BBBEE fronting could land you a 10 yrs jail term

The B-BBEE Amendment Bill has been passed in parliament. It now goes to the Council of Provinces before the President signs it into law.

As with any new legislation, it must be tested in a court of law, but there are aspects of the bill that we need to make you aware of. The bill provides penalties for fronting: up to 10 years in jail and 10% of a company’s turnover.

Fronting is defined as:
‘fronting practice’ means 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 B-BBEE initiative—
(a) in terms of which black persons who are appointed to an enterprise are discouraged or inhibited from substantially participating in the core activities of that enterprise;
(b) in terms of which the economic benefits received as a result of the broad-based black economic empowerment status of an enterprise do not flow to black people in the ratio specified in the relevant legal documentation;
(c) involving the conclusion of a legal relationship with a black person for the purpose of that enterprise achieving a certain level of broad-based black economic empowerment compliance without granting that black person the economic benefits that would reasonably be expected to be associated with the status or position held by that black person; or
(d) involving the conclusion of an agreement with another enterprise in order to achieve or enhance broad-based black economic empowerment status in circumstances in which—
(i) there are significant limitations, whether implicit or explicit, on the identity of suppliers, service providers, clients or customers;
(ii) the maintenance of business operations is reasonably considered to be improbable, having regard to the resources
available;
(iii) the terms and conditions were not negotiated at arm’s length and on a fair and reasonable basis;

‘knowing’, ‘knowingly’ or ‘knows’, when used with respect to a person, and in relation to a particular matter, means that the person either—
(a) had actual knowledge of that matter; or
(b) was in a position in which the person reasonably ought to have—
(i) had actual knowledge;
(ii) investigated the matter to an extent that would have provided
the person with actual knowledge; or
(iii) taken other measures which, if taken, would reasonably be
expected to have provided the person with actual knowledge of
the matter;’’; 

This follows the general principle that “ignorance of the law is no excuse”. A CEO cannot use as an excuse that his consultant, PA, HR expert, verification agency did the work and he does not understand the issues involved. If a BEE certificate comes out of a company, the bill recognises that this is an important document that the CEO “ought” to have seen and been aware of. The recent situation where the financial director of a JSE listed company issued a falsified BEE certificate, and stated that he was too busy to check it, and did not even realise that the company had no certificate, could in future result in up to 10 years in jail.

The only solution is to be better briefed on BEE principles – to understand what the certificate means. We always like to visit clients once their certificate has been issued to explain what the certificate means so they cannot make a mistake -even an innocent one. If they are in a position where the “ought” to have specific knowledge, courts will probably have no sympathy for them.

News@ujuh.co.za

This piece was written by BBBEE consulting firm EconoBEE.

The firm will be hosting a conference focused on the following topic:

Confusion reigns at the moment. Is the BEE Bill the same as the revised codes that were proposed last year? The simple answer is no.

The BEE bill is effectively a new act. The act’s main objective is to increase the effectiveness of B-BBEE. The revised codes is the actual scorecard that businesses need to follow.

Gain more insight into the B-BBEE Amendment Bill, revised codes to ensure that your business is 100% ready for its next BEE verification. Book now for our full day conference on how best to prepare for verification taking into account all legislation and interpretations.

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September 2013 – CPT – TBA
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