Policing BEE Fronting

21 Sep Policing BEE Fronting

Welcome to our latest blog which discusses the necessity for policing BEE fronting. BEE fronting is the dishonest and deliberate or attempted circumvention of the B-BBEE Act and the Codes. There has thus been a policing commission which is in the process of being established to ensure compliance with the BEE Act, and if necessary, investigate any complaints relating to BEE fronting.

Over the years, there have been cases where some business owners were using previously disadvantaged individuals as a front by misrepresenting them as directors in their company. Amendments to the Broad Based Black Economic Empowerment Act of 2003 made necessary provision for a policing watchdog. This watchdog or BEE commission will focus on and investigate any abuse of BEE rules.

There have been incidences discovered whereby organizations with triple BBBEE ratings and a high percentage of black ownership were found to be false. Black directors and shareholders had no signing powers or access to the company’s financial records. Employees have also been placed in positions with no similar responsibilities and/or rewards to white employees in the same positions.
Business owners that are found to have engaged in BEE fronting can be prosecuted. The penalties for fronting will be up to 10 years imprisonment, a hefty fine or even both. Another consequence would also be the exclusion or disqualification of the company doing any business whatsoever with state organs and/or public entities.

Government and public entities award substantial tenders to businesses based on their BEE rating and it has become imperative to ensure that these tenders are in fact being awarded to organizations with genuine BEE scores and legitimate procurement processes. Business owners can also safeguard themselves by dealing with legitimate verification agents that are well-versed in BEE, sector codes and can assist with accurate point scoring for your BEE contribution.

Policing this practice should hopefully prevent future business activity that undermines the objectives of BBBEE.

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