The EU is threatening to fine data companies for sharing information with US intelligence. Will stocks suffer?
President Obama had to make an awkward call yesterday to his French counterpart, Francois Hollande. Further revelations from Edward Snowden, reported by the French newspaper Le Monde, have brought to light American efforts to spy on France.
Of particular concern is evidence that the US was monitoring French data companies, including Alcatel Lucent SA (ADR) (NYSE:ALU), which is a competitor to many American firms trying to make inroads on the European continent.
Needless to say, the French, one of our closest allies since sponsoring our War for Independence, are less than pleased.
This is not the first international indictment to result from American spying efforts. Last month, Brazil's Prime Minister Dilma Rousseff cancelled a visit to the US after discovering that America had spied on the country's leading energy firm, Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR). Rousseff faces an important re-election next year, and the US is hardly as popular in South America as is it in France, where many streets in the capital are still named for our former presidents.
It was only a matter of time after the news came out that the European Union started taking action. And American firms aren't going to like it.
Starting as soon as three years from now, technology firms could be liable for the information regarding EU citizens that they turn over to US intelligence agencies. And the fines recently approved by the EU's parliament are considerable: 5% of the offending company's yearly revenue.
For a data company like Google Inc (NASDAQ:GOOG), that could amount to billions and billions of dollars. And smaller American data firms like Acxiom Corporation (NASDAQ:ACXM) could be threatened by the fines even more, considering their much smaller balance sheets to begin with.
Talk about being caught between a rock and hard place. A lot of the biggest and most successful technology companies in America make most of their money by collecting data on users and selling it to advertisers, governments, and other interested parties.
We're not just talking about fines from the EU, we're talking about a major disruption to the core business model for many data companies. And firms in question could theoretically find themselves in a situation where they face fines from one country, but prosecution from their own country at the same time.
The EU's ruling still needs to be approved by all of the member states. That could take up to six months. And even then, technology firms have two years to comply with the rules before the would be subjected to fines.
That's a long time in the tech world, which indicates the EU might be doing a bit of posturing. Big European economies have no desire to stifle American businesses, especially those that might consider moving operations to the Continent.
However, there's no doubting that the EU's action will have data companies paying close attention here on out. Investors should too. So consider our list of tech stocks involved with data collection below.
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