Up to ten years in prison and stiff fines for fronting as BEE rules tightened up | News | Small Business Connect

THE Department of Trade and Industry (DTI), in cooperation with the Department of Labour, is currently progressing an amendment to the existing broad-based black economic empowerment(BBBEE) legislation, which could see the criminalization of private-sector BBBEE fronting and the possible imprisonment of executive managers found to be complicit.

The amendment, which was currently before Parliament, proposed a maximum penalty of ten years’ imprisonment, and/ or a fine for individual private sector executives found guilty of the misrepresentation of corporate BEE points, or a penalty of 10% of total yearly turnover for companies found guilty of fronting.

A maximum penalty of one year’s imprisonment, or a fine, would be imposed on those who failed to report fronting.

DTI BEE chief director Nomonde Mesatywa said the amendment was aimed at pursuing organizations guilty of misrepresenting their empowerment status or who knowingly participate in other schemes seeking to defeat the objectives of transformation.

“BEE has been demonised in the private sector, which is currently not toe-ing the line when it comes to transformation.

Once you start to pierce the corporate veil, very few companies that advertise BEE Level 1 accreditation, practice real transformation,” she said.

Her comments came as the Commission for Employment Equity (CEE) released its yearly report, which reflected on the national status of employment equity and the progress made in increasing the representation of designated groups in the workplace.

The report stated that in 10 years the percentage of blacks employed at top management level had increased by a marginal 2.3% – from 10% in 2002 to 12.3% in 2012.

While white representation decreased by 8.9% from 81.5% in 2002 to 72.6% in 2012, this racial group retained a more than two-thirds majority in terms of representation at this level.

The report further showed that a higher percentage of blacks were employed in lower management levels.

Mesatywa said the report substantiated concerns that the private sector had not effected true transformation, which was most evident in the lack of upward migration by black professionals.

“What we need are black shareholders that are not simply silent partners, but who actively participate in the running of companies. If this does not happen, we will never realize broad skills development or the rise of black professionals,” she emphasised.

Labour Minister, Mildred Oliphant, attended the CEE report launch and said: “Certain companies feel as though they are not obliged to comply with BEE legislation, despite it being a legal requirement.

While we would rather not implement penalties, we do not want this country to depreciate into a ‘free-for-all.’

Oliphant further alluded to the possibility that, in future, government might not issue compliance certificates to companies that failed to practice “true” empowerment, which would preclude them from applying for government tenders, or participating in any State sanctioned work.

Oliphant said the department hoped the amendment would be approved by Parliament by the end of the year, after which it would be promptly implemented.

What is fronting?
“FRONTING” is when a business pretends to meet BEE requirements to get tenders or be recognised as a BEE supplier at a specific BEE level. It can take many forms such as placing black employees in positions which make them seem compliant, such as claiming that a cleaner fills a management position.