The U.S. Department of Justice’s (DOJ) final rule, effective as of April 11, 2025, introduces a groundbreaking framework to safeguard Americans’ sensitive data from foreign adversaries, particularly in countries like China, Hong Kong, Macau, and Russia. With a 90-day limited enforcement policy until July 8, 2025, for companies demonstrating good-faith compliance efforts, the rule blends elements of sanctions, foreign investment, cybersecurity, and data privacy regulations. However, its unique definitions and objectives create complexities for global businesses. This article explores the rule’s implications, emerging compliance patterns, and strategic considerations for multinationals.
A Novel Regulatory Landscape
The DOJ’s rule targets “covered data transactions” involving sensitive personal and government-related data, introducing concepts that diverge from traditional sanctions, privacy, or cybersecurity frameworks. For instance, the rule’s definition of “data brokerage” is unexpectedly broad, encompassing not only third-party data sales but also first-party data disclosures in commercial transactions, such as controller-to-controller data sharing. This impacts industries like adtech, where standard terms often govern complex data ecosystems.
Exemptions, such as those for financial services or corporate group transactions, are narrower than anticipated. The financial services exemption, for example, applies only to transactions “ordinarily incident to and part of” financial services, often requiring necessity to underlying transactions. Similarly, the informational materials exemption is limited to “expressive content,” unlike the broader scope under Office of Foreign Assets Control (OFAC) sanctions. These nuances challenge assumptions that existing compliance frameworks can be directly applied.
Industries and Operations Most Affected
Certain sectors face heightened scrutiny due to the sensitivity of their data:
- Healthcare, Life Sciences, and Medical Devices: Patient and research data are prime targets.
- Financial Services: Transactional and customer data require stringent oversight.
- Information Technology and Adtech: Data-driven operations amplify exposure.
- Data Brokers and Consumer Industries: Broad data-sharing practices fall under the rule’s expansive scope.
- Defense and Government Contracting: National security sensitivities elevate risks.
Companies with operations in countries of concern such as shared service centers, AI research teams, or cloud vendors face significant hurdles. These entities often access U.S. persons’ data, triggering the rule’s low thresholds for covered transactions. Exemptions rarely cover “business as usual” activities, forcing companies to rethink operational structures.
Compliance Challenges and Strategies
Cross-Functional Collaboration
The rule demands a unified approach across data privacy, supply chain, and trade compliance teams. Data privacy professionals, familiar with data mapping and stakeholder interviews, can lead efforts to identify covered data flows. Meanwhile, supply chain and trade teams excel at due diligence, such as assessing vendor ownership to identify “covered persons” (e.g., a Singaporean vendor with a Chinese parent owning 50% or more).
Deeper Vendor Scrutiny
Superficial vendor checks are insufficient. The rule requires analyzing ownership structures to uncover ties to covered persons or countries of concern. This process, often second nature to trade compliance teams accustomed to sanctions screening, is critical to avoid oversight.
Restricted Transactions and Robust Controls
For transactions not covered by exemptions or exclusions, companies may pursue “restricted transactions” by implementing Cybersecurity and Infrastructure Security Agency (CISA) security requirements, maintaining a written data compliance program, and conducting annual independent audits. However, these measures often limit data processing in fully identified form, which may disrupt operations like back-office functions in countries of concern.
To enhance compliance durability, companies should prioritize exemptions, exclusions, or technical controls to block data access from countries of concern. Relying on “bulk” data thresholds is less reliable due to tracking challenges over rolling 12-month periods.
Strategic Decisions for Leadership
The rule’s complexity and potential penalties civil and criminal elevate compliance to a C-suite priority. Senior management may need to make tough calls, such as relocating data centers or teams from countries of concern. These decisions should be informed by enterprise-wide assessments, not siloed business units, and consider long-term geopolitical trends signaling tighter restrictions.
Companies heavily invested in countries of concern face unique challenges. Balancing compliance with market access requires nuanced strategies, such as enhancing local data segregation or leveraging secure cloud solutions outside restricted jurisdictions.
The Road Ahead
The DOJ’s rule marks a new era of outbound data transfer regulations driven by national security. As geopolitical tensions persist, global businesses must stay agile, aligning compliance programs with evolving requirements. Early adopters of cross-functional collaboration, rigorous due diligence, and strategic operational adjustments will be best positioned to navigate this complex landscape.
By proactively addressing the rule’s demands, multinationals can build resilient compliance frameworks that not only mitigate risks but also foster trust in an increasingly data-sensitive world.
