Data Sovereignty Risks: Why Washington’s Push Falls Short

Something important shifted on February 24, 2026, and every security leader, compliance officer, and general counsel operating across borders needs to understand what it means.

Key Takeaways

1. The White House Is Now Actively Working to Dismantle Foreign Data Privacy Protections. President Trump has directed U.S. diplomats to lobby foreign governments against data sovereignty and data privacy laws that require local data storage, restrict cross-border data flows, or empower privacy regulators with strong enforcement authority. The diplomatic campaign frames these protections as barriers to U.S. technology exports and cloud services, positioning Washington in direct policy conflict with countries pursuing strong data localization regimes.
2. One in Three Organizations Experienced a Sovereignty Incident in the Past Year. The Kiteworks 2026 Data Security and Compliance Risk Report surveyed 286 professionals across Canada, the Middle East, and Europe. Thirty-three percent reported a sovereignty-related incident in the past 12 months. The Middle East hit 44%, Europe 32%, Canada 23%. Data breaches with sovereignty implications and third-party compliance failures each affected 17% of respondents. Regulatory investigations hit 15%. Unauthorized cross-border transfers reached 12%. These are operational events, not theoretical risks.
3. Incidents Follow the Controls, Not the Geography. Canada, with its mature PIPEDA framework and 79% full compliance rate, reports the lowest incident rate. The Middle East, where frameworks are newest and enforcement infrastructure is still maturing, reports the highest. The pattern is consistent across every dimension the Kiteworks report examines with organizations with stronger sovereignty architecture experience fewer incidents. Weakening those frameworks doesn’t reduce compliance burden. It removes the protection while keeping the risk.
4. Forty-Four Percent of European Organizations Don’t Trust Their Cloud Provider’s Sovereignty Guarantees. European respondents report the highest provider trust concern of any region. The Schrems II decision established that contracts cannot override foreign government access laws. With 36% of European respondents already flagging U.S. policy shifts as a top sovereignty concern before this executive order, the diplomatic push confirms the fear rather than resolving it. Forty-six percent plan to migrate to EU-based providers.
5. Organizations Are Building Sovereignty Architecture Regardless of What Washington Does. 55% of European organizations are investing in compliance automation. Twenty-three percent of Canadian organizations are migrating from U.S. cloud providers. 48% of Middle Eastern organizations plan regional cloud migration. 63% of all respondents associate sovereignty compliance with improved security posture. These are architecture decisions driven by evidence, not politics.

President Trump directed U.S. diplomats to actively lobby foreign governments against data sovereignty and privacy laws. The executive order targets regulations that require local data storage, restrict cross-border data flows, and give privacy regulators strong enforcement authority. The administration frames these protections as barriers to American digital trade and technology competitiveness—arguing that strict foreign data rules hamper U.S. cloud providers, AI companies, and SaaS platforms trying to operate globally.

A separate report describes the diplomatic campaign in detail: American envoys have been instructed to push for exceptions, softer enforcement, and alternative frameworks more favorable to U.S.-based providers. The guidance encourages diplomats to challenge data localization requirements wherever they find them.

The timing is remarkable. The same week this diplomatic offensive launched, the Kiteworks 2026 Data Security and Compliance Risk: Data Sovereignty Report landed with survey data from 286 security and compliance professionals across Canada, the Middle East, and Europe. The findings don’t just challenge the executive order’s premise. They contradict it with hard numbers.

The Incident Gap That Follows the Controls

One in three organizations surveyed experienced a data sovereignty-related incident in the past 12 months. That’s the headline number. The regional breakdown is where it gets pointed.

In the Middle East, where regulatory frameworks like Saudi Arabia’s PDPL and SDAIA are newest and enforcement infrastructure is still maturing, the incident rate reaches 44%—nearly double Canada’s 23%. Europe sits at 32%. The most common incident types are data breaches with sovereignty implications and third-party compliance failures, each at 17%, followed by regulatory investigations at 15% and unauthorized cross-border transfers at 12%

These numbers describe a clear pattern. Incidents cluster where sovereignty controls are weakest, not where they’re strongest. Canada, operating under a mature PIPEDA framework with 79% full compliance, has the fewest incidents. The Middle East, investing heavily—67% of respondents report annual sovereignty spending above $1 million, with 28% exceeding $5 million—but still closing the gap between regulatory awareness and enforcement architecture, has the most.

The Middle East’s 93% regulatory awareness score alongside its 44% incident rate tells the story precisely. Organizations there understand the rules. They’re spending aggressively. But the gap between knowing the rules and having architecture that enforces them is where incidents breed. That gap is exactly what sovereignty frameworks are designed to close—and exactly what the administration’s diplomatic campaign would prevent from closing.

The Provider Trust Deficit That Diplomacy Cannot Resolve

European respondents in the Kiteworks survey illuminate a challenge that predates this executive order but is now significantly amplified by it. Forty-four percent cite concerns about whether their cloud providers can genuinely guarantee data sovereignty—the highest provider trust concern of any region surveyed. Another 36% already flagged geopolitical shifts related to U.S. policy as a top sovereignty concern before the February 24 order was issued.

The underlying issue is structural, not political. When data sits on infrastructure owned by a provider subject to the U.S. CLOUD Act, contractual guarantees of sovereignty have a ceiling. The Schrems II decision established this principle in European law: contracts cannot override foreign government access laws. A U.S.-headquartered cloud provider storing European data in Frankfurt may still be compelled to produce that data under U.S. law. No diplomatic campaign changes that legal architecture. What it does change is the urgency with which European organizations are acting on it.

Forty-six percent of European organizations plan to migrate to EU-based providers. Fifty-five percent are investing in compliance automation. Fifty-one percent are enhancing technical controls. A 2025 survey of 2,000 European SMEs found that 72% worry about data being stored in the United States, and 57% don’t know whether their cloud provider guarantees EU-only storage. These are rational risk management decisions from organizations that have calculated what sovereignty exposure costs.

Canada’s View From the Southern Border

Canada’s data tells perhaps the most directly relevant story. Forty percent of Canadian respondents identify changes to Canada-U.S. data-sharing arrangements as their single biggest regulatory concern—no other issue comes close. Twenty-one percent flag the CLOUD Act specifically. And 23% are actively migrating away from U.S. cloud providers.

Canada’s 23% incident rate—the survey’s lowest—might look like evidence that sovereignty concerns are overblown. The more defensible reading is the opposite: Canada’s lower incident rate reflects mature compliance infrastructure, high PIPEDA adoption, and the operational discipline that comes from treating data governance as architecture rather than paperwork. The organizations migrating away from U.S. providers are responding to a jurisdictional reality where data stored with U.S.-headquartered companies may be accessible to U.S. authorities regardless of where the server sits.

Quebec’s Law 25 adds teeth: administrative monetary penalties up to C$10M or 2% of worldwide turnover, and penal fines up to C$25M or 4%. Ontario issued its first administrative monetary penalties under PHIPA in 2025. Canada’s enforcement posture is hardening, not softening—regardless of what Washington’s diplomats are told to say.

Sovereignty as Competitive Infrastructure

The administration’s argument frames data sovereignty laws as trade barriers. The Kiteworks data reframes them as competitive infrastructure. Sixty-three percent of respondents associate sovereignty compliance with improved security posture. Fifty-two percent cite enhanced customer trust. Fifty percent report better data governance. A third identify outright competitive advantage.

The industry-level data sharpens the picture. Manufacturing, with sprawling cross-border supply chains, reports the highest incident rate of any sector at 52%. Financial services, which has invested most heavily in sovereignty controls and leads on AI audit adoption at 59%, reports 34%. Technology firms hold at 33%—close to the aggregate—because their high sovereignty awareness translates into high control maturity despite broad jurisdictional exposure.

In the Middle East, 56% cite enhanced customer trust as a direct benefit—the highest in the entire survey. In a region where organizations are actively building credibility with regulators and partners under new frameworks, sovereignty compliance functions as a trust signal. The 35% citing competitive advantage reinforces it: demonstrable sovereignty is becoming a market differentiator in the GCC, not a barrier to entry.

The organizations winning in this environment aren’t the ones with the fewest regulations. They’re the ones with the strongest architecture for navigating them.

From Stated Compliance to Provable Control

Whatever happens at the diplomatic level, the global regulatory trajectory is not reversing. The EU AI Act and Data Act are in effect. NIS 2 and DORA are tightening operational resilience requirements across Europe. Canada’s enforcement regime is hardening at both federal and provincial levels. The Middle East’s PDPL and SDAIA frameworks will continue to mature and tighten. Any organization building its compliance strategy around the hope that diplomatic pressure will soften foreign enforcement is making a bet the evidence doesn’t support.

The shift the Kiteworks report identifies across all three regions is from stated compliance to provable control. That means data residency enforced at the architecture level, not the policy level. Encryption key custody retained in-jurisdiction. Zero-trust access controls across every communication channel where sensitive data moves—email, file sharing, managed file transfer, SFTP, and web forms. Immutable audit trails that can demonstrate exactly where data resides, who accessed it, and how cross-border movement was governed or prevented.

The Kiteworks Private Data Network is purpose-built for this challenge. Flexible deployment options—on-premises, private cloud, hybrid, and FedRAMP—allow organizations to store sensitive content exclusively within their home jurisdiction, whether that’s the EU, Canada, or the Middle East. In-jurisdiction encryption key custody and configurable geofencing ensure data never crosses boundaries where it could be subject to foreign access laws. Centralized, immutable audit logs with preconfigured compliance templates for GDPR, DORA, NIS 2, PIPEDA, PDPL, and more deliver the exportable evidence that regulators, auditors, and enterprise customers increasingly demand.

In a landscape where 59% of organizations cite technical infrastructure as their top resource drain and 55% plan to invest in compliance automation, Kiteworks replaces fragmented point solutions with a unified governance framework—reducing complexity while producing the audit-ready documentation that turns “we believe we’re compliant” into “we can prove where every file resides and who touched it.”

President Trump can direct diplomats to lobby against data sovereignty laws. But the 286 organizations in this report aren’t waiting for Washington’s permission to protect their data. They’re building the controls because the alternative—operating without provable sovereignty—is measurably more dangerous. And no executive order changes that math.