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South Africa still battles with complaints of fronting

South Africa still battles with complaints of fronting

According to the Broad-Based Black Economic Empowerment (B-BBEE) Commission, fronting remains a big problem in the country. The majority of cases reported to the B-BBEE Commission involves fronting. The B-BBEE Commission reported that out of 22 out of 33 complaints received during the first half of 2016, came down to fronting.

Fronting in South African businesses

Entities desperate for a B-BBEE certificate often resort to dishonest measures in obtaining one. These dishonest measures include practices or initiatives where the B-BBEE Act and the B-BBEE Amended Codes of Good Practice are circumvented or contravened. The most common practice relate to entities claiming that an ownership for a black person like a secretary, gardener, driver, etc. In most of these cases the black person is also not aware of all their rights as well as responsibilities. These persons are usually also made directors/shareholders of the entity in order to qualify for fraudulent contracts.

What is fronting?

Fronting commonly involves reliance on data or claims of compliance based on misrepresentations of facts, whether made by the party claiming compliance or by any other person. Verifications agencies, procurement officers or relevant decision-makers may come across fronting indicators through interactions with the measured entity. Entities must also always keep in mind that fronting is not just applicable to the Ownership Element, but on all elements as per the B-BBEE Scorecard.

Indicators of fronting

Fronting indicators include, but are not limited to, the following:

  1. Black people identified in the enterprise as shareholders, executive management or management who are not aware of their role, or their roles differ significantly from those of their non-black peers, and being paid significantly lower than the market norm.
  2. The enterprise displays evidence of circumvention or attempted circumvention.
  3. The enterprise buys goods or services at a significantly different rate than the market from a related person or shareholder.
  4. The enterprise shares all premises and infrastructure with a related person, or with a shareholder with no B-BBEE status or a third party operating in the same industry where the cost of such premises and infrastructure is disproportionate to market-related costs.

Punishment for fronting

Fronting is recognised as a criminal offence. Being found guilty of fronting, an entity may face a fine of up to 10% of their annual turnover or up to 10 years imprisonment.

 

ABOUT THE AUTHOR

Dominique van Deventer obtained her LLB degree form the University of the Free State. She has been with SEESA BEE as legal advisor since 2015.

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