July 15th, 2013
10:18 AM ET

How the NSA scandal hurts the economy

By Arvind Ganesan, Special to CNN

Editor’s note: Arvind Ganesan is director of business and human rights at Human Rights Watch. The views expressed are his own.

The National Security Agency surveillance scandal has been devastating to the U.S. government’s credibility as an advocate for Internet freedom. But the impact on U.S. technology companies and a fragile American economy may be even greater.

Every new revelation suggests far more surveillance than imagined and more involvement by telephone and Internet companies, with much still unknown. One of the most troubling aspects of this spying is that foreign nationals abroad have no privacy rights under U.S. law. Foreigners using the services of global companies are fair game. (There is also a certain irony to the revelations, considering that some European governments such as Germany and the Netherlands are strong U.S. allies on Internet freedom but may simultaneously be targets of U.S. surveillance online.)

A July 1 report by Der Spiegel on the NSA spying on European officials infuriated governments a week before negotiations started on a massive U.S.-European Union trade agreement that could be worth almost $272 billion for their economies and 2 million new jobs. Officials throughout Europe, most notably French President Francois Hollande, said that NSA spying threatens trade talks.

The French government unsuccessfully called for a two-week postponement of the trade talks. The next day, it had to address allegations in Le Monde of its own domestic mass surveillance program.

For the Internet companies named in reports on NSA surveillance, their bottom line is at risk because European markets are crucial for them. It is too early assess the impact on them, but the stakes are clearly huge. For example, Facebook has about 261 million active monthly European users, compared with about 195 million in the U.S. and Canada, and 22% of Apple’s net income came from Europe in the first quarter of 2013.

Europe was primed for a backlash against NSA spying because people care deeply about privacy after their experience of state intrusion in Nazi Germany and Communist Eastern Europe. And U.S. spying on Europeans via companies had been a simmering problem since at least 2011.

In June 2011, Microsoft admitted that the United States could bypass EU privacy regulations to get vast amounts of cloud data from their European customers. Six months later, BAE Systems, based in the United Kingdom, stopped using the company’s cloud services because of this issue.

A major EU survey released in June 2011 found that “[t]hree out of four Europeans accept that revealing personal data is part of everyday life, but they are also worried about how companies – including search engines and social networks – use their information.” Only 22% trusted e-mail, social networking, and search companies with their data.

Then the European Parliament issued a report on privacy in October 2012 confirming Microsoft’s claim and urging new privacy protections between the EU and the United States. The EU tried, but the Financial Times reported that senior Obama administration officials and tech industry representatives successfully lobbied against it.

The NSA scandal has brought tensions over spying to a boil. German prosecutors may open a criminal investigation into NSA spying. On July 3, Germany’s interior minister said that people should stop using companies like Google and Facebook if they fear the U.S. is intercepting their data. On July 4, the European Parliament condemned spying on Europeans and ordered an investigation into mass surveillance. The same day, Neelie Kroes, the EU’s chief telecom and Internet official, warned of “multi-billion euro consequences for American companies” because of U.S. spying in the cloud.

The companies have belatedly distanced themselves from the NSA and called for more transparency. Google, Microsoft, Yahoo and Facebook are in a particularly tough spot as members of the Global Network Initiative, a group (including Human Rights Watch) formed to verify whether companies respect freedom of expression and privacy online.

Their role in NSA surveillance raises serious questions about whether they have done their utmost to protect billions of people’s privacy or whether it is even possible to know since virtually everything is classified. Yahoo unsuccessfully challenged a Foreign Intelligence Surveillance Act request in 2008, the New York Times reported, and the company is trying to publicly release its petition to the government. But on July 11, The Guardian reported that Microsoft helped the NSA and FBI bypass its own encryption to access its users’ data, based on documents from Edward Snowden.

Transparency is an important first step. Its absence only exacerbates a trust deficit that companies already had in Europe. And trust is crucial. Google’s chief legal officer recognized this on June 19 when he said, “Our business depends on the trust of our users,” during a Web chat about the NSA scandal. Some companies have been aggressive in trying to disclose more, and others have not. But unless the U.S. government loosens strictures and allows greater disclosure, all U.S. companies are likely to suffer the backlash.

Since the story broke, the United States has allowed companies to disclose the number of FISA requests they receive, but only combined with all law enforcement requests in ranges of 1,000. So the exact number is impossible to determine.

Google has been the most aggressive, including by petitioning the FISA court. Microsoft has followed. Apple, Yahoo and Facebook are starting to report aggregate data in the wake of the NSA fallout.

Companies should press for meaningful disclosure about the scope and scale of government surveillance and their role in it. They also need to support laws and policies, including changes to surveillance laws, to protect their customers’ privacy. Ultimately, they need to show how they actually protect users from government spying.

The Obama administration needs to recognize and mitigate the serious economic risks of spying while trying to rebuild its credibility on Internet freedom. The July 9 hearing of the Privacy and Civil Liberties Oversight Board is a start, but much more is needed. More disclosure about the surveillance programs, more oversight, better laws, and a process to work with allied governments to increase privacy protections would be a start.

The European customers of Internet companies are not all al Qaeda or criminals, but that is essentially how U.S. surveillance efforts treat them. If this isn’t fixed, this may be the beginning of a very costly battle pitting U.S. surveillance against European business, trade, and human rights.

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Topics: Economy • Europe • Security • United States

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soundoff (24 Responses)
  1. Joseph McCarthy

    Will someone here tell me just how keeping people informed can hurt the national economy? This is just one more way for the right-wingers in Washington to defend their backroom deals while keeping us all in the dark!

    July 15, 2013 at 10:56 am | Reply
    • deep blue

      I think the author was blaming the NSA and the US government. "Transparency is an important first step."
      The author wants more information revealed, not less.

      July 15, 2013 at 6:23 pm | Reply
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    July 15, 2013 at 1:46 pm | Reply
  3. rightospeak

    " Human Rights Watch" , a propaganda machine , is commenting on the economy ???? What hurts the economy are offshored jobs, Globalism, endless wars and being broke.

    July 15, 2013 at 2:16 pm | Reply
  4. chrissy

    From your lips to Congresses ears @ righttospeak! And yet here we are, headed into one of the greatest wars of all time! It really is time for the American citizens to take a stand and show the clowns in congress that we are fed up! And they need to STOP taking OUR tax dollars to pay for other countries militarys! Stop all foreign aid!

    July 16, 2013 at 12:10 am | Reply
    • Joseph McCarthy

      Good posting, chrissy. Thank both you and rightospeak above.

      July 16, 2013 at 10:46 am | Reply
  5. Beevus

    I've been google free for weeks now, and I'm quite happy.

    July 16, 2013 at 12:16 am | Reply
    • lmllr

      This won't help you in the long run. Any company that gets enough users will be targeted by the NSA.

      July 16, 2013 at 10:05 am | Reply
  6. cnn-good news is not news

    How NSA did this surveillance, any detail info about this?

    July 16, 2013 at 2:32 am | Reply
  7. j. von hettlingen

    Europeans were outraged over reports of American spying in Europe, but not so angry as to risk their economic interests. On the surface Europe's leaders were deeply insulted. Senior EU officials said the revelations showed that the US treated its closest partners as a whole bunch of hostile actors.

    July 16, 2013 at 8:11 am | Reply
    • j. von hettlingen

      Spying is ancient. It's not until in recent years that governments are being challenged by activists, leakers, hackers and whistle-blowers. This has significant impact on public awareness and on government politics as well.

      July 16, 2013 at 8:16 am | Reply
  8. M Hall

    The NSA spying scandal will be the end of Microsoft. Nobody will trust Microsoft now that they have been found to be helping the NSA bypass Microsoft's own encryption. (Microsoft issued a statement, but did not contradict that accusation, and in any case they are required by law to lie about NSA involvement.) Just for starters, every foreign government will ditch Windows and run Linux. Teenagers were already scared of Xbox One's Big Brother potential before this, so Xbox One will fail. Without Windows or Xbox sales, Microsoft could still linger for decades, but only as the walking dead.

    The impending death of Microsoft is just the tip of the iceberg. Google and Apple will be critically wounded. Nobody will trust *any* American computer, Internet, or communications-related company. Another country's information industry will take over the role of Silicon Valley.

    The NSA has destroyed America. Why? Because they were only looking out for themselves.

    However, the stock market at present suggests I am wrong. Time will tell.

    July 16, 2013 at 10:05 am | Reply
  9. name

    i'm feeling this particular issue will cool off but there will be another issue from europeans to go against free trade agreement with america like movies, agriculture, bank regulations or carbon emission standards. but we really should do more free trades for the sake of economic growth, jobs and peace.

    July 16, 2013 at 11:07 am | Reply
  10. Phaerisee

    This is the first headline so far where I have seen it referred to as a "scandal." That is interesting because whenever I have seen someone use that terminology in comment sections, there is usually someone there dutifully within moments to remind them that there really is no scandal. We might be reaching the point collectively where we are allowed to use the words "NSA Domestic Spying Scandal." (If that is alright.)

    July 16, 2013 at 5:54 pm | Reply
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  12. Eddie Fonseca

    When we as average Americans sit in our local bar and watch the local news, about some new terrorists organization from the Middle East trying to harm our way of life, from liberty and being a nation which respects all cultures and races. Deep in our minds we still remember the dreaded day of 9/11 when our finest city in America New York, was attacked and many innocent American people lost their lives, but those people from our fine law enforcement agency's from NYPD Police Department, FBI Terrorism, NSA USA, NYPD Paramedics those brave men and women dedicated and gave up their lives so we could live in a nation free terrorist attacks on our own soil. So when the NSA USA which protects millions of Americans from the next terrorism attacks in America, we should be grateful for and agency which keeps an eye out for the safety of all Americans. The scandal which hit the NSA Agency is a bump in the road not every law enforcement agency is one hundred percent perfect it has it's flaws just like an fast food place which might by accident give you a hamburger instead of a milkshake. It's how the NSA Agency decides it want's to regain the trust of the American public by coming out to the nation and saying we have screwed up, and this types of mistakes won't happen again so long we can have better policy's on how to spy on terrorists who might be a threat to America and it's Allies for years to come.

    June 13, 2014 at 11:14 pm | Reply

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