The Economic Data Localization & Sovereignty Act

ACT 5: The Economic Data Localization & Sovereignty Act (EDLSA)#

Digital Sovereignty: When Your Banking System Runs on Infrastructure You Don’t Own, You’ve Ceded Sovereignty

The Strategic Risk:

By 2027, critical economic functions (credit decisioning, energy dispatch, logistics) will run on 3-4 vendors’ foundation models hosted in foreign-controlled data centers. The DOJ’s 2025 rule restricting “bulk sensitive personal data” transfers to countries of concern acknowledges this vulnerability.

When a vendor can disable your nation’s banking via API restrictions or sanctions pressure, you are not sovereign—you are a client state.

This is not data nationalism. This is strategic autonomy in the age of AI-mediated economic infrastructure.

Legislative Framework: Ensuring National Control Over Economic Intelligence#

GOAL: Require all critical economic data (financial, health, energy, food) to be processed and stored on domestically-controlled infrastructure, with mandatory algorithmic transparency for high-risk AI systems.

PRIMARY MECHANISM: Data localization requirements for critical sectors + algorithmic explainability mandates + liability framework for opaque systems.

IMPLEMENTATION STRUCTURE:

Tier 1: Critical Sector Data Localization

Covered Sectors:

Financial services (credit, payments, insurance, trading)
Energy infrastructure (grid management, dispatch algorithms)
Healthcare (patient records, diagnostic AI, insurance claims)
Food security (agricultural supply chains, commodity trading)
Critical manufacturing (defense, semiconductor, pharmaceuticals)

Requirements:

Data Residency: All covered data must be stored in data centers physically located in the United States
Processing Sovereignty: AI models processing covered data must be trained and operated on US infrastructure
Audit Rights: Federal agencies must have unfettered access to audit model training data, weights, and decision logic
No Foreign Control: Data centers and AI infrastructure cannot be majority-owned by foreign entities or entities subject to foreign government control

Tier 2: Algorithmic Transparency & Explainability

High-Risk AI Systems (Requiring Transparency):

Credit scoring and lending decisions
Insurance underwriting and claims processing
Healthcare diagnosis and treatment recommendations
Critical infrastructure management (grid dispatch, traffic control)
Government benefit eligibility determinations

Transparency Requirements:

Human-Comprehensible Explanations: Every decision must have explanation accessible to affected individual
Model Cards: Public documentation of training data sources, known biases, performance metrics
Regular Audits: Third-party audits every 12 months for discrimination, accuracy, reliability
Red-Teaming: Adversarial testing for failure modes before deployment in critical systems

Tier 3: Data Sovereignty Principles

Establishes legal doctrine that:

Economic data is a strategic asset, not merely a commodity
Data sovereignty = ability to control data lifecycle (collection, processing, storage, deletion) under domestic law
Foreign jurisdiction override prohibited: US citizens’ economic data cannot be subject to foreign legal process (e.g., Chinese data security law requiring data transfer to Chinese government)
Vendor exit rights: Organizations must be able to export their data and migrate to alternative vendors within 90 days (vs. current 12-24 month lock-in)

Tier 4: Penalties for Excessive Foreign Vendor Dependency

Risk-Based Capital Requirements:

Banks using foreign-controlled AI vendors for >30% of credit decisions face additional 3% tier 1 capital requirement
Critical infrastructure operators face enhanced insurance requirements if foreign vendors control >40% of operational systems
Federal procurement ineligibility for vendors unable to demonstrate 180-day continuity if foreign infrastructure becomes unavailable

LEGAL PRECEDENT:

DOJ 2025 Rule on Sensitive Data: Prohibits transfer of “bulk sensitive personal data” to countries of concern (China, Russia, Iran, North Korea)
EU GDPR: Established data residency requirements and Right to Data Portability
CLOUD Act (2018): Asserts US jurisdiction over data controlled by US companies, even if stored abroad—EDLSA asserts reverse principle
Dodd-Frank Section 165: Authorizes enhanced prudential standards for systemically important institutions

IMPLEMENTATION TIMELINE:

Year 1 (2025): Legislative passage, sector designation, vendor assessment
Year 2 (2026): Data migration plans submitted, transition financing available
Year 3 (2027): Financial sector compliance (Tier 1 critical institutions)
Year 4 (2028): Energy and healthcare sector compliance
Year 5 (2029): Full compliance across all critical sectors, audit framework operational

KEY PROVISIONS:

Section 1: Data Localization Requirements

Scope: Organizations with >$10B revenue or >50M customer records in covered sectors
Storage: All covered data in US data centers with demonstrated 180-day autonomous operation capability
Processing: AI training and inference on US infrastructure or via contractually-verified sovereign cloud
Exceptions: Temporary cross-border data transfers for specific transactions (<72 hours retention) with encryption

Section 2: Algorithmic Accountability

Explainability Standard: “Reasonable person” test—explanation must be understandable to affected individual without technical expertise
Bias Testing: Annual testing for disparate impact on protected classes (40+ point score gaps trigger mandatory remediation)
Performance Disclosure: Public reporting of model accuracy, false positive/negative rates, appeals reversal rates
Liability: Vendors cannot contractually disclaim liability for discriminatory outcomes

Section 3: Vendor Independence Requirements

Diversification: No single vendor >40% of critical decision-making infrastructure
Interoperability: Vendors must support data portability in standard formats
Exit Planning: Must demonstrate ability to switch vendors in <90 days with <10% service degradation
Source Code Escrow: For critical systems, source code deposited with independent third party accessible in emergency

Section 4: National Data Strategy

Federal Chief Data Officer: Cabinet-level position coordinating data strategy across agencies
Public Data Commons: Non-sensitive government data made freely available to train domestic AI models
Data Cooperative Framework: Legal structure allowing individuals/small businesses to pool data for collective bargaining power with tech platforms

QUANTIFIED IMPACT PROJECTIONS:

Economic Sovereignty: Eliminates “kill switch” vulnerability where foreign vendor can disable critical national systems
Data Security: Reduces exposure to foreign intelligence collection (China’s Data Security Law requires companies to provide data to government on demand)
Competitive Market: Vendor switching rights reduce switching costs from $50-200M to $5-15M, enabling competitive procurement
Innovation: Domestic AI industry gains access to more training data (currently 60%+ of US economic data processed abroad)
Job Creation: 100,000+ data center, cybersecurity, and AI ops jobs in domestic infrastructure

BIPARTISAN FRAMING:

Conservative: National security, reducing foreign dependency, protecting American data from Chinese/Russian intelligence
Progressive: Corporate accountability, consumer rights, algorithmic transparency, preventing discrimination
Libertarian: Individual data ownership, competitive markets, reducing tech monopoly power

WHY 2025 PASSAGE IS CRITICAL:

By 2027, data gravity makes migration economically irrational. Once an organization’s entire operational data is in a foreign vendor’s infrastructure, the cost of repatriation exceeds the cost of remaining locked in. Passing EDLSA in 2025 means requirements apply during infrastructure buildout. Passing in 2028 means fighting trillion-dollar sunk costs.

Sources: [1] U.S. Department of Justice, “Preventing Access to Americans’ Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern”, https://www.federalregister.gov/documents/2025/01/03/2024-30859/preventing-access-to-americans-bulk-sensitive-personal-data [2] European Parliament, “General Data Protection Regulation (GDPR)”, https://gdpr-info.eu/ [3] U.S. Congress, “CLOUD Act”, https://www.congress.gov/bill/115th-congress/house-bill/4943