Canada courting U.S. companies thinking of moving data servers to avoid NSA prying

If you're concerned about American spies eavesdropping on your Facebook posts or tweets, would you be more comfortable if the world's big social media players based their servers in Canada?

Revelations last fall that the National Security Agency (NSA) demanded access to personal data from companies such as Facebook, Apple and Google to obtain user metadata – and hacked others – in the name of the war on terror triggered a serious backlash.

Companies responded last month with an open letter to U.S. President Barack Obama demanding the government rein in the NSA, whose activities were exposed by former employee and whistleblower Edward Snowden.

"The balance in many countries has tipped too far in favour of the state and away from the rights of the individual — rights that are enshrined in our Constitution," the letter said, according to CBC News. "This undermines the freedoms we all cherish. It's time for a change."

[ Related: Report: NSA broke into Yahoo, Google data centre links around world ]

But the IT sector apparently isn't waiting around. Some are considering moving their cloud data storage out of the United States and other countries, including Canada, are positioning themselves to lure some of the potentially lucrative business.

"Countries are competing to be the Cayman Islands of data privacy," Daniel Castro, a senior analyst at the Washington, D.C.-based Information Technology and Innovation Foundation, told the Wall Street Journal last September.

The Toronto Star is reporting the Canadian government has jumped into the race to attract some of that business.

"There are governmental agencies right now in Canada who are actively trying to recruit Silicon Valley companies like Google and Facebook and trying to convince them to build cloud infrastructure in Canada," Robert Hart, founder and CEO of something called the Canadian Cloud Council, told the Star.

The not-for-profit industry association represents firms operating data centres across Canada. It's organizing a major conference called the Cloud Factory in Banff, Alta., in April.

"I would say there’s a lot of movement right now at a political level to convince some of these larger software companies . . . to host their software in Canada to get that data away from the NSA for optical reasons," Hart said.

The Journal said countries pitching themselves as havens for cloud storage are touting their tougher data-privacy laws as reasons for companies to relocate.

Industry Canada wouldn't say whether it was playing on fears of invasive NSA activities to attract companies.

"Industry Canada routinely meets with stakeholders in the information and communication technology industry," the department said in a statement to the Star. "Canada is open to businesses who create jobs and help grow our economy."

[ Related: Obama urged to act 'aggressively' to reform NSA by tech CEOs ]

There's a significant economic upside for Canada. Castro told the Star companies that chose to shift sensitive data onto servers outside the United States could cost the American economy up to $35 billion in lost revenue over three years. It's estimated the industry could be worth more than $200 billion by 2016.

Hart said Canada offers potential advantages. It's just next door, has a skilled workforce, relatively low energy costs and lower ambient temperatures, which means less need for power-sucking air conditioning to keep the vast server farms cool.

"I think right now Canadian and international organizations have a monumental opportunity to capture a lot of business from organizations that no longer want to deal with the States," he said.

Toronto and Montreal are the current leaders in cloud storage in Canada, the Star said.

The biggest players are holding their cards close to the vest. The Journal said neither Google, Yahoo! nor Amazon responded would comment. But Facebook's chief operating officer, Sheryl Sandberg, told the Journal companies are concerned by the reaction to the NSA revelations by some countries, who are considering isolating their email and web traffic to ensure its security against U.S. surveillance.

"We should all be nervous when countries impose costly new requirements on companies as a condition of serving their citizens," she said. "It means fragmenting the Internet and putting the economic and social opportunities it creates at risk."

It will be a while before a trend is detected, the Journal said, but noted a survey by the Cloud Security Alliance, an industry group, found 56 per cent of non-U.S. members said security concerns made it less likely they'd use U.S.-based cloud services. Ten per cent had already cancelled a contract.

Fleeing the U.S. may not in the end guarantee user data is safe from prying eyes. Much of it will be accessible once it leaves protected servers, though some companies are offering clients secure encryption.

The NSA is unlikely to sit still either, Hart told the Star.

"The NSA hires probably the smartest hackers on the planet Earth," he said. "If they want to get into somebody's data, they're going to get it, no doubt about it"

And don't forget, among the wave of Snowden leaks was the revelation Communications Security Establishment Canada (CSEC) , which fulfils much the same role as the NSA, was spying on phone and email metadata from Brazil's Mines and Energy Ministry to help Canadian resource firms.

Will CSEC resist the temptation to sneak a peak at the new immigrant clouds? Or could Canada, which has a long history of intelligence sharing with the United States, feel obliged to give the NSA access?