New law to tackle BEE ‘fronting’

4 April 2012

The recently gazetted Broad Based Black Economic Empowerment (BBBEE) Amendment Bill will put in place strict measures to tackle “fronting” by companies, says Trade and Industry Minister Rob Davies.

“What we are doing is defining it much more closely in the Bill so that there is a specific statutory offence of fronting,” Davies told reporters in Pretoria on Tuesday.

Fronting is when companies pretend to be compliant with the Act by placing black peoples in positions that would make them seem as if they either owned the company, or were at a level to make decisions in the company.

“Now that would be fraud, because you are trying to do that because you want to get a regulatory benefit, or present yourself as something that you are not, and that is fraud.”

Davies was speaking after a presidential BBBEE advisory meeting which reviewed the progress of the Act and the codes of good practice.

He said a commissioner would be assigned to solely focus on fronting. The commissioner would receive and investigate cases of fronting, correct the situation and, in extreme cases, he would have the authority to prosecute those involved.

“The problem is we haven’t got provisions in place to catch fronting … ordinary law enforcement officers don’t have the capacity to go and investigate transactions of that nature to see where fronting is taking place.”

Currently, those found guilty of the practice can be charged with fraud and face imprisonment.

“So we are introducing a BEE commissioner who will be charged with looking into the matter,” Davies said.

Davies said the objective was to provide ways to measure the degree to which an individual was involved in empowerment.

Council sub-committee chairman Sandile Zungu said they were focusing on fronting because it infringed on human dignity.

“If we are to build a society based on justice then fronting has no place in our society.”

Zungu said the practice had reached the stage of “aggressive fronting”.

The minister said the amendments to the Bill would ensure that black economic empowerment contributed to the creation of real entrepreneurs in South Africa.

“It opens up new opportunities for black business people who are active players in the economy, and are not passive shareholders in somebody else’s business.”