DTI to fight BEE fakers

By Drum Digital
30 March 2016

Deputy Minister of Trade and Industry Mzwandile Masina says one of the factors contributing to the slow pace of economic transformation in South Africa is “fronting”, where businesses pretend to be BEE compliant but don’t actually benefit black people.

By Ayanda Sitole

He says his department’s Black Industrialist Programme aims to address this “scourge”.

“It is sad that fronting occurs in all areas of Broad-Based Black Economic Empowerment (BBBEE) , and takes forms that have become even more sophisticated and look legitimate,” he says.

“For instance, we see trends in B-BBEE equity deals structures with no economic value flowing to black people, but companies continuing to benefit from government contracts.”

According to Masina, companies are creating schemes which identify black people as beneficiaries, when at times these people don’t even know they are beneficiaries.

“The use of trusts with the executives of the companies that created such trusts being trustees, and influencing all activities of the trust, has become prevalent as well. Employees are at times being made shareholders merely on paper to get higher BBBEE rating,” he adds

Masina says the BBBEE Commission has now been established to deal with practices such as fronting, and to monitor B-BBEE implementation to ensure it achieves its goals.

Acting BBBEE Commissioner Zodwa Ntuli says the commission will help ensure that BEE will no longer only be for a few people in business, but a reality for everyone who is economically active.

She says an awareness campaign is planned that will drive the commission’s message forward.

The department describes fronting as a deliberate circumvention or attempted circumvention of the BBBEE Act and the Codes. 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.

Verification agencies or procurement officers may come across fronting indicators through their interactions with measured entities.

One of the forms of fronting is called window-dressing, in which black people are appointed or introduced to an enterprise on the basis of tokenism, but may be discouraged or inhibited from substantially participating in its core activities, or according to the stated areas or levels of their participation.

Another example fronting is known as Benefit Diversion. This includes initiatives where the economic benefits received as a result of an enterprise’s BBBEE status, such as tenders, don’t flow to black people according to the ratio specified in the relevant legal documentation.

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