DOJ’s Data-Transfer Rule Leaves In-House Counsel Searching for Clarity

(No Ratings Yet)

Loading...

In-house legal teams across corporate America are scrambling to interpret and implement the Department of Justice’s (DOJ) new Data Security Program rule, which limits how certain types of U.S. data can be transferred abroad. Despite the rule’s significance and national security aims, many corporate counsel say they’ve been given little practical guidance on how to comply.

A New Layer of Data Protection

The DOJ’s final rule, which took effect on April 8, 2025, was issued through its National Security Division (NSD) as part of the broader “Data Security Program” (DSP). It enforces Executive Order 14117, signed by President Biden, which seeks to prevent foreign adversaries from accessing bulk data on U.S. citizens and government operations.

Under the new framework, any transaction that provides entities in “countries of concern” access to sensitive personal data or U.S. government-related data may fall under DOJ scrutiny. Those countries currently include China (including Hong Kong and Macau), Russia, Iran, Cuba, North Korea, and Venezuela.

  

What

Where

Search Jobs

The rule defines “covered data transactions” broadly, encompassing everything from cloud service arrangements and outsourcing contracts to mergers, acquisitions, and even routine vendor relationships that could expose data to entities affiliated with these nations.

What Counts as Sensitive Data?

The scope of what qualifies as “sensitive personal data” is sweeping. It includes:

• Biometric identifiers such as fingerprints, facial scans, or voiceprints
• Precise geolocation data
• Health and genetic information, including genomic and ‘omics data
• Financial account details and credit histories
• Personal identifiers when collected in bulk
• Combinations of these categories, especially when datasets can reveal individual identities or patterns

Because the rule’s definition of “bulk” can apply to datasets involving as few as 1,000 U.S. individuals, even modestly sized organizations could be affected.

This means that not only major tech and healthcare companies, but also smaller financial institutions, research firms, and data analytics vendors, may fall within the DOJ’s regulatory crosshairs.

Two Classes of Transactions

The DOJ rule distinguishes between prohibited and restricted transactions:

• Prohibited transactions involve the outright sale or transfer of bulk sensitive personal or government-related data to covered persons or countries of concern. These are banned completely.
• Restricted transactions involve ongoing commercial relationships — such as vendor agreements, investments, or employment arrangements — where data access could occur. These are allowed only if companies adhere to stringent cybersecurity, auditing, and due diligence measures.

Restricted entities are required to maintain documented cybersecurity programs, perform risk assessments, and retain detailed records of compliance for government review.

Enforcement Timeline and Transition Period

While the rule technically became effective in April, the DOJ adopted a phased approach to enforcement. From April 8 through July 8, 2025, the department agreed to limit civil enforcement actions against companies making “good-faith efforts” to comply.

As of July 9, however, full enforcement began, with the DOJ’s National Security Division signaling that it would prioritize investigations into sectors handling large volumes of personal or national security-relevant data — particularly healthcare, cloud services, and financial technology.

Certain obligations, including audit and record-keeping requirements, take effect later, around October 6, 2025, to give organizations time to develop compliance systems.

In-House Counsel Face Uncertainty

Despite the months-long lead-up, in-house legal departments say compliance guidance remains vague. Several general counsel have described the DOJ’s public resources — including a Compliance Guide and a limited FAQ — as helpful but insufficient for navigating complex, multinational data flows.

Among the most cited challenges are:

1. Unclear Definitions: The rule’s broad language leaves room for interpretation. Determining when an entity qualifies as a “covered person” — for example, a vendor indirectly owned by a Chinese parent company — often requires deep ownership tracing that smaller companies are ill-equipped to perform.
2. Ambiguous Risk Thresholds: The concept of “bulk” data is defined differently for each category of sensitive information, making compliance inconsistent across industries.
3. Overlap with Other Privacy Regimes: The DOJ rule interacts awkwardly with existing frameworks like the GDPR, HIPAA, and state privacy laws, creating overlapping obligations that can conflict or duplicate efforts.
4. Lack of Precedent: Since enforcement is new, companies have no case law or real-world examples to benchmark compliance expectations.

How Legal Teams Can Respond

Experts recommend that general counsel take several proactive steps:

• Map Data Transfers: Identify all cross-border data flows, including those facilitated by vendors, affiliates, or cloud providers. Determine whether any data might reach a covered country or person.
• Vet Vendors and Investors: Update due diligence procedures to assess foreign ownership and control of contractors, suppliers, and potential investment partners.
• Enhance Contractual Protections: Insert clauses that address data access restrictions, auditing rights, and compliance certifications for any party that could handle sensitive U.S. data.
• Establish Security Protocols: Implement cybersecurity measures aligned with the DOJ’s baseline requirements for restricted transactions.
• Document Compliance Efforts: Maintain internal records of risk assessments, contracts, and communications related to data transfers. Documentation could prove critical if the DOJ initiates an inquiry.

Looking Ahead

The DOJ’s rule reflects a growing U.S. effort to treat data as a national security asset, not merely a privacy concern. While the intention — safeguarding American citizens and government information from exploitation — is clear, the path to compliance remains murky.

For now, companies must navigate uncertainty through cautious interpretation, rigorous data mapping, and continuous monitoring of DOJ updates. As enforcement actions begin and the first penalties are issued, more concrete guidance will likely emerge.

Until then, in-house counsel face a delicate balancing act: ensuring operational continuity in global business relationships while protecting their organizations from steep penalties for inadvertent violations.

For attorneys, compliance officers, and legal professionals seeking deeper insight into evolving data security regulations, visit LawCrossing.com. Discover exclusive legal job listings, in-depth compliance resources, and expert commentary that can help your firm or company stay ahead in an increasingly regulated global data environment.