A GDPR Perspective - Cross Border Outsourcing For Businesses

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A growing number of multinationals have operations spanning across continents with affiliates from all corners of the globe. Outsourcing for businesses is becoming increasingly common as the flow of information and exchange of services becomes the new business norm. Some of the most commonly outsourced services are payroll and accounting, administrative, cloud services, and customer services to name a few. All this information and data flow does not come without challenges and constraints. The largest amongst them all being ‘Data Privacy’.

As data flows grow increasingly complex, multinational companies are having a tough time navigating through the privacy laws of various regions. Especially the ones which hold a global impact like the GDPR, in order to ensure compliance with cross-border transfers.

Let's get a better understanding of what the GDPR has to say for cross-border data transfer. Also, how businesses can be in a better position to fulfill their compliance objectives.

What is the GDPR?

The GDPR is the abbreviation for the General Data Protection Regulation 2016/679 of the European Union. It is a comprehensive regulation containing laws, rules, and guidance regarding privacy, personal data protection, and information security in the European Union (EU) and the European Economic Area (EEA). The GDPR is applicable to EU residents or data subjects as they are commonly referred to in the GDPR language. Any organizations dealing in the collection and processing of EU individual data whether they are based in the EU or not.

The primary purpose of the GDPR is to provide back control to data subjects their personal data. Introducing a strong sense of accountability in organizations dealing with the collection and processing of personal data. The GDPR also intends to harmonize privacy laws across the member states that are part of the EU. Addressing pressing issues like data transfers outside the EU and EEA.

Outsourcing for Businesses - High-Level Overview

Why is it Done?

Business process outsourcing is a business activity where a certain business process or service is outsourced to a third party. It is normally achieved by the performance of a contract between both parties involved. 

Businesses pursue outsourcing services as it allows them to solely focus on their core business objectives. Allowing them to accordingly allocate the necessary resources for its accomplishment. Partnering with technology innovators from across the world, enable these businesses to introduce the latest services and cutting-edge technologies. Outsourcing offers great cost-saving advantages to organizations in the form of labor costs and technological infrastructures. If a service-oriented company has a workforce from a different time zone, it allows it to maintain critical background and client-facing operations around the clock.

Significance of GDPR in Cross Border Data Transfers

A company may choose to delegate some function to another entity or third party that fits its growth objectives. Depending on the requirements, any organization has some basic ways to proceed. Those are mainly onshoring, nearshoring, and offshoring. As discussed earlier,  offshoring is the most likely way to be pursued. 

The relationship between the GDPR and the process of outsourcing becomes even more complex and sensitive. As the regulation holds a strong emphasis on the protection of ‘personal data’ by data controllers at all times. Regardless the data is at rest or being transmitted across borders. The GDPR defines ‘personal data’ as any information that can uniquely identify a natural person.

The directive imposes specific obligations on data controllers to ensure a degree of protection is maintained at all times. When a business decides to offshore or outsource some of its key business operations, the transfer of personal data to an external third party is likely to happen. The business transferring the data will be ultimately responsible under law, to ensure its security and lawful processing as per the directive guidelines.

Previously, businesses used to outsource business activities involving the personal data of individuals without taking their consent or considering the risk to their privacy and breach of private and sensitive information. Since the arrival of the GDPR, all that has changed, and businesses now need to ensure outsourcing contracts deal adequately with issues of system security, third-party risk assessments, controls, and clearly defined controller-processor obligations separately.

The Role of Controllers and Processors

As defined by the European Commission, a data controller is any entity that determines the purpose for which and the means by which the data is to be processed. Whereas a data processor is any such entity that processes personal data on the instructions given by a data controller.

The GDPR introduces specific obligations that fall on both data controllers and data processors in order to ensure both entities collectively understand the ‘Principle of Accountability’, and also promote an environment that maintains data privacy and information security.

The GDPR greatly affects the contractual relationship between data controllers and service providers who are acting as data processors. As laid out in Article 28 of the GDPR, processors are required to follow a series of guidelines that are enforced by a controller. The guidelines are of three types:

• Clauses that impose technical and organizational measures.
• Terms that warrant increased cooperation between controller and processor.
• Conditions that highlight the risk of non-compliance in the performance of the contract.

GDPR Compliance Checklist - Outsourcing Services

In order for a business to be better prepared to comply with the requirements of the GDPR, it is obligated to take a series of steps:

• Perform an audit of the data held by the company, evaluate all types of data currently in use and whether any of it is considered to be sensitive as defined by the respective country’s data protection authority, and identify which of those data items will be outsourced.
• Establish an understanding of how and why each data item was collected, and whether there was lawful reasoning behind it, in addition to finding any constraints that limit their international transfer.
• Identify all circumstances where data is to be transferred outside the EU and EEA and whether the respective country of choice holds an adequacy decision already.
• Make sure the organization responsible for processing activities has adequate mechanisms for data transfer, including the requisite organizational and technical security controls that comply with the GDPR.
• View contract terms and clauses, whether they mention the capacity in which a processor shall process data. This includes the explicit mention of specific obligations on a processor and a controller that conform to the requirement of the data protection directive.
• Depending on the degree of risk involved, perform some level of due diligence on the outsourcing partner organization. This includes evaluating present data protection and security measures being performed to be at par with the requirements of the directive and the organization outsourcing the job. Also exercising audits rights during the life of the outsourcing agreement, to ensure continuous lawful processing in ideal conditions.

Wrapping Up

There are countless benefits of outsourcing for small businesses. Ever since the introduction of the GDPR, businesses of all sizes have had to work with a degree of caution. The GDPR is a major regulation that impacts the lives of a large number of people. It also affects how organizations handle and process personal information. Organizations that actively pursue business outsourcing need to consider the applicability of the GDPR in their outsourcing models. The cost of non-compliance can be detrimental to the growth and reputation of a business.  Therefore, timely implementation of compliance directives should be addressed in outsourcing arrangements.