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The Secret’s Out: Canadian Privacy Commissioner Finds Ashley Madison Contravened Privacy Laws

Published: 09/09/2016

By Bernice Karn

In late August, the Office of the Privacy Commissioner of Canada (the OPC) and the Australian Privacy Commissioner released the results of their investigation into a data breach at Avid Life Media Inc. (ALM), a Canadian private company that operates a number of adult dating websites including Ashley Madison, a website designed to facilitate discreet extramarital affairs. In its lengthy report, the OPC discusses the shortcomings of ALM’s security policies and procedures that led to the breach, serving as a strong reminder to private organizations that the OPC is serious about enforcing the privacy principles of Canada’s Personal Information Protection and Electronic Documents Act (PIPEDA).

The Data Breach

Last year, ALM attracted global media attention when it became the target of a hacker resulting in the disclosure of the personal information of 36 million accounts. On July 13, 2015, a notice appeared on computers being used by ALM employees from an attacker identified as ‘The Impact Team’ stating that ALM had been hacked and, unless ALM shut down Ashley Madison and another one of its websites, The Impact Team would publish the stolen data online. ALM ignored the hacker’s threats, and in August of 2015, the stolen data were posted online, including names, addresses, credit card information and other personal details. As a result of the breach, many Ashley Madison users suffered significant reputational and financial harm, and ALM now faces a $578 million class action lawsuit brought by the affected individuals.

Overview of the Report

At the beginning of the report, the OPC reiterates that a security compromise or privacy breach does not necessarily mean that PIPEDA has been violated. This premise is similar to the judgment of the Federal Court in Townsend v Sun Life Financial1 where it was held that, despite Sun Life breaching the privacy of Mr. Townsend, it did not breach PIPEDA because its disclosure of personal information was minimal, Mr. Townsend suffered little to no harm as a result of the disclosure, and Sun Life promptly took steps to correct its policies and procedures. Rather, the OPC’s conclusion on whether a contravention occurred depended on whether ALM had, at the time of the data breach, implemented safeguards appropriate to the sensitivity of the information it held. Thus, organizations who have experienced a data breach or who have disclosed personal information without consent have not necessarily failed to meet their obligations under PIPEDA; the OPC will perform a contextual analysis to determine whether a violation has occurred.

Organizations should also be aware that the OPC has set a high standard for organizations that collect sensitive personal information. These onerous requirements include: robust and documented information security policies and procedures, intrusion detection, security information, and event management systems, regular and documented risk assessments, company-wide security training for employees, setting minimum and maximum time periods for information retention, fully expunging user information from deactivated and inactive accounts, taking steps to ensure the accuracy of information collected, and providing prospective users with any information that would be material to their decision to provide their personal information. Some of these key issues are discussed below.

Viewed in its entirety, this report serves as a warning to organizations that collect, use and disclose personal information that poor corporate governance on information security and failures to meet PIPEDA standards can attract serious legal, regulatory and commercial consequences.

The PIPEDA Standard for Safeguarding Personal Information

The level of protection required by PIPEDA to be afforded to personal information collected by organizations varies depending on the circumstances, including the nature and sensitivity of the information held. According to the OPC, an assessment of the required level of safeguards for any personal information given to an organization must take into account both the sensitivity of the data and the potential harm to individuals from unauthorized access, disclosure, copying, use or modification of it.

Organizations should be aware that the OPC’s definition of potential harm is broad, encompassing not only risk to individuals of financial loss, but also to their physical and social well-being, including potential impacts on relationships and reputational risks, embarrassment, or humiliation. Thus, when collecting personal information, organizations should consider the potential harm that disclosure of that information would cause and tailor their information security policies and procedures accordingly.

In ALM’s case, its Terms of Service warned users that the security or privacy of their information could not be guaranteed, and any access or transmission of personal information through the use of the Ashley Madison service was done at the user’s own risk. In its report, the OPC held that this type of a disclaimer is not sufficient to absolve an organization of its legal obligations under PIPEDA. That finding, in combination with the OPC’s finding that the personal information collected by ALM was both highly sensitive and posed a significant risk of harm to users if disclosed, supported the OPC’s conclusion that the level of security safeguards should have been relatively high.

Strong, Comprehensive Cybersecurity Policies are Crucial

Under PIPEDA, organizations are required to establish business practices that will ensure that the organization complies with PIPEDA’s privacy principles. In the report, the OPC lists a number of factors it considers important in determining the level of compliance it expects from an organization. These factors include the size of the organization, the quantity and nature of the personal information held by it, the foreseeable adverse impact on individuals should their personal information be compromised, and the representations made by the organization to its users about security and discretion it uses in handling the information.

In order to meet their obligations under PIPEDA, organizations are required to have documented security policies and procedures that cover both preventive and detective measures. At the time of the breach, ALM did not have documented information security policies or practices in place. The report suggests that organizations should have systems in place to detect intrusions and manage information and systems. The report also states that organizations should conduct regular and documented risk assessments, assess their information security frameworks through internal or external audits, undertake regular IT ‘hygiene’ (including patch management), and utilize strong key and password encryption procedures. The OPC highlighted the importance of implementing multi-factor authentication for remote access to systems via virtual private networks (VPN), recommending the use of more than one category of identifier such as “something you know” (i.e. usernames, passwords, or “shared secrets”), “something you have” (i.e., a USB stick, a card, or a key), and “something you are” (i.e., fingerprints, eye irises, or voice prints). At the time of the breach, ALM employed single-factor authentication by only requiring its employees connecting to its systems (via a VPN) to provide identifiers that were something the employee “knew,” which the OPC found to be a significant concern.

The Importance of Informed Consent

Organizations that collect and use personal information must obtain the informed consent of the person providing the information. This means that organizations have an obligation to be open and transparent about their policies and practices with respect to the management of personal information so that individuals have all the material information necessary to decide whether or not to provide their personal information. Additionally, PIPEDA requires that organizations not retain personal information once it is no longer required for the purposes for which it was collected or after an individual withdraws his or her consent (subject to legal or contractual restrictions and reasonable notice).

In this case, ALM ran afoul of its consent obligations in two ways. First, ALM provided false information about its security safeguards and failed to provide material information about its information retention practices. By failing to be open about its personal information practices, and by actively deceiving prospective users through the use of a fabricated ‘Trusted Security Award’ displayed on its website, the OPC found that the consent obtained by ALM for the collection of personal information upon user sign up was invalid and, therefore, in contravention of PIPEDA.

Second, ALM retained for an indefinite period the personal information of users who had deactivated their accounts or whose accounts were inactive. Only users who exercised their ‘full delete’ option and paid the corresponding fee could have their personal information destroyed or erased. While PIPEDA states that an individual may withdraw consent to continued retention and use of his or her personal information, it is silent on whether organizations can charge a fee to do so. According to the OPC, charging a fee to withdraw consent without prior notice and agreement is a contravention of PIPEDA.

In this case, the OPC found that the payment of a fee to withdraw consent could not be considered a legal or contractual restriction primarily because the fee was never communicated or made available to prospective and existing users in ALM’s messaging or contractual terms and conditions at the critical point of account creation – i.e., when the contract to use the service was formed. Although this line of reasoning seems to suggest that the payment of a fee for withdrawal of consent could be considered a legal or contractual restriction (if reasonable notice of the fee is given to users at the time of account creation), the OPC goes on to caution that the reasonableness of the practice has to be considered in light of factors such as the adequacy and timeliness of the notice, the actual cost to the organization vs. the amount of the withdrawal fee, and the influence that the fee would have on the individual’s decision to withdraw consent. The OPC further cautions that there is a high bar associated with charging a fee for deletion, and that organizations should treat the decision to implement such a fee with appropriate gravity having regard to the factors discussed above.

Information Accuracy Obligations under PIPEDA

PIPEDA requires organizations to maintain the accuracy, completeness and currency of the personal information that they collect, as necessary for the purposes for which the information is to be used. In its investigation, the OPC looked at ALM’s practice of requiring, but not verifying, email addresses from registrants and found that, because ALM was operating in an environment where inaccurate personal information held by ALM could create reputational risks for both users and non-users, further steps were required to verify the accuracy of this information.

The OPC found that information provided fraudulently or deceitfully by users, even information about an uninvolved third party submitted by a user (i.e., where a user falsely used another individual’s email address to sign up for Ashley Madison), fell within the definition of personal information and attracted the protection of PIPEDA’s information accuracy provisions. The OPC’s finding on the broad application of the accuracy obligations could be a particularly onerous requirement for an organization to meet.

Cross-Border Implications of the Joint Investigation

This investigation and report is an example of a joint investigation by the OPC and another jurisdiction’s regulatory authority.2 Despite being based in Canada, ALM attracted the scrutiny of both the Canadian and Australian regulators. This type of cross-border investigation and enforcement of privacy legislation could represent a significant compliance hurdle for organizations that do business online, especially those with a global customer base. Organizations should be reminded of the fact that this type of investigation is possible, and that it is always necessary to engage local counsel who can consider the privacy implications in the various jurisdictions in which the company does business.

Lessons Learned

Organizations should first be aware that voluntarily notifying the OPC of a data breach and working together with the OPC might be a prudent course of action to try to salvage the reputation of the organization and to minimize the consequences of any PIPEDA violations. While notification is not yet mandatory in Canada, organizations should consider notifying the OPC of a data breach or potential data breach as early as possible. For organizations who conduct business outside of Canada, they should be cognizant that many jurisdictions (including 47 of the states in the US) have breach notification requirements.

The OPC’s report also provides a number of useful information security guidelines and cybersecurity governance lessons for organizations that handle personal information. First, organizations should ensure that they have strong and comprehensive corporate governance with respect to information security, cyber incident response, and employee training. Second, organizations should ensure that they have documented policies in place that regulate data retention, paying particular attention to how long personal information is kept and the mechanisms available to users to provide informed consent and withdraw their consent for the continued use of their information. Third, organizations should take steps to make sure that personal information provided to the organization (including email addresses), is accurate. Finally, organizations should ensure that they are open and transparent with users regarding any information that would be material to a prospective user’s decision to provide his or her personal information, including information security safeguards and data retention policies. 

The authors of this article gratefully acknowledge the contributions of articling student Rowan Groenewald.

1 2012 FC 550.
2 For another example of cooperation with foreign regulators, see the Office of the Privacy Commissioner’s Complaint under PIPEDA against Accusearch Inc., doing business as Abika.com, where the Commissioner engaged in information sharing with the US Federal Trade Commissioner during the course of its investigation, available online: