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The issue was recently highlighted by reports that the Canadian government has a policy of not allowing public sector IT projects to use US-based hosting services because of concerns over data protection.
Under the US Patriot Act the FBI and other agencies can demand to see content stored on any computer, even if it being hosted on behalf of another sovereign state.
If your data hosting company gets a National Security Letter then not only do they have to hand over the information, they are forbidden from telling you or anyone else - apart from their lawyer - about it.
The Canadians are rather concerned about this, and rightly so. According to the US-based Electronic Frontier Foundation, a civil liberties group that helped the Internet Archive successfully challenge an NSL, more than 200,000 were issued between 2003 and 2006, and the chances are that Google, Microsoft and Amazon were on the recipient list.
Encrypting data
Even encrypting the data stored in data centres won't always work, as one of the benefits of Amazon's S3 and other services is that they do remote processing too, and the data needs to be decrypted before that can happen.
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more:
http://news.bbc.co.uk/2/hi/technology/7421099.stmA warning not to be ignored -- editorial from a very clear-eyed commentator.