dti retracts clarification – or does it? Latest developments

 

On 5th May the dti issued a strange Notice of Clarification. It covered which scorecard to use, EMEs, sector codes and then threw in a curveball: All broad-based and employee ownership schemes would only earn 3 points.

It was strange because in terms of section 14 of the B-BBEE Amendment Act, the minister is entitled to issue clarifications. He cannot issue or modify the codes and this statement was a modification of the actual codes, not a mere clarification. The notice should have been issued in terms of section 9 (5),given the public at least 60 days to comment, and then gazetted in terms of section 9(1) of the act. The actual notice states “…in terms of sections 9(1) and 14 (2) of the Broad-Based Black Economic Empowerment Act, 2013 (Act No. 46 of 2013)…” The minister was not entitled to use section ((1) without issuing a draft first.

It’s almost as if the dti wanted to sneak in a new clause without anyone picking it up. Also interesting is the notice was not signed by Dr Rob Davies. Due to his absence at the time an acting minister was appointed, being Ms Lindiwe Zulu, the minister for Small Business Development. It makes one wonder if the dti staff got her to sign this faulty document because she was only an acting minister. Hopefully the actual minister would have picked up the legal issues with this document?

It is of course not unusual for the minister to issue retractions or changes to a previous gazette. It has happened many times previously, often because we picked up problems and asked the dti to re-issue. Recently we had concerns that the draft QSE codes only gave the public 37 days to comment, rather than “at least 60 days” as required by the act. The minister did indeed change his notice to allow the required 60 days public commentary period.

In the case of the broad-based schemes the minister had to retract his statement, and this was done by 15th May. So the fuss is all over. Not quite! The issues with ownership not being ownership remain – and they often manifest themselves in broad-based and employee ownership schemes. This was the reason for the dti issuing the faulty notice. Government wants to stop schemes that currently award points that have little or no ownership. We have been complaining about this for a long time. Sham/scam schemes abound. A person who is given shares and who can never sell those shares has not been given anything. If he receives some dividends but still cannot sell his shares is simply on a profit sharing basis – a bonus and does not participate in anything remotely related to “ownership”. The codes do not permit this, but for some reason the verification industry, advised by others seem to have no problem in recognising this as ownership and awarding points. It’s so easy for the dti to stop this practice: Issue a genuine clarification to the industry requiring a bit more diligence in the verification process. If an agency or auditor persists with awarding unearned points, the B-BBEE Amendment Act allows for serious penalties for fronting – which is what this is. Strangely until now the dti gave no indication that they were concerned about these schemes.

We did not need the embarrassment of the minister issuing a heavy-handed and misguided notice. This could have and should have been solved five years ago. I was asked by Steven Grootes on 702 why I thought this happened. My answer was the dti did not think it through properly. Perhaps the minister received a complaint from the Presidency around their differing interpretations of “ownership”. The minister then sent his complaint to the DG, who sent to the empowerment division and ultimately to the BEE unit, via a process almost like a broken telephone. The BEE unit, without checking what the real problem was, either because they do not understand, or because the instruction came down from high up, tried to sneak this clause into another clarification.

At the same time, because of the broad-based and employee ownership schemes problem, the press has not picked up on the bad faith displayed by the dti in issuing the rest of the clarification, or another issue in the clarification that needs a retraction and new clarification. We live in interesting times.

 

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