Yes, Fronting is a Criminal Offence!
A recent ruling by the B-BBEE commissioner has brought into sharp focus the misunderstanding with regards to the legitimate beneficiaries of B-BBEE.
For B-BBEE purposes, the definition of black is very specific and in terms of the Broad-Based Black Economic Empowerment Act (B-BBEE Act) the definition of “black people” is given as follows:
“Black people is a generic term which means Africans, Coloureds and Indians–
- Who are citizens of the Republic of South Africa by birth or descent; or
- Who became citizens of the Republic of South Africa by naturalization-
- Before 27 April 1994; or
- On or after 27 April 1994 and who would have been entitled to acquire citizenship by naturalization prior to that date.”
In the Vicky Adey consulting case, the facts were as follows:
Vicky Adey Consulting CC claimed to be 100% black owned however, the alleged black ownership actually included a Nigerian national (40%), who does not qualify to benefit under the B-BBEE Act, if one considers the definition of black people in section 1 of the B-BBEE Act, as mentioned above.
The B-BBEE Act specifically defines black people to exclude any non-black South African citizens, foreign nationals and those black people that acquired citizenship by naturalisation after 27 April 1994. Hence it is critical to track the background of an entity’s owner(s) in order to determine compliance with and status within the B-BBEE Act.
Further, based on the information, it appears that Vicky Adey Consulting CC may have accessed opportunities within the government on the basis of the misunderstanding and this company is now bound by the consequences of that ruling.
The B-BBEE commission is clear
Including foreign nationals in ownership as black violates the B-BBEE Act, is contrary to the objectives of the B-BBEE Act and amounts to misrepresentation which is a form of fronting in terms of the B-BBEE Act.
Another instance where the legitimate beneficiaries of B-BBEE may be confused is when two foreign nationals – who both have permanent residence – are married and have a child in South Africa. In terms of the above definition, the child is not a citizen of South Africa and would thus not be a beneficiary of B-BBEE.
Is fronting a criminal offence? Yes! 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 up to 10 years in prison.
Want more information about ownership and what this means for your B-BBEE Scorecard? Contact EconoBEE now to help guide you with cost effective strategies to maximise your scorecard and ensure your compliance to the objectives of the B-BBEE Act.