28 Jul What is the BEE Commission?
Due to what it termed ‘rife fronting’, the establishment of a BEE commission was announced in October 2015 by the Minister of Trade and Industry. The commission, which began its operations in April this year, has a mandate to investigate and deal with fronting, fraud, and other BEE transgressions.
The need for a BEE watchdog
The original BEE codes were implemented as far back as 2007 to reduce inequality, promote the growth of the black middle class, and reduce unemployment. However, in addition to a lack of meaningful transformation, there’s the issue of fronting which, according to the DTI, is ‘a deliberate circumvention or attempted circumvention of the B-BBEE Act and the Codes’. Until recently there was no established institution to monitor, oversee, and regulate the empowerment laws, which resulted in:
- Business owners employing black individuals and misrepresenting them as directors, shareholders, or management
- Organizations with BBBEE ratings falsely claiming to have a high percentage of black ownership
- Companies appointing black directors and shareholders and preventing them from having signing powers, access to financial records, or active participation in the company
- Black employees appointed to management roles being paid considerably less than, or not having similar responsibilities, compared to white employees in the same role
- BEE-rated companies who won government tenders sub-contracting the work to non-compliant entities
- The economic benefits received as a result of an entity’s BBBEE Status did not flow to black people, as per relevant legal documentation.
Incidences such as these have slowed the process of transformation, and so there’s a dire need for an independent BEE commission to properly regulate industry.
The commission’s mandate
Along with policing, fronting and fraud, the commission will assess BBBEE transactions and ensure that these contribute towards the long term goals of the National Development Plan. Functioning as a state organ within public administration, but outside the public service, it is headed by a commissioner who is responsible for all functions and administration. As per the Broad-Based Black Empowerment Act, the commission will work with other organs of state such as the Special Investigating Unit (SIU), the South African Revenue Services (SARS), the Independent Regulatory Board of Auditors (IRBA), the National Prosecuting Authority (NPA), and the South African Police Services (SAPS). The commission will also supervise BEE rules and maintain a record of major BEE transactions.
The consequences for business owners
As it’s a criminal act to knowingly engage in BEE fronting practices, business owners found to have engaged in BEE fronting can be prosecuted. Penalties are up to ten years imprisonment, and a hefty fine of ten percent of turnover, or both. Another consequence – the company may be disqualified from doing any business with state organs or public entities for a period of ten years. These penalties may seem harsh, but government is serious about resolving transgressions and preventing them from occurring in the future.
Ensuring your business is on the right BEE path
SAB&T is ready to assist business owners with BEE in line with the revised codes. We’ve been involved with the Draft Codes of Good Practice since its inception and are well versed in sound BEE practices. Contact one of our branches today.