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Dear Corruption Watch
I'd like to know if 'fronting' could be considered a corrupt practice. I have discovered that in several tenders for which my company has bid our competitors have listed BEE partners who have black CEOs but are only superficially benefiting historically disadvantaged individuals. They get the jobs and our legitimate empowerment partners are as disadvantaged as we are by this practice. I don't know if I can report it as corruption, or even criminal conduct or not.
Thank you
Empty-handed
Dear Empty-handed
Fronting is the intentional evasion or attempted evasion of the Black Economic Empowerment Act, 2003. Fronting usually relies on the misrepresentation of facts regarding the extent of a company’s compliance with its black economic empowerment (BEE) obligations.
Fronting can take many forms. For example:
- A company may appoint black people to prestigious positions, but prevent them from participating in the management or core activities of the company.
- Black people may be appointed to management roles, but are paid considerably less and have considerably less power than their white counterparts.
- A company may manipulate facts about the racial diversity of its employees.
- A company may enter into relationships with a BEE-compliant intermediary, and exaggerate the role of the intermediary in conducting the company’s business.
- Black people may be signed up as fictitious shareholders in essentially white-owned and managed companies.
Such practices create the impression that the company has complied with its BEE obligations. This allows the company to take advantage of the incentives that come with being BEE compliant, such as access to government tenders. But if the practices do not result in real transformation of the company or the flow of benefits to black South Africans, the appearance of compliance is illusory.
Fronting therefore undermines the purpose of the State’s BEE policies and prevents benefits from reaching those it is meant to reach. It perpetuates the systemic exclusion of black businesses from the economy.
However, fronting does not fall into the definition of corruption (which is the giving or accepting of a benefit in exchange for a misuse of power). Depending on the details of the conduct you have described, it may constitute fraud (making a misrepresentation that causes prejudice to another person). If so, it would certainly be criminal conduct.
Even if it does not amount to fraud, the State views fronting very seriously. Draft legislation being considered by Parliament will introduce a comprehensive definition of fronting into our law and create a new oversight body to investigate allegations of fronting. It will also make it a criminal offence to knowingly misrepresent the BEE status of an enterprise.
Until that legislation is enacted, the following situation prevails:
A company or individual found to have engaged in fronting may be placed on a database of restricted suppliers by the Treasury, and prohibited from concluding contracts with any organ of state for up to ten years.
The Department of Trade and Industry (DTI) requires public officials and verification agencies to report cases of fronting. If you wish to report a case to the DTI, you can do so on its website: http://bee.thedti.gov.za/WebApp/FrontingIndicators.aspx.
You are entitled to lodge a complaint about any alleged manipulation of the tender system with the organ of state that awarded the contracts.
The Constitutional Court has found that an organ of state that becomes aware of information that gives rise to a reasonable suspicion that preference points might have been fraudulently awarded is required to “act against” the accused party.
This may include an investigation, the cancellation of the contract, and other measures, depending on the circumstances of the case. If the organ of state fails to respond appropriately, you may be entitled to go to court to force it to do so.
Take a stand and report corruption. This article originally appeared in The Sunday Times Business Times on 6 May 2012.
