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Fronting still a problem, says BEE regulator

10 OCTOBER 2017 - 05:44 / LINDA ENSOR

B-BBEE commissioner to issue 50 findings against companies

The Broad-Based Black Economic Empowerment (B-BBEE) commission plans to issue about 50 preliminary and final findings against companies for contraventions of the B-BBEE act, according to commissioner Zodwa Ntuli.

Companies will have opportunities to comment on findings before they are made final. The commission began investigating alleged noncompliance by 17 companies, including Nokia, MTN and Netcare, and verification agencies in August. More investigations are under way.

Approachable: B-BBEE commission head Zodwa Ntuli says many companies are led astray by consultants, while others will be prosecuted for fronting. Picture: TREVOR SAMSON

A major form of noncompliance is fronting, or the introduction of spurious schemes that purport to introduce black shareholders (sometimes a domestic worker) without assigning any benefits to them.

This enhances a company’s B-BBEE status and increases its chance of winning contracts. "Fronting is prevalent and some companies have already been issued with findings and more are following," Ntuli said.

"We will prosecute those that front, but will assist those willing to make redress for the mess they have caused and commit to compliance going forward."

In some cases, companies approached the commission to reach a settlement before findings on fronting were made, agreeing to pay black shareholders their due dating back to when they were appointed.

One black shareholder was paid about R22m. In another case, three black shareholders were paid R63m.

No prosecutions for fronting have taken place, but the commission has reached agreement with the National Prosecuting Authority on how such referrals will happen.

Ntuli said companies would be given an opportunity to correct the situation before a prosecution was initiated. An administrative penalty paid into the National Revenue Fund could be imposed as an alternative to referral for prosecution.

She said the commission was concerned about "the over-reliance on consultants by companies, as well as verifiers who cut corners. We are acting against them as well."

Consultants often wrongly advised companies to use trusts as vehicles for black ownership. This is particularly prevalent in the mining industry.

"Most companies say they were advised and thought they were doing things the right way. But … consultants have provided wrong advice and the verifier has confirmed that this is okay.

"When you look at who advised them there is a pattern of people who are advising on certain structures.

"When we investigate a company, we also look at who the verifier and consultants were.

"From 2003 until the commission started, there was no one to say that this was not the right thing."

The commission also advises company boards and directors on proposed B-BBEE structures. Since inception, the commission has received 780 requests for clarification and about 100 requests for advisory opinions.

Under the act, every B-BBEE ownership transaction with a value of R25m or more must be submitted to the commission.



LINK - https://www.businesslive.co.za/bd/national/2017-10-10-fronting-still-a-problem-says-bee-regulator/

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