Legal Implications of New Executive Order on Sensitive Data Transfer

Executive Order 13873 targets the transfer of sensitive US personal data and signals a significant shift in regulation, particularly impacting law firms involved in transactions and compliance matters, according to a Bloomberg Law article. 

This order addresses a prior gap in oversight, wherein foreign investors could face restrictions through the CFIUS process but direct purchases of sensitive information lacked regulation. The impending rule aims to broadly restrict the sharing of bulk sensitive personal data of US persons, requiring affected law firms to adapt their practices accordingly.

The order prompts law firms to engage in the rulemaking process, allowing them to submit comments, assess risk profiles, and adjust compliance programs to align with the proposed regulations. Heightened national security concerns surrounding the sale of sensitive personal information to foreign entities, as evidenced by data breaches compromising military bases’ security, underscore the urgency of regulatory action.

Under the executive order, the Department of Justice is tasked with developing the proposed rule, which would prohibit certain transactions and impose security-related restrictions on covered entities. Law firms will need to navigate the complex landscape of transactions involving sensitive data, ensuring compliance with the extensive definitions and requirements outlined in the rule.

The rule’s implications extend to agreements involving covered entities, potentially affecting law firms’ client relationships and business operations. US subsidiaries of foreign companies, particularly those from China, may find themselves subject to the rule’s provisions, necessitating legal counsel to navigate the regulatory landscape and mitigate risks.

Law firms are advised to actively participate in the rulemaking process, providing input and insights to shape the final regulations. Additionally, they must assist clients in developing risk-based compliance programs tailored to their individualized risk profiles, ensuring adherence to the evolving regulatory framework.

The executive order reflects a broader trend of leveraging national security concerns to enact regulatory measures, signaling the ongoing expansion of executive-led national security regulation. As such, law firms must anticipate the significant impact of the final rule on their clients and operations, proactively adapting their strategies and practices to meet regulatory requirements and mitigate potential risks.