Hefty fines for fronting

2011-11-24 14:27

Cabinet today announced that it will fine companies up to 10% of their yearly turnover for misreprenting their empowerment credentials to get state tenders.

The practice, commonly known as fronting, often give crooked companies a competitive advantage when vying for contracts.

Nomonde Masetywa, chief director of Broad-Based Black Economic Empowerment (BBBEE) in the Department of Trade and Industry, announced the stiff penalties which await unscrupulous companies that continued to include black people as directors or shareholders – without their knowledge – to win state tenders.

Depending on the level of offences committed by companies, Cabinet was looking at penalising corporations between 2% and 10% of their yearly income, said Masetywa.

The new measures being considered were among proposed amendments to the BBBEE Act which was aimed at improving the rate of transformation and the implementation of BEE policies.

Masetywa said government was also looking to tighten various aspects of BEE policies including the scorecard used to measure black representation in companies and to establish a BEE commission that would exercise oversight to ensure that policies were properly implemented.

Various bodies, including Business Unity South Africa, have in the past called for fronting to be criminalised, blaming the practice for the slow pace of transformation.

The BEE Act was introduced to ensure that South Africa’s economic wealth was transferred from white ownership to black ownership.

The BBBEE Amendment Bill, which proposes adjustments to the scorecard for qualifying small enterprises and for the points awarded for ownership to be broadened, will be published for public comment.

The clampdown on fronting has also been welcomed by various small business organisations who believe that the penalties will go a long way to deter fronting.

Other proposed amendments include that the skills development element of BEE transactions be aligned to the New Skills Strategy and the New Growth Path and that the Employment Equity elements be aligned with
the Employment Equity Act.

Public Enterprises Minister Malusi Gigaba recently told SAFM that BEE fronting was making it difficult for authentic black businesspeople to emerge, while Treasury was blacklisting companies guilty of fronting, non-performance, bribery and maladministration.

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