South African businesses are under pressure to comply with, and actively implement B-BBEE. In the race for business, there may still be enterprises that are relying on the distortion of information in order to achieve these ratings.
What is fronting?
Fronting is a deliberate or attempted evasion of the B-BBEE Act and the Codes of Good Practice. It commonly involves reliance on data, or claims of compliance based on misrepresentations of facts, whether made by the party claiming compliance or by any other person.
Identifying Fronting
To create the impression or illusion of complying with B-BBEE practices, some companies may resort to fronting tactics which can be further identified as:
- Cases in which black people are appointed or introduced to an enterprise on the basis of tokenism and may be discouraged or inhibited from participating in the core activities of an enterprise; and discouraged or inhibited from substantially participating in the stated areas and/or levels of their participation.
- Initiatives implemented where the economic benefits received as a result of the B-BBEE status of an enterprise do not flow to black people in the ratio as specified in the relevant legal documentation.
- Enterprises that have concluded agreements with other enterprises with a view to leveraging the opportunistic intermediary’s favourable B-BBEE status in circumstances where the agreement involves:
- Significant limitations or restrictions upon the identity of the opportunistic intermediary’s suppliers, service providers, clients or customers;
- The maintenance of their business operations in a context reasonably considered improbable having regard to resources; and
- Terms and conditions that are not negotiated at arms-length on a fair and reasonable basis.
Consequences
Economic change, which is the aim of B-BBEE legislation, will not be successful should fronting continue, as inactive shareholders and business leaders are not able to participate meaningfully or contribute towards creating future opportunity. False initiatives are not able to grow the South African economy or broaden our future opportunities.
Therefore more severe consequences have been put into place, intentional fronting by measured entities may constitute fraudulent practices, and Officials and Verification Agencies are encouraged to report fronting cases to the DTI. In terms of the amended B-BBEE Act, entities can be fined on their annual turnover if they are found guilty of any fronting practices and fronting will be treated as a criminal offence.
Need assistance in actively implementing B-BBEE within your organisation? Contact us for a no-obligation consultation on 011 849 1345 or email us at info@hrsgroup.co.za
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DISCLAIMER – All information supplied herein is intended to be used solely as a guide. HRS Group does not accept any responsibility or liability for any outdated information. Readers are encouraged to contact our professionals directly for further advice.
Sources: Department of Trade and Industry www.thedti.gov.za