‘New BEE fronting schemes involve the use of trusts’

Warning: Sandile Zungu
Warning: Sandile Zungu

Johannesburg - Businessman Sandile Zungu has warned that big corporates are using community trusts as a sophisticated new way of fronting in BEE deals.

Zungu serves on the president’s Advisory Council on broad-based BEE (BBBEE), as well as on the Brics Forum, incorporating the five emerging economies of Brazil, Russia, India, China and South Africa.

Speaking at an event hosted by the Gordon Institute of Business Science in Johannesburg this week, Zungu said companies were making use of lawyers and accountants to conceal the actual beneficiaries in transactions that include community trusts.

“Community trusts, and lawyers and accountants, are being used as new methods of fronting wherein beneficiaries are not clearly stated,” he said.

“Fronting has evolved and culprits are now using sophisticated methods, including lawyers and accountants, to conceal their deeds.”

Speaking to City Press at the event, Zungu said: “The abuse of trusts is prevalent in all sectors, not just the mining sector.

“It is just that in the mining sector, the participation of communities and employees is a critical component of the Mining Charter, and therefore the use of trusts is visibly prevalent.”

Zungu said some communities were being used as fronts because the trusts had no identifiable individual beneficiaries and were being abused.

“There is nothing wrong with using a trust per se, but there has to be greater scrutiny on the part of the BBBEE commissioner regarding transactions where community trusts do not appear to derive the intended benefits,” he said.

According to BBBEE commissioner Zodwa Ntuli, the watchdog is investigating 25 complaints of trusts being used as fronts.

The probes started almost two months ago and include some big corporate names.

While the commission has received 19 complaints of trusts being used as fronts, it has initiated an additional six probes of its own into trusts.

Among the companies being investigated are Reliant Electric, Netcare, Nokia, MTN and Net Value, according to Ntuli.

She said penalties that might be imposed by the commission on those found to have contravened regulations included the following: fines of up to 10% of a company’s annual turnover, a maximum prison sentence of 10 years for natural persons, a ban on doing business with government for up to 10 years, the cancellation of contracts and the inclusion of the guilty party on National Treasury’s tender defaulters’ register.

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