What is BEE?
Black Economic Empowerment is a government policy which was enacted in order to bridge the gap which existed between South Africans as a result of apartheid, it aims to empower economic participation of black people, women and people with disabilities.
It encourages businesses to integrate black people in the workplace, upskill and mentor, support black businesses. For this exercise businesses are awarded points which they can claim on their BBBEE certificate. This certificate is used in compliance with the government spend regulations. Businesses with a good level BBBEE rating, stand a better chance of being awarded government contracts.
What is fronting?
A “fronting practice” is defined in the Amendment Act[1] as “a transaction, arrangement or other act or conduct that directly or indirectly undermines the achievement of the objectives of the Act or the implementation of any of the provisions of this Act.”
The definition provides a list of fronting practices which include, but are not limited to, when “black persons, who are appointed to an enterprise, are discouraged or inhibited from substantially participating in the core activities of that enterprise” and “the conclusion of a legal relationship with a black person for the purpose of that enterprise achieving a certain level of B-BBEE compliance, without granting that black person the economic benefits that would reasonably be expected to be associated with the status or position held by that black person.”
In summary, businesses that front pretend to be more compliant with B-BBEE policies than they actually are. This is a form of window-dressing whereby black employees appear as beneficiaries, directors or shareholders but are in fact none of the mentioned. A practical example would be where a company asserts that a lower-salaried black employee, such as a driver or a cleaner, is a director or holds a senior position in order for the business to appear B-BBEE compliant and secure a tender. Another example would be positioning black employees as executives but with a notably lower salary compared to other executives.
Fronting is a common occurrence in South Africa which hampers economic transformation and leads to companies taking away deserved opportunities from those who actually comply with B-BBEE scorecards and embrace transformative ideals.
The Consequences
Criminal liability may ensue if a party is found guilty of fronting and an individual who knowingly engages in a fronting practice will be liable to a fine and/or imprisonment for a period not exceeding 10 (ten) years.
Companies can face administrative penalties of up to 10% of their annual turnover. A B-BBEE verification professional, who is an individual in charge of rating the status of a company in terms of their B-BBEE compliance, who becomes aware, or attempts to commit, fronting is liable to a fine and/or imprisonment for a period not exceeding 12 (twelve) months, (See Section 130 of the Amendment Act).
Section 13P of the Amendment Act prohibits any person that has been convicted of an offence in terms of the Act from doing business with organs of state for up to 10 (ten) years. Owing to the fact that such contracts are often the main motive for the fronting, this may be the worst form of punishment. Courts are given the discretion to limit this prohibition to only those persons involved in the fronting practice, instead of the whole company concerned, to avoid those individuals from trying to front again, but through another entity, in an attempt to secure government work or tenders.
In addition, the B-BBEE Commission has mentioned how a conviction can come with reputational damage as a company or individual can be sued and taken to court for the recovery of a payment made on the back of fronting. Resultantly, fronting fraud is a serious crime which can hamper your access to government work and lead to fines, imprisonment and reputational damage.
Where to report fronting?
Fronting can be reported to the B-BBEE Commission by the general public. The BBBEE Commission may refer the matter to the criminal Justice System to pursued for a conviction and sentencing but is also powered by Alternative Dispute Resolution to resolve complaints where deems it appropriate.
[1] Broad-based Black Economic Empowerment Act 46 of 2013 (Amendment Act)
