The Impact Of The USA PATRIOT Act In Canada

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Canadian businesses must consider whether USA PATRIOT Act issues will affect them. This article outlines the relevant provisions of the legislation and analyzes its possible effects north of the border.

The USA PATRIOT Act—short for the "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001"—is intended to facilitate the fight against terrorism. As originally passed, sixteen key provisions of the Act were set to expire at the end of 2005, but in late July the U.S. House of Representatives and the U.S. Senate voted to renew them. Since the House and Senate bills are not identical, the form of the final legislation—which will likely include some minor amendments to the Act—still has to be worked out by a congressional Conference Committee.

The Act has expanded U.S. government surveillance powers, raising privacy concerns well beyond America’s borders. In Canada, these concerns centre on the possibility that personal data entrusted to U.S.-based service providers (and other entities), or even their Canadian affiliates, may be subject to production orders on the basis of U.S. anti-terrorism legislation.

Since the legislation now appears set to remain in place for the foreseeable future, it is important that Canadian businesses consider whether USA PATRIOT Act issues might affect them. This update briefly outlines the relevant provisions of the legislation and analyzes its possible effects north of the border. In particular, we consider the case of a British Columbia public service union that went to court in 2004 and 2005 in an effort to prevent the B.C. government from outsourcing certain Medicare-related administrative functions to an affiliate of a U.S. firm. The union argued, in part, that the outsourcing would expose certain personal health care information to disclosure under the USA PATRIOT Act.

The Foreign Intelligence Surveillance Act

The USA PATRIOT Act generally extends existing powers rather than creating entirely new ones. The Foreign Intelligence Surveillance Act, or FISA, dates from 1978 and originally gave U.S. officials the authority to gather intelligence, by electronic means only, on foreign agents in the U.S. and abroad. In 1994, FISA was extended to allow secret physical searches of homes and offices. Central to the FISA process is the Foreign Intelligence Surveillance Court (the "FISA Court") comprised of U.S. federal judges who exclusively hear Justice Department requests for warrants relating to foreign intelligence investigations. The FISA Court conducts its hearings in camera and almost never publishes its rulings. There is provision for appeal to a Foreign Intelligence Surveillance Court of Review, which sat for the first time as recently as 2002.

Those served with a FISA court order are prohibited from disclosing that they have been the subject of the order or of an ensuing search. Disclosure of the existence of a National Security Letter—discussed below in relation to section 505 of FISA—is also prohibited.

The USA PATRIOT Act

In its original form, FISA was an information and evidence gathering tool to be used against agents of foreign governments, rather than a prosecutorial tool to be used in criminal investigations against U.S. citizens. The USA PATRIOT Act introduced four important changes that make it easier for the Justice Department to obtain FISA warrants:

• Search and surveillance authority more widely available (s.218)
  This is one of the most significant changes. Before the USA PATRIOT Act, physical searches and electronic surveillance could only be conducted under FISA if their purpose was solely foreign intelligence gathering. The USA PATRIOT Act amended FISA to allow the FISA Court to authorize physical searches and electronic surveillance where foreign intelligence gathering is a significant purpose, not necessarily the only purpose. This may make it easier to obtain FISA Court warrants generally.
• Threshold lowered (s.215)
  This change makes it easier to obtain warrants with respect to those under suspicion of involvement in terrorism not associated with a specific foreign government. Prior to the USA PATRIOT Act, a FISA order required specific evidence that the individual who was the subject matter of records being sought was either a foreign power or an agent of a foreign power. By amending section 215, the USA PATRIOT Act reduced this threshold to a demonstration that the records are sought for an authorized investigation to obtain foreign intelligence information not concerning a U.S. person or to protect against international terrorism or clandestine intelligence activities.
• Subject-matter scope broadened (s.215)
  The USA PATRIOT Act significantly expands the subject matter over which orders may be granted under section 215 of FISA. Previously, FISA Orders were limited in scope to certain business records held by public carriers and accommodation, physical storage or vehicle rental facilities; this has been expanded to include "any tangible things" without restriction regarding the types of organizations holding such tangible things.
• The July 2005 legislation discussed above would impose new sunset clauses on section 215: 10 years in the case of House Bill H.R.3199 and 4 years in the case of Senate Bill S.1389. While these and other differences between the bills have yet to be reconciled by the congressional Conference Committee (in keeping with U.S. legislative procedure), it appears highly likely at the time of writing that section 215 will remain in place for at least four more years.
• National Security Letter regime expanded (s.505)
  The USA PATRIOT Act expands the circumstances under which the FBI can issue National Security Letters to compel the disclosure of customer information and also expands the range of potentially affected industries. Previously, the FBI was entitled to issue a National Security Letter to compel financial institutions, phone companies or Internet service providers to disclose information about their customers upon the demonstration of specific facts in support of the letter. The USA PATRIOT Act has lowered this evidentiary threshold to establishing relevance to an authorized intelligence investigation. In addition, the list of entities subject to the security letters has been expanded to include travel agencies, real estate agents, the U.S. Postal Service, jewellery stores, casinos and car dealerships.

The British Columbia Proceedings

While the USA PATRIOT Act has received publicity worldwide, its potential extra-territorial effects became a major issue in Canada when the British Columbia Government and Service Employees’ Union ("BCGEU") raised the spectre of FISA production orders in connection with a B.C. government proposal to outsource certain administrative and billings-related aspects of the province’s Medicare and Pharmacare plans. The government had selected a Canadian subsidiary of U.S.-based Maximus, Inc. as its service provider.

The BCGEU filed a complaint with the B.C. Privacy Commissioner, arguing that, if the outsourcing went forward, the USA PATRIOT Act could potentially be applied to compel disclosure to the U.S. government of confidential information concerning British Columbians. After a public input process, the Privacy Commissioner produced a report concluding that a FISA Court order might indeed require a U.S. corporation to produce records held in Canada by a Canadian subsidiary, notably where a person within the U.S. has the legal or practical ability to obtain the records. A determination of "legal ability" in this context would likely depend on the U.S. definition of "control" which (as the Privacy Commissioner noted) has been found on the basis of corporate relationship alone, including a U.S. corporation’s ability, directly or indirectly, to elect a majority of the directors of a foreign corporation.

The Privacy Commissioner proceeded to make sixteen recommendations, including amendments to legislation, introducing a government litigation policy to prevent disclosure of personal information, obtaining assurances from the U.S. government that the USA PATRIOT Act will not be used to obtain personal information in Canada and requiring close monitoring of contract performance.

The B.C. legislature then amended the Freedom of Information and Protection of Privacy Act (FOIPPA) and, over the BCGEU’s objections, concluded the outsourcing agreement with Canadian subsidiaries of Maximus in late 2004. In that agreement, the subsidiaries were structured as a chain of wholly-owned Canadian business corporations descending as follows from the U.S. parent:

• Maximus, Inc. (U.S. parent)
• Maximus Canada Inc. (Canadian corporation)
• Maximus BC Health Inc. (B.C. corporation)
• Maximus BC Health Benefit Operations Inc. (B.C. corporation)

The structure was described as follows by the Court:

In order to isolate [Maximus BC Health Inc. and Maximus BC Health Benefit Operations Inc.] from Maximus Canada and Maximus Inc. (U.S.A.) the Master Services Agreement provides that the shares of Maximus BC Health Inc. will be held in trust by a trust company operating in the Province of British Columbia. The beneficial interest in those shares is to be held by Maximus Canada. The trust provision in the contract is one of the default remedies that the Province has in relation to a breach or prospective breach by Maximus. In the event such an event occurs or will occur or is likely to occur, the trust company, who holds legal title to the shares, will deliver the shares to the Province of British Columbia who will be able to take ownership and act accordingly. In the event the default or anticipated default is resolved, the process is to be reversed.

The agreement further stated that at all material times Maximus BC Health and Maximus BC Health Benefit Operations "are under the policy guidelines and oversight of the Province of British Columbia."

On March 23, 2005, the Supreme Court of B.C. rejected the BCGEU’s petition for various declarations and an order quashing the agreement. Mr. Justice Melvin found that section 30 of FOIPPA required only that a public body make "reasonable" security arrangements and that this requirement, together with the requirement in section 30.1 that a public body’s information be stored in and accessible only from Canada, had been met. It is not surprising that the Court found that the Maximus contract complied with FOIPPA, given that FOIPPA had been amended with the contract in mind.

The judgment also considered the application of the Charter of Rights and Freedoms to the situation. Melvin J. held that the right to privacy found in section 7 of the Charter is not absolute. Where parties have taken "all reasonable steps" to ensure confidentiality, any minor risk of disclosure that might remain is not a breach of anyone’s Charter rights. In this case FOIPPA and the contract itself contained provisions adequate to reduce the risk to an acceptable level. These included FOIPPA’s whistle-blowing protections (s. 30.3) and its provisions ensuring that records are kept in private and within Canada (e.g. s. 30.1) as well as the following contractual provisions:

• A trust provision providing that if a risk of disclosure occurs the Province obtains the shares and operates the system until the risk disappears.
• Restrictions on use and control of electronic equipment by employees.
• A $35M penalty for breach of confidentiality.
• A provision stating that all of the information remains the property of the Province.
• A contractual non-disclosure of data provision.
• A provision that Maximus agrees that it is subject solely to the laws of B.C. and Canada.

It is likely that, absent any clear agreement between the Canadian and US governments, there will continue to be a relatively small but nonetheless significant risk that personal information maintained by Canadian affiliates of U.S. corporations could be subject to disclosure under FISA. The existence of such a risk might discourage some Canadian organizations, especially governmental authorities, from outsourcing functions that include access to personal information to U.S.-based or U.S.-affiliated service providers. The Maximus decision suggests some measures that might potentially reduce this risk.

The risk of losing contracts because of the outsourcer’s concerns about disclosure under FISA must be weighed, of course, against the economic and informational benefits of maintaining seamless digital networks and the possibly prohibitive costs of segregating Canadian data from access and control by U.S. entities. The Maximus ruling is helpful, but the result appears to have depended on Maximus’ commitment to segregate its Canadian data in Canadian locations controlled by Canadian subsidiaries.

In considering the application of the USA PATRIOT Act to personal information under their control, Canadian organizations should bear the following in mind:

• Historical evidence suggests that the risks associated with, and injury resulting from, USA PATRIOT Act disclosures may not be significant:
  While the USA PATRIOT Act has received a great deal of publicity, the U.S. government already had the ability, under FISA, to obtain personal information about non-residents (albeit not as much and not as easily as is now the case). The thousands of warrant requests approved between 1978 and 2001 might have included some that referred to Canadians, but their use does not appear to have created any significant difficulties for businesses based in Canada. 1
• Even if an organization can succeed in removing its data from the reach of the USA PATRIOT Act, it will not necessarily be secure against exposure to security-related investigations.
  Canada has comparable legislation to the USA PATRIOT Act. Introduced in response to the 2001 terrorist attacks, Canada’s Anti-terrorism Act expanded the intelligence gathering and surveillance powers of CSIS, the Canadian intelligence and security agency. While a warrant is required by CSIS for surveillance activities or the seizure of information, the warrant application is heard in private by specially designated judges, much as is the case under FISA. Various privacy oversight officials have voiced concern about or opposition to a number of the changes effected by the Anti-terrorism Act .
  In addition, subsection 7(3)(c.1) of PIPEDA, Canada’s federal privacy legislation, makes an exception for disclosure to "government institutions" where (i) such an institution has "indicated that it suspects that the information relates to national security, the defence of Canada or the conduct or international affairs" or (ii) where "the disclosure is requested for the purpose of enforcing any law of Canada, a province or a foreign jurisdiction, carrying out an investigation…or gathering intelligence for the purpose of…any such law."
• USA PATRIOT Act concerns will arise for many Canadian organizations whether or not they provide any information to an external service provider.
  To create greater efficiencies, many organizations share common networks with affiliated American organizations. Personal information residing on such shared networks will potentially be accessible to U.S. authorities under FISA, even if such personal information does not belong to the American organizations which have access to the networks. For licensing and information sharing purposes, creating an isolated network for Canadian personal information may be extremely costly. Also, while the B.C. decision suggests that isolating Canadian data may be of value in avoiding the application of the USA PATRIOT Act, it is still too early to say with confidence that this view will prevail in the courts of the other Canadian provinces and territories.
• If organizations possess only non-sensitive personal information, the financial and logistic consequences of implementing measures to mitigate or reduce the possible application of the USA PATRIOT Act may not be warranted.
  When considering the possible application of the USA PATRIOT Act, each organization should consider the sensitivity of the personal information in its possession and whether such personal information would likely be (i) relevant in connection with intelligence gathering activities related to national security; and (ii) of concern to the subject individuals if it was disclosed in connection with intelligence gathering activities related to national security.

1 It is estimated that between 1979 and 2001 more than 14,000 warrant requests were made to the FISA Court, of which all but five were approved. Stephen J. Schulhofer, "No Checks, No Balances: Discarding Bedrock Constitutional Principles" in Richard C. Leone and Greg Anrig Jr., eds., The War on Our Freedoms: Civil Liberties in an Age of Terrorism (New York: Public Affairs Press, 2003) 74 at 81.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.