U.S. Cloud Firms Suffer From NSA PRISM Program

WASHINGTON — For U.S. cloud providers, already working to beat back a wave of overseas policies they say tilt the playing field in favor of home-grown competitors, the revelations of the National Security Agency’s PRISM electronic surveillance program have only made conditions in foreign markets tougher.

The media accounts of the program based on leaks by former contractor Edward Snowden have created a perception that the U.S. government has unlimited and direct access to data stored on the servers of companies like Google and Microsoft, experts said on Wednesday at a policy talk here at the Information Technology and Innovation Foundation, a D.C. think tank.

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“The PRISM disclosures are damaging, and I think I’m prepared to speculate extremely damaging to commercial firms that have offered cloud and related kinds of services, and that do or would benefit from efficient cross-border data flows,” says Philip Verveer, the former U.S. coordinator for international communications and information policy at the State Department.

Already, domestic cloud providers have been hampered in their overseas expansion, particularly in Europe, by a deficit of trust among businesses and consumers who worry about how their data will be handled when it resides in the cloud. The long-held suspicion that the U.S. government will be able to freely access foreign users’ data under the PATRIOT Act has been fueled by foreign cloud companies and some state officials, who have pressed for cloud protectionist policies that would limit the flow of data outside the country, effectively requiring foreign providers to operate data centers locally.

Now, U.S. trade advocates see the PRISM disclosures giving fresh momentum to those protectionist policies.

“What you see is a lot of foreign officials and foreign companies sort of making hay while the sun still shines,” says Jake Colvin, vice president of global trade issues at the National Foreign Trade Council. “Foreign companies are happily using PRISM as the latest series of clubs to beat U.S. companies over the head.”

The effects of the PRISM disclosures have already begun to come into view. In a recent survey by the Cloud Security Alliance, a non-profit group with more than 48,000 individual members, 10 percent of officials at foreign companies said that they have cut ties with U.S. providers following the leaks, and 56 percent of foreign respondents say they are now hesitant to do business with U.S. firms.

U.S. cloud providers have acknowledged the reputational hit that they have suffered from the leaks, and firms like Google have attempted to clarify their role in the program, insisting that there is no back-door for the government to access their data, and that they only provide the government with users’ information in response to a court order. Google, Microsoft and Facebook have also asked the government for permission to make public more information about the national security requests they receive from federal authorities.

But with the PRISM bombshell, they are suffering from a problem of perception, or “atmospherics,” as Verveer puts it, though he argues that the revelations “haven’t really added anything of substance” about companies’ compliance with the government.

At State, Verveer often encountered reluctance from his foreign counterparts who regarded the PATRIOT Act with suspicion, which meshes with the more general perception in Europe that the United States isn’t as tough on privacy protections as European Union member states. At the same time, he argued against protectionist policies that would hem in the flow of data in accordance with national borders.

“Our hope over the last several years has been to find a way to accommodate the admittedly very important and legitimate concerns about personal privacy and trying to find a way to enable the efficient use of the technologies and business models that increasingly involve the cross-border data flows,” Verveer says, though he adds that it has proven “surprisingly difficult” to assuage the concerns of European officials and convince them that data passing over national borders remains subject to strict legal protections.

The timing of the PRISM revelations is also problematic for U.S. teams negotiating a pair of global trade agreements if they seek to press conditions to curb presence requirements for cloud providers to bolster digital commerce. U.S. negotiators are well into the process of meeting with their counterparts in Asia for talks on the Transpacific Partnership, and this month began the first round of talks on the Transatlantic Trade and Investment Partnership.

Verveer notes that the leaks have also raised fresh concerns with some foreign officials that the United States exerts too much control over the Internet, inviting new calls for a more multinational governance structure organized under the United Nations. That issue came to a head last year as U.S. Internet companies, administration officials and lawmakers on both sides of the aisle warned ahead of a U.N. meeting that such a framework could amount to harmful new Internet regulations and give authoritarian regimes greater ability to stifle speech online.

The PRISM disclosures could give new momentum for a proposal along those lines, which Verveer and others roundly condemned.

“This conversation at the moment would seem to give some additional impetus toward the notion that some sort of inter-governmental control is appropriate,” Verveer says.

Kenneth Corbin is a Washington, D.C.-based writer who covers government and regulatory issues for CIO.com. Follow Kenneth on Twitter @kecorb. Follow everything from CIO.com on Twitter @CIOonline, Facebook, Google + and LinkedIn.