Minimal penalties keep fronting alive

Fronting remains one of the major challenges facing Broad-Based Black Economic Empowerment (B-BBEE) in South Africa, says Brad Green, executive director of B1SA, a provider of B-BBEE management services and technology solutions. Consulting extensively to both government and business, Green says fronting continues to be a major stumbling block to B-BBEE and its implementation. Best described as a deliberate misrepresentation of a company’s BEE status, fronting has been identified by the Department of Trade and Industry as one of the major issues to overcome with as many as two to three cases being reported every week. The biggest issue though is that there is very little recourse if a company is found fronting. “It is, however, important that companies who are fronting be reported to the Department of Trade and Industry,” says Green. While fronting is not a criminal offence, the intentional misrepresentation by a company may constitute fraudulent practices. At present the DTI keeps a database of all companies found to be engaged in fronting. They may completely disregard and or suspend a measured entity’s B-BBEE scorecard until such time as the entity takes corrective action if found to be fronting, the department says on its website. It is this lack of teeth that allows fronting to continue, say the experts, with some calling for real penalties or even a jail term as punishment. In a recent interview, DTI minister Rob Davies said while the B-BBEE Act did not make any specific provision for the investigation, prosecution and enforcement of fronting, his ministry was investigating appropriate measures to address the challenge posed. A special investigative unit has been called in to probe the complaints being received, he said. Fronting has, however, been called the natural consequence of black economic empowerment. The most obvious way in which it occurs has been dubbed windowdressing where black people are appointed or introduced to an enterprise on the basis of tokenism while they are discouraged or prohibited from really playing a part in the core activities of the business. Benefit diversion is another form of fronting. This is when the economic benefits received by an organisation for having B-BBEE status do not flow back to the black people in the ratio specified by law. A third form of fronting is defined as opportunistic intermediaries by the DTI and includes enterprises that have concluded agreements with other enterprises in order to leverage the opportunistic intermediary’s favourable B-BBEE status. There is no doubt though, says Green, that unless fronting is addressed, the entire B-BBEE process is going to lag. Davies was clearly in agreement when he told Parliament earlier this year that much more energy was needed to combat fronting. “The people who are supposed to benefit are not benefiting from deals. We need to become much more energetic in combating fronting,” he said.