Concepts that are often confused. Caution: danger!

Legal jurisdiction and physical location of information. More than just a subtle difference! In a recent blog post, Xavier Warnier, Alliance Director Datacenter United , Datacenter United &  Co-Founder of Cubixion sums up the situation. Here is the gist of it.

Two concepts govern digital governance: data residency and data sovereignty. Often confused, they represent two fundamentally different levels of control: one geographical, the other legal.

“This distinction is crucial, particularly for organizations operating within the European Union (EU), where strict privacy regulations clash directly with the extraterritorial reach of foreign legislation, such as the US CLOUD Act.”

Data residency… and data flow

Data residency refers to the geographical location of data. It defines the physical location of data centers, servers, or other systems that store or process data. “Given that a company’s data can circulate frequently throughout its lifecycle, data from the same organization can end up with multiple residencies,” continues Xavier Warnier. “It is therefore important to pay close attention to this issue!”

While residency requirements may sometimes stem from an organization’s internal policies or contractual commitments, they are often dictated by data localization obligations.

“Data localization refers to legal obligations requiring organizations to keep data created in a given country within that country’s borders. These obligations can range from simply keeping a copy of the data in the country to outright prohibiting data transfers outside the country.”

Residence is not the only criterion determining jurisdiction

The main distinction is that residency is geographical, while sovereignty is legal. Often, residency determines sovereignty: if data is hosted in a data center in Ireland, Ireland exercises sovereignty over that data and the company must comply with Irish data protection laws.

However, residence is not the only criterion determining jurisdiction. Data sovereignty laws may apply to data regardless of where it is physically stored. “The GDPR is a perfect example,” explains Xavier Warnier. “It can apply to data held or processed outside the EU if that data concerns EU residents. As a result, data can fall under multiple jurisdictions at the same time, such as national laws and the European GDPR!”

The imperative of European sovereignty

For European companies, access to true digital sovereignty has become a vital necessity. “Real sovereignty ensures that data, including all metadata, remains strictly subject to European jurisdiction,” continues Xavier Warnier. “This is essential to avoid exposure to foreign laws such as the US CLOUD Act, and provides the legal certainty that more than 80% of companies are actively seeking.”

Compliance is paramount. The GDPR imposes strict controls on the processing of personal data and restricts data transfers to jurisdictions where the level of protection is deemed insufficient. “In concrete terms, the GDPR requires that all data collected on citizens be either stored in the EU and subject to European data protection legislation, or stored in a country offering an equivalent level of protection. “

Furthermore, the European regulatory framework is evolving rapidly. The European Data Act, which came into force last September, requires data portability and interoperability, while the NIS-2 Directive requires operators of critical infrastructure to maintain continuous security processes and a secure supply chain. “By choosing European cloud solutions that are sovereign ‘by design’, companies can ensure regulatory compliance and turn these complex legal requirements into a competitive advantage.”

The transatlantic threat: the US CLOUD Act

The CLOUD Act means extraterritorial reach! This law authorizes US federal authorities to compel US-based technology companies, by warrant or subpoena, to provide requested data stored on servers, whether that data is stored in the US or abroad.

The scope of the CLOUD Act is vast, insists Xavier Warnier. “This law is not strictly limited to companies headquartered in the United States, but applies to all providers of electronic communications or remote IT services that operate or have a legal presence in the United States. In addition, courts have the power to compel parent companies to provide data held by their subsidiaries.”

In response to this legislation, the European Data Protection Supervisor (EDPS) has ruled that the CLOUD Act is potentially incompatible with the GDPR…

Potential risks associated with using US cloud service providers

Storing critical data, including backups, with a US company—or any service provider with a legal presence in the United States—therefore exposes companies in the European Union to significant risks in preserving their digital sovereignty.

  • The first risk is forced access without consent.

The most immediate threat is that data, including backups, could be seized or accessed by the US government without the knowledge or consent of the European data owner… even if that data is physically hosted abroad.

  • The second risk is GDPR compliance.

As the CLOUD Act grants direct access to US authorities, the use of US providers exposes European organizations to foreign legislation, which may put them in a position of non-compliance with the GDPR.

  • The third risk is political instability.

Data stored abroad may be vulnerable to external control. The German Data Protection Commissioner, for example, has warned against using US-based cloud services to store sensitive federal police data due to the inherent vulnerability to US surveillance policies. In addition, the complexity of managing compliance across multiple legal frameworks increases the risk of data mismanagement and security breaches.

  • Fourth risk: customer responsibility in SaaS models.

Many popular SaaS platforms operate on a shared responsibility model. Although the SaaS operator ensures application availability and redundancy, the ultimate responsibility lies with the customer to protect users and their data from breaches and data loss, including ensuring the data sovereignty of their backups.

“To mitigate these threats, organizations must choose cloud providers that are transparent about the location of data storage, offering geo-tagging by country to ensure that data resides in specific regions of the EU, in accordance with European regulations,” concludes Xavier Warnier. “This practice provides the fundamental legal protection necessary to operate safely and in compliance with the modern and complex international legal framework.”