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To disclose or not to disclose?: The significance of data breach disclosure in Aotearoa

By Mitchell Hageman, Thu 9 Dec 2021

A data breach can be any company's worst nightmare. Not only can it cause catastrophic damage to systems and workflows, but it can also often be extraordinarily damaging and costly. 

In most cases this will be due to the unfortunate compromisation of trust that will inevitably occur, leading to frayed customer relationships and possible brand hesitancy.

Adding to this, not only does it negatively impact the integrity of a company, but it also puts employers in a difficult position as to whether or not they should 'go public' with the breach before the news breaks. 

In 2020, NZ underwent a significant privacy law change. According to the data protection overview, it now requires companies to "report privacy breaches where it is reasonable to believe that such a breach poses a risk of serious harm to an affected individual, or is likely to do so."

However, although on the surface this seems morally and ethically like a solid piece of legislation, there are a number of notable exemptions and exceptions. Most of these 'grey areas' come within either the statutes themselves or the interpretations of them by law. They are predominantly to do with customer engagement and ethical policy.

To put it simply, according to the current law, there are three basic steps that a company has to follow in order to determine whether a data breach must be disclosed to the Privacy Commissioner. 

  • Does the breach incident involve 'personal information'?
  • Has the harm already occurred OR is the risk 'likely"?
  • Is the harm or potential harm 'serious'?

Of these three key steps, it is important to note that if the answer to step one is determined to be no, then companies have absolutely no legal obligation to disclose the breach. However, it is recommended that they send out information on a breach to their customers as a courtesy.

So how can businesses be prepared to tackle this issue head on should it arise? How should they navigate the legal and ethical obligations?

Charlie Macdonald is an independent consultant working with a number of IT businesses and has a wealth of knowledge in cybersecurity and data breach management. Having worked across several industries and seen various scenarios, he believes that in the event of a data breach, the best thing for a company to do is to be as open and transparent with its customers as possible.

"You've got to be incredibly transparent. Recognise that if you didn't know, say that you didn't know, and this is what you’re going to do about it. Then you start the breadcrumb tracing to go find out what happened.

"If your first realisation of a breach is either from a customer or from a public source, then that's not good."

He says companies should always be trying to stay one step ahead, having seen an increase in complex cyber-attacks and ways of accessing sensitive data by cybercriminals.

"We spend a million on cybersecurity, they're spending a billion. Most of the attacks you're getting are not human based."

Human error is also a prevalent cause for concern, and Macdonald says this is another thing companies need to be upfront about.

"At the top level, everyone has to sign up with a strong sense of personal responsibility in the event there is a data breach, and the reality is you're as strong as your weakest link."

Macdonald also believes that along with legal implications that will possibly occur further down the line, there's also the issue of reputation, and companies need to be aware of this.

"You've got to make sure that you and your customers are being looked after during this process."

An interesting case study on this was the British Airways data breach in 2018 that affected around 420,000 people. Although the new GDPR laws in Europe played a significant role in dictating the aftermath, it was an interesting case study in terms of breach disclosure. 

The company disclosed the breach to the public in September of 2018 within a day, less than the 72-hour timeframe allowed by GDPR. To add to this, the company was highly efficient in disclosing breach information to the public. While the breach resulted in a momentary lack of trust in the company, it is now clear that their honesty and commitment somewhat paid off.

The company didn't incur any significant long term brand ramifications, except for a massive fine, a momentary lack in sales and an enhanced awareness of cybersecurity. In short, people still fly British Airways without fear that their data is going to be compromised. In 2019, a year after the breach, the airline still carried up to 145,000 customers every day and 45 million customers in the year.

"Share with your customers what you're doing and they'll come on the journey with you and help respond. Their actions might even reduce the impact. I think the worst thing to do is to hush it up, which is also counter to most of the legislation" says Macdonald.

Looking overall at the state of the world, there aren't many privacy statutes that don't somewhat imply that businesses should always do what's best for their customers even without serious legal ramifications. Some, however, are heavy on the legal statutes.

In 2002, The US State Government in California amended one of the stronger legal breach disclosure acts. This act requires a business to "notify any California resident whose unencrypted personal information, as defined, was acquired, or reasonably believed to have been acquired, by an unauthorised person." If companies do not adhere to this, not only will they face the court of law but risk a myriad of civil suits and complications that will turn out to be extremely costly.

Australia has similar laws to NZ, falling under their own 1988 Privacy Act with an update in 2017 focusing on legislation called the Notifiable Data Breaches scheme (NDB). This act evokes similar wording to the NZ privacy statute regarding risk factors that warrant a disclosure, but expresses more explicitly the type of data breach that should be disclosed.

The public perception of breach disclosure may also help shape the types of attitudes companies have towards them, and therefore how they react to the current statutes.

Recently in Australia, research found that Australian consumers have mixed priorities when it comes to data breaches, and their personal privacy took precedence over government or commercial interests. With the NZ government holding 52% of Air New Zealand shares for example, it's clear that in NZ there should be strong economic and infrastructural incentives to disclose a data breach should there be a British Airways style attack, in order to prevent devastating consequences to a variety of parties involved.

With data privacy being such a hot topic and the consequences becoming more severe, is it time New Zealand had a new set of regulations for mandatory breach disclosure? 

There are many reporting tools available through the likes of CERT NZ and the Privacy Commissioner, however much of the onus in New Zealand when it comes to data breaches falls as the responsibility of individuals and businesses. 

Yes, companies must inform the Privacy Commissioner and face the music when things go wrong but is this a strong enough driver for security? One could say the GDPR would help shift urgency onto businesses, but massive penalties only apply if EU standards are breached. California's statute comes down with the full force of the law and has the potential to drag a company's name through the mud, but at a substantial cost.

If we look at the overarching theme of data breaches, it's clear that one basic principle applies. The age-old saying of "honesty is the best policy" seems to be the most surefire way to prevent long term damage to a business or enterprise.

Public Interest Journalism funded through NZ On Air.

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