The End of Cloud Illusion: Why US Providers Pose an Unacceptable Compliance Risk under GDPR and DORA

A recent legal opinion, commissioned by the German Federal Ministry of the Interior and Community (BMI) and published by the University of Cologne, has provided definitive clarity on a critical, long-debated conflict: the irreconcilability of US data access laws (like the CLOUD Act) with the European Union’s fundamental rights and stringent regulatory framework.

For regulated companies, critical infrastructure operators (CRITIS), and financial entities operating under the upcoming Digital Operational Resilience Act (DORA), this opinion is not merely a caution—it is a mandatory directive to re-evaluate their entire ICT third-party risk strategy.

Irreconcilable Legal Conflicts and Extraterritorial Access

The core of the legal analysis confirms that US authorities maintain broad, extraterritorial access powers that undermine the fundamental principles of EU data sovereignty, regardless of where the data is physically stored.

The Conflict: CLOUD Act vs. EU Law

The opinion centers on the fact that the US CLOUD Act permits US authorities (such as law enforcement and intelligence agencies) to issue warrants compelling US-based cloud providers (or their foreign subsidiaries) to disclose data, even if that data is located exclusively in EU data centers.

Crucially, the legal experts conclude that the ability of US authorities to secure data in this manner “cannot be reliably excluded” through technical or organizational measures alone. This means:

• The data subject (the EU citizen) is often unaware of the access request.

• The data owner (the EU company) has no reliable legal remedy to contest the order in the EU courts, as the US provider is bound by US law.

This structural vulnerability renders EU-based data processing through US subsidiaries fundamentally incompatible with the accountability and security requirements mandated by the General Data Protection Regulation (GDPR), particularly concerning the integrity and confidentiality of personal data (Art. 32) and the rules for international transfers (Chapter V).

Risk Amplification under DORA and Critical Contracts

The legal opinion’s findings dramatically escalate the risk for specific sectors, especially the financial industry preparing for the application of DORA (Regulation (EU) 2022/2554) in early 2025.

Failure of Standard Safeguards

The analysis explicitly refutes the notion that common contractual mechanisms—such as standard contractual clauses (SCCs) or the use of “EU sovereign cloud” labels—are sufficient safeguards.

“Pure hosting or data center locations in the EU are not enough; the decisive factor is legal control over the company that processes the data.”

For entities subject to DORA, this vulnerability directly impacts Chapter V (Managing of ICT Third-Party Risk), particularly Article 28 (General principles) and Article 30 (Key contractual provisions). DORA requires financial entities to manage ICT third-party risk effectively, ensure contractual rights of access, and manage concentration risk. Using a provider subject to foreign government access requests that override EU law constitutes a systemic risk that cannot be mitigated by standard compliance mechanisms.

In short: US legal ties, not merely data residency, negate compliance, classifying services from providers like Microsoft 365, Azure, AWS, and Google Cloud as inherently high-risk for critical operations and sensitive data.

Implementing True Data and Operational Sovereignty

To achieve genuine digital operational resilience and legal compliance, European businesses must prioritize providers that offer true legal and structural sovereignty.

The legal opinion clearly states that, for sensitive data, internal systems, and all critical processes:

“wherever possible, European providers with an EU ownership structure and without US corporate ties should always be preferred.”

This strategic transition requires moving beyond checking technical security certifications and focusing instead on:

1. Legal Due Diligence: Prioritizing service providers whose entire ownership and management structure is rooted exclusively in the EU/EEA, ensuring they are solely subject to EU judicial and regulatory oversight.

2. Risk Scoping: Identifying which ICT services support “critical or important functions” (as defined by DORA) and immediately migrating them away from third-country providers subject to extraterritorial laws.

3. Holistic Compliance: Recognizing that operational resilience (DORA) and data protection (GDPR) are mutually dependent. True resilience requires the ability to legally protect data against unauthorized access, whether from cyber threats or foreign government warrants.

Data Sovereignty is the Only Sustainable Path

The University of Cologne’s legal opinion cements the reality that the structural conflict between EU and US law has a tangible, negative impact on European businesses’ ability to comply with GDPR and DORA. Data sovereignty is not a luxury; it is a legal and commercial necessity.

Don’t let regulatory ambiguity translate into existential risk. Secure your critical systems and payment data with a provider built exclusively on European ground, upholding the highest standards of legal independence and operational resilience.

Talk with Our Experts Now to Ensure DORA and GDPR Compliance

Alexander Burba

Alexander Burba is a Performance Marketing Specialist at Novalnet AG in Munich, where he leads digital acquisition and brand initiatives. With over 7 years of experience in B2B SaaS, FinTech, and IT marketing, Alexander has supported international teams in Germany and Ukraine, serving clients across the EU, US, and global markets. He combines data-driven strategy with cross-functional collaboration to deliver measurable growth for Novalnet and its partners.