An important addition to the business and supplier development element is the concept of an empowering supplier. As defined in the Official Journal of Government, it is a South African entity compliant with B-BBEE. A QSE must meet one of the criteria listed below, while a generic (large company) must meet three of the criteria: after examining the complaint, the Commission finally established that specific recommendations had been made to risc Technology. The company then urgently turned to the Gauteng Division of the High Court of South Africa (“High Court”) to prohibit the Commission from implementing its findings and recommendations in its report. The High Court dismissed the lawsuit in March 2020. The law and its ordinances aim to create effective ways of dealing with frontal practices. According to Ms. Moipone Kgaboesele, Executive Director of Investigations and Enforcement at the Commission, “The Commission takes any head-on allegations seriously and will not stop prosecuting such cases, because if true, they undermine the government`s policies and efforts to adequately empower black people in this country, and it also deceives taxpayers and the government. because companies that participate in the front line of blacks and distort their B-BBEE status receive benefits they do not deserve under false pretenses. B-BBEE codes are at the heart of the regulations standardizing the implementation of B-BBEE for industry and in particular refer not to front activities, but to circumvention activities by setting requirements for certain transactions that are considered anti-fronting provisions, although they are not explicitly marked as such. The Commission must follow an appropriate procedure to conduct an investigation, as provided for by law. However; it is also allowed to use a wide range of mechanisms to do so. This includes issuing a subpoena; the holding of formal hearings; and take legal action to curb any violation of the law, including any frontal practice.
The amending law criminalises fronting and other false statements about a company`s BEE status. Any person convicted of a criminal offence within the meaning of the BEE Act may be punished by a fine or imprisonment of up to 10 years or, in the case of a legal person, by a fine of up to 10% of its annual turnover. It is important that all screening officers, agents and state officials understand that the B-BBEE Commission does indeed have them as eyes and ears, and if they become aware of a facade or a fronting attempt, they must report it, much like you have to report a car accident in which you are involved. Not reporting something like this is a crime for such people. But, as the B-BBEE Commission points out, that is not all. a conviction is also associated with significant reputational damage. For example, if payments were made to a company based on BEE scores that were illegally received due to fronting, litigation may be initiated to recover those amounts. The 2005 Declaration goes further and lists six frontal risk indicators that could indicate the existence of a frontal practice.
These frontal risk indicators are important because they were used in the development of certain anti-circumvention provisions in the B-BBEE codes and some of these indicators were also included in the wording of the definition of “frontal practice” in the amending legislation. These façade provisions in all government statements and communications need to be examined in order to understand the origin and traditional application, as well as the political and social justification for the current vague and broad formulation of a frontal practice as a criminal offence and the constitutional challenges to which the existing legal formulation may be subject. The Companies Act overlaps with the Act. In this context and insofar as it also provides for criminal liability with exactly the penalties provided for by law. However; it does not sufficiently address frontal practices, so there is a need to further expand the amending act and regulations. The Commission may publish any finding or recommendation it has made in respect of an investigation it has conducted in the manner it considers appropriate. In February 2020, Risc Technology Integration (Pty) Ltd (“Risc Technology”) received a final conclusion from the Commission in a case alleging the existence of B-BBEE status. The Commission received a complaint from the former employee of the company, who stated that she had previously been employed as a receptionist, but that she had left the company after learning that she had been listed as a 33% shareholder without her consent or without her knowledge and without dividends for her participation. The B-BBEE Commission is responsible for investigating fronting practices and is able to: In this series of blogs on fronting, we will look at so-called fronting indicators, offences and sanctions related to frontal infringements and requirements for a criminal conviction of a frontal offence. After an employee or the general public has filed a complaint with the B-BBEE Commission about a possible façade practice, the Commission will investigate the case and may then refer it to the National Prosecution Authority (“NPA”) for prosecution, the South African Police Service (“SAPS”) for criminal investigation, or even the South African Tax Service (“SARS”) for review. Obviously, these are very serious crimes. To be clear, there are other offences in the BEE Act that carry the same penalties.
But this article will be limited to the criminal offense of fronting. As mentioned earlier, the very first drafts of the B-BBEE codes in 2005 included a statement on façade practices. This statement is supported by guidelines published in 2009 under the title “Guidelines on Complex Structures, Transactions and Fronting”, known as the Guidelines on Fronting. The Declaration and Guidelines were the first attempts to regulate frontal practices in South Africa. Indeed, in 2013, a definition of “knowledge” was also added that covers more than actual knowledge about fronting. Those who actually know they are engaged in fronting can be blamed, but so should those who should have known. The latter category includes persons who should have investigated an issue to such an extent that they have real knowledge, and those who should have taken reasonable steps to have real knowledge. Simply put, fronting can be considered a scam. This means that criminal liability can arise if a party is found guilty. Under the law, persons who had real knowledge or who were in a situation where they should have had real knowledge of a façade practice may receive criminal penalties that include a fine and/or up to 10 years` imprisonment.
Companies can expect an administrative penalty of up to 10% of annual turnover. The Commission will be tasked with monitoring and promoting compliance with the EEB Act and receiving and investigating complaints about BEEs, including frontal practices, either on its own initiative or in response to complaints received. These façade risk indicators in the 2005 Declaration were further developed in the published 2009 guidelines and simplified to 11 front-end indicators to serve as an interpretative guide for educating the general public. These frontal risk indicators, which are included in the 2009 guidelines, are used by authorities to inform and educate the public about façade activities and to encourage the public to report deliberate misrepresentation and façade practices, despite the new wording of a frontal practice in the B-BBEE Amendment Act 2013. The B-BBEE Commission was established in 2016 and is responsible for overseeing the implementation and enforcement of the Amending Act throughout South Africa. The B-BBEE Commission does not have the power to impose a sanction or other criminal sanctions, as this is strictly regulated by a court. However, it can determine whether a B-BBEE practice involves a façade and has far-reaching investigative powers. Section 13K of the Amending Act gives the Commission the power to summon any person or to obtain evidence. Third, the question arises as to whether, as with so many other crimes, there are reasons not to be inadequately reported. We have already highlighted the risks of reporting a frontal offence when you are also guilty, but some parties will not report a crime that does not affect them because they do not want to participate in investigations and trials. And of course, many people are simply not aware that fronting is happening.
All this does not mean that fronting is not a real problem. • Appointment of a B-BBEE commission to investigate fronting A major change to the B-BBEE law is the inclusion of the definition of fronting and the fact that it is considered a criminal offence. The amending law includes the following aspects: But just as with bribery and corruption, frontal practices must always involve two or more parties. Simply put, it boils down to a white party (which wants to get BEE credentials) and a black party (which gives those credentials). So the black party in this example has also engaged in a frontal practice.. .