Fronting, where a black person or entity is given a stake but does not get the powers associated with it, remains the biggest challenge to the power of the B-BBEE Act to deliver on economic transformation, the B-BBEE Commission warned on Tuesday, 20 October 2020.
Speaking at the launch of the B-BBEE Commission’s Investigations and Enforcement Webinar Session, the B-BBEE Commission indicated that of the 822 complaints received since 2016, 687 (83,5%) were due to fronting. The mining, transport, construction and engineering sectors account for most of the fronting complaints.
B-BBEE Commissioner Zodwa Ntuli said fronting remained a scourge that needed to be rooted out if South Africa is to achieve its goal of an inclusive economy. “The Commission considers compliance with the B-BBEE Act as critical to achieve the envisaged change in the patterns of ownership through the transfer of productive assets of the South African economy to black people. Fronting and misrepresentation sabotage this with these fraudulent schemes and falsification of status.”
After fronting, falsified B-BBEE Certificates (70) and contractual complaints (42) accounted for the most common complaints received by the B-BBEE Commission. To date some 386 cases had been finalised of which 22 had been referred to the CIPC; and seven had been referred to the National Prosecution Authority and the South African Police Service. The B-BBEE Commission has in seven cases instituted proceedings in court to restrain any breach of the B-BBEE Act or to obtain appropriate remedial relief. Six entities have initiated review processes in the high court against the B-BBEE Commission.
The B-BBEE Commission was created in 2016 following the 2013 amendments to the B-BBEE Act to oversee the implementation of the B-BBEE Act, which includes receiving complaints and acting against fronting practices and other violations of the B-BBEE Act. The B-BBEE Act requires that all organs of state and public entities include B-BBEE requirements in determining qualification criteria for issuing of licences, concessions or other authorisations, sale of assets, incentives and grants, and implementation of preferential procurement.
Given B-BBEE requirements, some non-compliant entities as aided by consultants or advisors, and with the involvement of rent seekers in most instances, devised structures and schemes to circumvent the requirements to access these government opportunities, which amount to fronting practice. This is often done in a sophisticated way and difficult to detect at times.
The schemes range from basic ownership structures with one or two shareholders to complex structures involving thousands of people through multiple corporate vehicles that purport to have black ownership. In some instances, non-compliant entities simply bought B-BBEE certificates with a compliant status from unscrupulous verification agencies, all these practices aimed at accessing contracts, licences, incentives, etc. from government.
Ntuli said: “We want the public to know about these cases of fronting and misrepresentation of B-BBEE status to raise awareness of these practices that are detrimental to transformation and criminal in nature, with a view to identify and prevent them from occurring in our economy. Our ability to publish findings in cases is restricted by the Act, and this has significantly affected communication to the public.”
The investigation report notes that a multitude of trends that constitute a criminal offence continue to undermine the objectives of the B-BBEE Act. These trends include, among others, willing black participants to fronting, non-existent participants in Broad Based Ownership Schemes and trusts, non-adherence to section 10 of the B-BBEE Act by organs of state and public entities, false or fraudulent B-BBEE Certificates and White people, Chinese people and Foreign Nationals claiming black ownership.
The consequences are dire and any person convicted of fronting may be imprisoned for up to 10 years and an entity may be fined up to 10 per cent of their annual turnover in accordance with Section 13O of the B-BBEE Act. The B-BBEE Commission aims to emphasise cancellation of contracts, licences, blacklisting of entities under the PPPFA and delinquency processes for those involved in addition to referral to criminal law enforcement agencies.
The B-BBEE Commission was established in terms of Section 13B of the amended B-BBEE Act No 46 of 2013 effective from 6 June 2016. The Commission’s mandate, amongst others, is to supervise and encourage adherence to the B-BBEE Act in the interest of the public, to promote good governance and accountability by creating an effective and efficient environment for the promotion and implementation of the objectives of broad-based black economic empowerment.