Fronting – an act where a black person or entity is given a stake in a company but does not get the powers associated with it – remains the biggest challenge to the power of the B-BBEE Act to deliver on transformation, says South Africa’s B-BBEE commission.<\/p>\n
Speaking in a webinar on Thursday (22 October), B-BBEE commissioner Zodwa Ntuli said that of the 822 complaints received since 2016, 687 (83%) were related to fronting.<\/p>\n
The mining, transport, construction and engineering sectors account for most of the fronting complaints.<\/p>\n
“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,” she said.<\/p>\n
“Fronting and misrepresentation sabotage this, with these fraudulent schemes and falsification of status.”<\/p>\n
After fronting, falsified BEE certificates (70) and contractual complaints (42) accounted for the most common complaints received by the commission.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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, and incentives from the government.<\/p>\n
“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.<\/p>\n
“Our ability to publish findings in cases is restricted by the Act, and this has significantly affected communication to the public,” said Ntuli.<\/p>\n
Ntuli warned that 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% of their annual turnover in accordance with Section 130 of the B-BBEE Act.<\/p>\n