Broad-Based Black Economic Empowerment in South Africa has been instituted as a means of promoting previously disadvantaged, yet fully capable, people to actively join the economy. However, as with all things, there are those proverbial wolves in sheep’s clothing who would abuse the system. This abuse has taken the shape of BEE fronting practices.
What do BEE fronting practices entail?
BEE fronting practices are essentially a means for businesses to mask their lack of proper B-BBEE implementation. They do this by putting up a ‘front’, often compared with the concept of window dressing, putting forward the appearance of complying with B-BBEE requirements by appointing black people to high positions within the company while not informing these people or keeping them from benefitting fully from their position.
Some of the most common BEE fronting examples include companies listing low-level employees such as cleaners or gardeners as executives while only paying them low-level salaries. Most of these employees aren’t even aware of their position on paper, thinking that they must be listed for the job they are doing. Another BEE fronting example that is coming up more often now is that of large entities that are using smaller black-owned partners as fronts to attain tenders and contracts not available to them due to their non-compliance. These black-owned businesses are helped to attain the contract and then made to sub-contract the work to the larger entity, paying them the majority of the income from the actual contract and receiving very little themselves.
In this way companies not meeting the necessary B-BBEE requirements are taking advantage of smaller black-owned businesses through BEE fronting practices.
The fight against BEE fronting practices
In order to combat such cases of BEE fronting practices and other BBBEE related complaints, the Broad-Based Black Economic Empowerment Commission was formed. The Commission started operating in June 2016, taking complaints and researching cases in order to begin rooting out BBBEE-related corruption. By the end of September 2016, after only four months, the Commission had reportedly already received roughly 134 complaints, most of which allegedly involved BEE fronting examples.
For those found guilty of taking part in BEE fronting practices, the penalties are necessarily severe. These penalties include a fine of up to 10% of the company’s annual turnover, and individuals involved in such practices may also be fined or even imprisoned for a period of up to 10 years. Also, any businesses found guilty of BEE fronting can also be excluded from doing business with the government and any governmental or state entities, including the cancellation of established contracts.
The best way to protect your company against BEE fronting practices and the consequences thereof is to consult with a professional in business legal compliance, especially one familiar with B-BBEE requirements.