New Act makes BEE fronting illegal

The proclamation of the B-BBEE Amendment Act, signed by president Zuma, is now enforced as law and aims to put in place mechanisms to deal with non-compliance.
It also aims to align with other B-BBEE legislation and establish a B-BBEE Commission to monitor B-BBEE and set the framework for issuing codes.

“The Act makes fronting illegal. Knowingly misrepresenting your score can result in a prison sentence of up to 10 years, or if the offence relates to a company as the entity, a fine of 10% of the company’s turnover,” said Keith Levenstein, a director of EconoBEE, a BEE advisory firm.
“In addition, the Act makes it an offence for any official government department or public entity that does not report fronting to the appropriate law enforcement authorities namely the NPA who is required to investigate the matter,” he said.

“If any public office representative does not report an alleged offence they will be guilty of an offence themselves, the Act states. But there still appears to be a loophole because the Office of the BEE Commissioner will be required to investigate the matter, but the BEE Commissioner still needs to be appointed,” said Mr Levenstein.

In addition, the Act takes precedent over any Parliamentary Act. The mining industry could be seriously affected. The Act over-rides the Mining Charter where 25.1% blackownership is required and the mining industry has no scorecard as such. But Mr Levenstein argues that the new codes, due to come into effect on 1 May 2015, are open to different interpretations. “The new codes are poorly written and there are areas where misinterpretation is possible,” he said. “As yet, no legal precedent has been set regarding fronting. There have been numerous cases, but the dti has until now never taken action against any person or organisation.”

“Over in the next six to twelve months it will be interesting to see how government responds to the legislation. If precedent is set with a conviction for fronting, it maydramatically change the BEE landscape,” he said.

This update was supplied by Charles Smith on behalf of EconoBEE.