DPOs in complying with their obligations under the GDPR:

  • Avoid “self-monitoring” situations that lead to conflicts of interests. The ruling does not preclude DPOs from having a diverse range of backgrounds, splitting time between the DPO role and other functions, and belonging to various departments within an organisation, e.g., the compliance, audit, risk, legal, HR, or IT departments.  However, according to the Belgian DPA, a DPO may not have significant operational responsibility for data processing activities carried out by those departments while also advising on, and supervising, such data processing as DPO.  Putting the DPO in such a “self-monitoring” position would give rise to potential conflicts of interests that are prohibited by the GDPR.[6]  In addition, such situations also have the potential to compromise the confidentiality obligations of the DPO in further violation of the GDPR.[7]  Ultimately, the “conflict of interest” test will need to be applied on a case-by-case basis, by asking the question: “Is the DPO in charge of carrying out certain data processing activities that he/she should also be monitoring for GDPR compliance?”
  • Where a DPO has multiple functions, “firewall” the DPO from determining the purposes and means of data processing. Organisations that choose to give a part-time DPO other significant operational responsibilities within a department will require a degree of creativity and self-discipline to guarantee his/her independence. A DPO would need to be suitably “firewalled” from determining the purposes and means of  the data processing carried out by that department.[8]  It is therefore advisable to adopt internal rules and policies to prevent conflicts of interests of the DPO and record evidence that the DPO’s independence is actually respected in practice in the event of an investigation by the data protection authority.
  • While the DPO should remain an advisor and supervisor, he/she must play an active and early role in data processing operations. Separation between the DPO’s role and operational responsibility does not imply that the DPO should remain passive when advising on the data processing operations carried out by the company.  The DPO must be properly involved and consulted in data protection matters and procedures at an early stage.[9]  While the Belgian DPA ruled that Proximus had not violated that rule, it emphasized the role of the DPO in implementing the “privacy by design” principle set out in article 25 of the GDPR.[10]  For example, the DPO should be immediately involved in the risk assessment and management of personal data breaches. When a data protection impact assessment (“DPIA”) is carried out, the DPO should be consulted and involved and not merely informed of the results.  It would therefore be advisable to make that clear in the company’s relevant written policies and procedures.
  • Beware the unintended fallouts from personal data breach notifications. Personal data breaches are typical triggers for data protection authority investigations as they must be self-reported to data protection authorities if they are likely to result in a risk to the data subjects, which and may lead to investigations revealing possible flaws in an organisation’s technical or organisational measures.  Such investigations may lead to fines for violations of GDPR that are not directly linked to the breach.  Companies should be prepared by maintaining high standards of internal compliance, including by giving the DPO its proper role within the organisation but also by ensuring accountability, good record keeping, and clear policies and procedures.
  • Regulators may apply higher standards to large organisations. The foregoing principles apply regardless of whether the company was under an obligation to appoint a DPO in accordance with the GDPR or national law, or has voluntarily appointed one.  However, the size and nature of operations of the company will, in practice, be taken into account when assessing whether the DPO has the required skills, knowledge, expertise, and independence to exercise his or her function.  In its decision, the Belgian DPA highlighted the role of Proximus as Belgium’s largest telecommunications operator, processing the personal data of millions of users on a daily basis.  A large group with a data-heavy business will therefore likely be subject to higher scrutiny than a small or medium-size undertaking.
  • Data protection authorities may adopt a stronger stance following the Proximus decision. The €50,000 fine issued by the Belgian DPA may appear relatively modest in comparison to the Proximus group’s reported consolidated worldwide turnover of €5.6 billion.[11]  Nevertheless, it is, to date, the largest fine issued by the Belgian DPA, which expressly stressed that its purpose was to be dissuasive.  The Belgian DPA fully investigated and sanctioned the positioning of the DPO within the organisation, calling Proximus “grossly negligent” in that regard.  This alone is noteworthy and the prospect of having its organisational structure challenged and publicly criticized by a data protection authority should be deterrence enough for many other similarly-situated companies.

[1] Article 38(6) of the GDPR provides that “[t]he data protection officer may fulfil other tasks and duties. The controller or processor shall ensure that any such tasks and duties do not result in a conflict of interests.” Proximus announced that it will not appeal and that it will comply with the decision by reforming its DPO position.

[2] A “personal data breach” is defined in article 4(12) of the GDPR as “a breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorised. disclosure of, or access to, personal data transmitted, stored or otherwise processed.”  Unless it is “unlikely to result in a risk to the rights and freedoms of natural persons,” it must be reported to the competent data protection authority within 72 hours after the company has been informed of the breach in accordance with article 33(1) of the GDPR.

[3] This emphasis is noteworthy as all individual fines imposed by data protection authorities in the European Union must, in any event, “be effective, proportionate and dissuasive” in accordance with article 83(1) of the GDPR.

[4] In particular, the Article 29 Working Party Guidelines on Data Protection Officers of December 13, 2016, last revised on April 5, 2017 (https://ec.europa.eu/newsroom/article29/item-detail.cfm?item_id=612048, the “WP Guidelines”), the essence of which was adopted by the UK’s Information Commissioner (https://ico.org.uk/for-organisations/guide-to-data-protection/guide-to-the-general-data-protection-regulation-gdpr/accountability-and-governance/data-protection-officers/), the French Commission Nationale de l’Informatique et des Libertés (https://www.cnil.fr/fr/devenir-delegue-la-protection-des-donnees#DPO4) and many other data protection authorities.

[5] In Germany, the Bavarian DPA levied a fine against a company in 2016 under the pre-GDPR rules for that reason.  In that case, the company had appointed the IT manager as DPO.  The Bavarian DPA found that such a prominent position with operative responsibility for data processing lead to the DPO effectively controlling himself contrary to the requirement of the DPO as an independent function (see https://www.lda.bayern.de/media/pm/pm2016_08.pdf — in German).

[6] The Belgian DPA referred to the WP Guidelines, which state that: “The absence of conflict of interests is closely linked to the requirement to act in an independent manner. Although DPOs are allowed to have other functions, they can only be entrusted with other tasks and duties provided that these do not give rise to conflicts of interests. This entails in particular that the DPO cannot hold a position within the organisation that leads him or her to determine the purposes and the means of the processing of personal data. Due to the specific organisational structure in each organisation, this has to be considered case by case.”

[7] Article 38(5) of the GDPR provides that “[t]he data protection officer shall be bound by secrecy or confidentiality concerning the performance of his or her tasks, in accordance with Union or Member State law.”

[8] This is consistent with the WP Guidelines, which state that: “As a rule of thumb, conflicting positions within the organisation may include senior management positions (such as chief executive, chief operating, chief financial, chief medical officer, head of marketing department, head of Human Resources or head of IT departments) but also other roles lower down in the organisational structure if such positions or roles lead to the determination of purposes and means of processing.”

[9] Article 38(1) of the GDPR provides that “[t]he controller and the processor shall ensure that the data protection officer is involved, properly and in a timely manner, in all issues which relate to the protection of personal data.”

[10] The Belgian DPA again referred to the WP Guidelines: “It is crucial that the DPO, or his/her team, is involved from the earliest stage possible in all issues relating to data protection. […] Ensuring that the DPO is informed and consulted at the outset will facilitate compliance with the GDPR, promote a privacy by design approach and should therefore be standard procedure within the organisation’s governance. In addition, it is important that the DPO be seen as a discussion partner within the organisation and that he or she be part of the relevant working groups dealing with data processing activities within the organisation.”

[11] The consolidated net revenue of the Proximus group consolidated annual accounts for the financial year ended December 31, 2019, is available at https://www.proximus.com/annualreport2019.html.  It appears, however, that the Belgian DPA used the net revenue of the Proximus NV/SA legal entity in Belgium as a starting point, which  amounted to €3.8 billion.