The upcoming debate on confidentiality and beneficial ownership

Walter Bhengu, project director for legislation and governance at SAICA

Walter Bhengu, project director for legislation and governance at the South African Institute of Chartered Accountants, sheds light on the balancing act between protection of personal information, transparency on beneficial ownership disclosures and general confidentiality.

The Protection of Personal Information Act introduced the concept of data subjects and unlike in the European Union, data subjects can either be natural persons of juristic persons and their information is protected by law. This expanded coverage has helped companies to seek legal relief each time they suffer a data breach. Commercial information for as example has always been a fiercely protected terrain amongst other forms of company information.

The debate on confidentiality is beginning to resurface amongst business in the midst of the drive by the Companies and Intellectual Property Commission (CIPC) to get businesses to submit their beneficial ownership registers. Beneficial ownership registers are a repository of natural persons who own or exercise control over legal entities. They typically include full names, date of birth, identification numbers, residential and postal addresses, e-mail addresses and extent of ownership/effective control of a natural person linked to the company.

Currently, beneficial ownership information can only be shared with law enforcement or relevant competent authorities and not the general public. However, due to a new legislative amendment that will come effective soon, such registers will be available to the general public for a fee.

Only a small subset of small companies will be safe from this amendment based on their public interest score. It is important to note that if the public interest score was revised upwards in line with inflationary trends, more small companies would still have the legal protection to privacy.

In a country bedeviled by incidents of tax profile hijacking and misuse of personal information, this amendment has caused some anxiety amongst business leaders. The balance between transparency and safeguarding of personal information is a delicate balancing act. The European Union, for example, in 2022, was faced with this very dilemma. That matter had to be litigated to find some form of solution.

The European Court of Justice found that this balancing act, while effecting measures to combat money laundering, was a bit extreme to the extent that such beneficial interest registers were open to the general public as opposed to individuals with a legitimate interest as the law had previously stated. This is a sensible approach which resonates with the general South African legal framework under access to information laws wherein you access information to protect an interest or if it is in the public interest. Wholesale access to information has never been something that businesses have had to contend with.

It is acknowledged with the advent of South Africa being greylisted in February 2023 has led to a need for tougher anti-money laundering measures. The main focus has been on building a credible centralised beneficial ownership register for regulators and law enforcement to be able to pick up instances of money laundering that usually occurs through complex commercial structures.

It is also acknowledged that establishments such as media houses and non-governmental organisations play a role in exposing and combating money laundering. On that basis, these two categories have legal and legitimate interests to have access to beneficial registers. However, it is difficult to understand how a member of the public with no interest should have access to information which would ordinarily be protected under privacy laws.

A rethink may be needed by the Department of Trade and Industry to consider the practical implications of this amendment. As such more conversations with business are required before the Companies Amendment Act comes into full effect.