Reona Strydom | Technical Specialist | The BEE Chamber | mail me |
Even with South Africa almost 30 years into its democracy, Broad-Based Black Economic Empowerment (B-BBEE) ‘Fronting Practice’ is still a widespread practice that significantly undermines the creation of a more equal and prosperous South African society.
‘Fronting Practice’ – or fake B-BBEE – remains a significant threat to true, meaningful transformation in South Africa and needs to be rooted out of the country’s business and legal ecosystems if we’re ever to see the kind of society that was envisioned in the constitution.
Not widely recognised as a crime
The official definition of ‘Fronting Practice’ in the B-BBEE Act is:
“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.”
The problem we face is that BEE Fronting Practice is not widely recognised as a crime, but is rather seen as a compliance issue, or in many cases is also seen as a ‘victimless crime’ which it is not.
However, bluntly put it is, a calculated group effort to create an illusion of transformation. It is designed to serve selfish purposes and ultimately undermines the economic emancipation of millions of South Africans.
There are many Fronting Practice risks factors to consider:
- These include generic risk areas for Fronting Practice such as overlapping measurement periods, incorrect Codes on B-BBEE certificates, incorrect legislations applied to B-BBEE Verification Certificates, or failure to use an accredited B-BBEE Rating Agency.
- In terms of business ownership, black shareholding is invalid if the person’s ownership rights are limited or non-existent.
- In terms of management, B-BBEE is fraudulent if a black directorship is falsely or incorrectly claimed, if a black director or manager is appointed but has no day-to-day involvement or voting rights in the business, if management or employee data is manipulated, when employees are classified as disabled when they do not meet the criteria, or when white employees are outsourced to lessen the white headcount.
- On the skills development side, companies commit Fronting Practice when they claim skills spend on training that never took place, when they falsely register people for multiple learnerships, or when training demographics are falsely classified.
- In terms of enterprise development, companies also bend the rules when they claim B-BBEE points for beneficiaries who have been liquidated or closed shop, when they classify loans as grants, when they inaccurately claim early payments to beneficiaries, or when they claim points for programmes that don’t meet B-BBEE enterprise or supplier development criteria.
- Some companies also falsely claim to have created jobs in beneficiary businesses or to have granted graduation certificates to trainees when they have not.
- Fronting Practice can happen in procurement processes if the suppliers misrepresent their true B-BBEE status such as their size (EME, QSE or Generic) or split the business to ensure eligibility as an EME or QSE. Window dressing their Black ownership status or true nature of their business and its operations.
- Companies can also incorrectly record exclusions, third-party procurement, Total Measured Procurement Spend (TMPS) and general supplier B-BBEE credentials.
Economic opportunities
It is also important to note that socio-economic development initiatives must be income-generating and provide beneficiaries with real sustainable access to economic opportunities.
Companies need to be able to prove that their B-BBEE beneficiaries and programmes were real. Should a company be uncertain, there are organisations like ours offering consulting services to support internal teams.