At its core, the objective is to change ownership patterns within the South African economy, with a targeted minimum of 25.1% ownership – although there are specific sectors and industries where this requirement is actually higher.
However, the true participation of black people in the South African economy cannot be increased as long as entities are allowed to engage in fronting practices. The commission stressed that it would clamp down on undesirable practices which affect ownership, but also on practices which could impact the other elements of the BBBEE Scorecard, with associated penalties and implications for non-compliance.
Fronting is defined in the amendment Bill to the Broad-Based Black Economic Empowerment Act as “a transaction, arrangement or other act or conduct that directly or indirectly undermines or frustrates the achievement of the objectives of this Act or the implementation of any of the provisions of this Act, including but not limited to practices in connection with a BBBEE initiative.”
In the context of the ownership element, fronting is in essence the misrepresentation of the contributions of the benefits made by the measured entity to a black individual in prohibiting or limiting their right to exercise control over the resources of the company in which they may own shares and have access to voting rights. This could also be hindrances in allowing them to enjoy their share in the fruits of investments or participation in the company.
In investigating fronting practices, the commission is empowered to:
The commission is of the view that any matter that it has investigated may involve the commission of a criminal offence in terms of the BBBEE Act or any other law, it must refer the matter to the National Prosecuting Authority or the appropriate division of the South African Police Service.
The Amendment Act provides that any person who knowingly engages in a fronting practice commits an offence. The Amendment Act criminalises fronting and other misrepresentations regarding the BBBEE status of an enterprise. Any person convicted of an offence in terms of the BBBEE Act may be liable to a fine or a maximum prison sentence of 10 years, or in the case of a juristic person, a fine of up to 10% of its annual turnover.
Further, any person convicted of an offence in terms of the BBBEE Act may not for a period of 10 years from the date of conviction, contract or transact any business with any organ of state or public entity and will be registered in a register of tender defaulters with the National Treasury.
The Amendment Act therefore not only criminalised fronting, which was not the position previously, but it created an offence for individuals who do not take proactive steps to ensure that fronting is not taking place in any ventures in which he or she may be involved.
