How can I report B-BBEE fronting?

The long answer

You can lay a complaint (form B-BBEE7) with the B-BBEE Commission via email (Bee-complaints@beecomission.gov.za) or via the website (https://www.bbbeecommission.co.za/lodge-a-complaint-process).

Once a complaint is laid with the B-BBEE Commission, they must investigate it. It can take up to 12 months for a complaint to be investigated, and after investigation, the Commission has the power to summon witnesses and evidence and refer complaints to the NPA for criminal prosecution.

As you must know, and as Norton Rose Fulbright explain, an entity must have 26% black ownership in order to be issued with a mining right in terms of the Mineral and Petroleum Resources Development Act, 2002.

“Once an entity has been measured against the BEE scorecard it will achieve a particular score, which score will determine the entity’s BEE Level (being its BEE Contributor Level and BEE Procurement Recognition Level). An entity’s BEE Level will be set out in a BEE certificate issued to it and the BEE certificate will be valid for a year from the date on which a certificate is issued.”

BEE was introduced in 2003, but as SERR Synergy explain, fronting only became illegal in October 2014, with the enactment of the B-BBEE Amendment Act in 2013. Before that, fronting was dealt with as the common law offence of fraud.

In terms of the B-BBEE Amendment Act, knowingly engaging in a “fronting practice” became a statutory offence in terms of section 13O(1)(d). But, says SERR, from the outset, legal professionals have described the formulation of this offence as broad, vague and problematic.

One of the important aims of the B-BBEE Commission, which was established in 2016, was to oversee compliance with the B-BBEE Act. The B-BBEE Commission has the power to investigate fronting practices and can declare a specific practice a fronting practice. In summary, says SERR, businesses that front are pretending to be more compliant than they actually are to score more points to qualify for a government tender or a required licence to operate in specific industries such as the mining sector. “Window-dressing” refers to instances where companies list black people as beneficiaries, directors or shareholders so that they appear to have proper broad-based B-BBEE status: 

• Black employees may be listed as executives or shareholders without the employees’ knowledge or agreement. 

• Or black employees may be called executives but with a significantly lower salary compared to other executives. 

• Or there may be a lack of active participation by alleged black managers in top-level decision-making processes. 

• Or there is a difference in the economic flows from a BEE transaction between what the legal documents say and what actually happens.

Under the B-BBEE Codes of Good Practice, fronting is now recognised as a criminal offence. If found guilty, businesses could face a fine of up to 10% of their annual turnover or a person could be sentenced to up to 10 years in prison. Another penalty could be that businesses would be prohibited from doing business with government for a period of 10 years, under Section 13P. This might be limited to directors, members or shareholders. Or a contract or award could be cancelled on account of false information given, in terms of Section 13A. Or a business could be registered on National Treasury’s tender defaulters register.

Mining, transport, engineering, and construction sectors account for the highest number of fronting cases.

In 2023, 84% of complaints related to fronting practices were found in the following: 

• Creation of 51% black-owned entities and black ownership with no economic benefits/participation; 

• Patterns identified in structures involving Trusts, BBOs (Best Bid Offer) and ESOPS (Employee Stock Ownership Plan); 

• Misrepresentation of B-BBEE credentials.

But as Gareth Ochse of Tusker, a BEE ownership advisor, explains in a June 2023 article, “As with any crime only a court can convict someone of fronting … The B-BBEE Commission would need to decide to refer the matter to the NPA for prosecution.”

“The NPA would then need assess itself whether it agrees with the B-BBEE Commission and decide whether it believes that it can successfully prosecute. Then a judge would need to agree with the NPA and B-BBEE Commission that fronting has taken place (and if there is an appeal, maybe more judges would need to agree too). But the B-BBEE Commission does not have the powers to convict anyone of fronting – that is handled through ‘normal’ legal challenges.”

Ochse goes on to say that the B-BBEE Commission does have significant powers to investigate fronting, and this can open up a can of worms for guilty parties: “The Commission can also refer the matter to SAPS (s13J(4) and (5)) or (and here’s another real risk) SARS (s13J(6)).  So, to put it in another way, the B-BBEE Commission has access to significant information which they can share with parties with serious teeth.”

He also makes the interesting point that the Amendment Act of 2013, added a definition for “knowing” which covers more than actual knowledge of fronting.  

“Those who actually know that they are engaged in fronting are liable to being charged, but so are those who ought to have known. In this latter category are people who ought to have investigated a matter to such an extent that they have actual knowledge and those who should have taken reasonable steps to have actual knowledge.”

To unpack what that means, Ochse makes the following example: “A black person signs up to be a shareholder in a business and gives it BEE points. However, that person is not really a shareholder because he signs contracts that leave the economic rights and votes in that company in effect unchanged. This is a typical sham transaction and the company would have engaged in fronting practice because it would have actual knowledge that nothing has changed (and in all likelihood no demonstrable audit/paper trail of records of participation in meetings, dividends, resolutions, etc).”

“But, just like with bribery and corruption, fronting practices have to always involve two or more parties. Simply put this boils down to a white party (which wants to get BEE credentials) and a black party (who gives those credentials) at least. So, the black party in this example has also engaged in a fronting practice.”

However, says Ochse, he might escape criminal liability if he did not “know” he was fronting: “If he conspires with the white party and knows full well that there is a front, he is as equally guilty as the white party.  But what if he genuinely did not know?  Well, this is where the definition is important, and one would need to consider whether he should have investigated or taken steps to understand.  The test is whether “reasonable” steps were taken to get the knowledge.”

But it is the B-BBEE Commission that must first decide, after investigating, whether to refer the case to the NPA, SAPS or SARS.

Wishing you the best,
Athalie