Companies and employers could face criminal prosecution for fronting as black economic empowerment entities if found guilty by a soon to be established watchdog.
BEE law expert at Norton Rose Fulbright Ismail Laher and commercial litigation expert Matthew Clark told Fin24 that amendments to the Broad Based Black Economic Empowerment Act of 2003 makes provision for a watchdog to oversee and carry out investigations into the abuse of BEE rules.
According to Laher there was no process to formally enforce accusations of BEE fronting in a consistent manner and some accusations were based on miscommunication.
The amendments came into effect in January and would see the establishment of a BEE commission to investigate contraventions of the act, Laher said.
With the inclusion of the amendments the Act now states that it is a criminal offence for any person to knowingly engage in a fronting practice.
According to Laher and Clark the penalty for fronting is a fine, up to ten years imprisonment, or both.
“A person convicted of fronting will also be disqualified from contracting or transacting with any organ of state or public entity for a period of ten years,” they said.
The revised codes came into effect on May 1 2015 and the implementation of the Codes was supported by the amended B-BBEE Act 53 of 2003 as amended by the B-BBEE Amendment Act 46 of 2013, which came into effect on October 24 2014.
The definition of ‘fronting practice’ in the BEE Act is broad and includes any transaction, arrangement or other conduct that undermines the achievement of the objectives of the BEE Act.
This definition has not yet been tested by the courts and may be refined over time, said Clark.
According to Laher certain industries have made themselves more vulnerable to BEE fronting like “with government tenders sometimes being open to abuse and opportunism”.
Laher cited incidences where winning bidders sometimes do not do any of the work despite being awarded the bid on the basis of a strong BEE score.
The BEE commission is expected to be established later in August.